United States

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 20-F

☐ REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934

OR

☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended: June 30, 2020

OR

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

OR

☐ SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES 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) City of Buenos Aires, Argentina

(Address of principal executive offices)

Matías Iván Gaivironsky

Chief Financial and Administrative Officer

Tel +(5411) 4323-7449 – ir@cresud.com.ar

Moreno 877, 24th Floor,

(C1091AAQ) City of 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	TradingSymbols	Name of each exchange on which registered
American Depositary Shares (ADSs), each representing ten shares of Common Stock	CRESY	Nasdaq National Market of the Nasdaq Stock Market
Common Stock, par value ARS 1.00 per share	CRESY	Nasdaq National Market of the Nasdaq Stock Market*

* Not for trading, but only in connection with the registration of American Depositary Shares, pursuant to the requirements of the Securities and Exchange Commission.

Securities registered or to be registered pursuant to Section 12(g) of the Act: None

Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act: None

Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the period covered by the annual report: 501,642,804.

Indicate by check mark if the registrant is a well known seasoned issuer, as defined in Rule 405 of the Securities Act:

☐ Yes ☒ 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.

☒ Yes ☐ No

Note: Checking the box above will not relieve any registrant required to file reports pursuant to Section 13 or 15(a) of the Securities Exchange Act of 1934 from their obligations under those Sections

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

☒ Yes ☐ No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

☒ Yes ☐ No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or an emerging growth company. See definition of “large accelerated filer,” “accelerated filer” and “emerging growth company” in Rule 12b-2 of the Exchange Act.:

Large accelerated filer ☐ Accelerated filer ☒ Non-accelerated filer ☐ Emerging growth company ☐

 If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards† provided pursuant to Section 13(a) of the Exchange Act. ☐

†The term “new or revised financial accounting standard” refers to any update issued by the Financial Accounting Standards Board to its Accounting Standards Codification after April 5, 2012

Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:

U.S. GAAP ☐ International Financial Reporting Standards as issued by the International Accounting Standards Board ☒ 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 ☒ No

(APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PAST FIVE YEARS)

Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 23 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by the court. Yes ☐ No ☐

Please send copies of notices and communications from the Securities and Exchange Commission to:

Carolina Zang	David L.Williams
	Jaime Mercado
Zang Bergel & Viñes Abogados	Simpson Thacher & Bartlett LLP
Florida 537 piso 18º C1005AAK Ciudad Autónoma de Buenos Aires, Argentina.	425 Lexington Avenue New York, NY 10019

TABLE OF CONTENTS

	Page No.
Summary of Risk Factors	i
Disclaimer Regarding Forward-Looking Information	iii
Available information	iii
Presentation of Financial and Certain Other Information	v
Market Data	x
Part I	1
Item 1. Identity of Directors, Senior Management and Advisers	1
Item 2. Offer Statistics and Expected Timetable	1
Item 3. Key Information	1
A. Selected Consolidated Financial Data	1
A.1. Local exchange market and exchange rates	5
B. Capitalization and Indebtedness	6
C. Reasons for the Offer and Use of Proceeds	6
D. Risk Factors	6
Item 4. Information on the Company	66
A. History and Development of the Company	66
B. Business Overview	92
C. Organizational Structure	169
D. Property, Plants and Equipment	169
Item 4A. Unresolved Staff Comments	172
Item 5. Operating and Financial Review and Prospects	172
A. Consolidated Operating Results	172
B. Liquidity and Capital Resources	240
C. Research and Developments, Patents and Licenses	248
D. Trend Information	249
E. Off-Balance Sheet Arrangements	253
F. Tabular Disclosure of Contractual Obligations	253
G. Safe Harbor	253
Item 6. Directors, Senior Management and Employees	253
A. Directors and Senior Management	253
B. Compensation	258
C. Board Practices	260
D. Employees	261
E. Share Ownership	262
Item 7. Major shareholders and related party transactions	264
A. Major Shareholders	264
B. Related Party Transactions	265
C. Interests of Experts and Counsel	269
Item 8. Financial Information	269
A. Audited Consolidated Statements and Other Financial Information	269
B. Significant Changes	280
Item 9. The Offer and Listing	280
A. Offer and Listing Details	280
B. Plan of Distribution	281
C. Markets	281
D. Selling Shareholders	283
E. Dilution	283
F. Expenses of the Issue	283
Item 10. Additional Information	283
A. Share Capital	283
B. Memorandum and Articles of Association	283
C. Material Contracts	291
D. EXCHANGE CONTROLS	291
E. Money Laundering	293
F. Taxation	295
G. Dividends and Paying Agents	302
H. Statement by Experts	302
I. Documents on Display	303
J. Subsidiary Information	303
Item 11. Quantitative and Qualitative Disclosures about Market Risk	303
Item 12. Description of Securities Other than Equity Securities	303
Part II	305
Item 13. Defaults, Dividend Arrearages and Delinquencies	305
Item 14. Material Modifications to the Rights of Security Holders and Use of Proceeds	305
Item 15. Controls and Procedures	305
A. Disclosure Controls and Procedures	305
B. Management’s Annual Report on Internal Control Over Financial Reporting	305
C. Attestation Report of the Registered Public Accounting Firm	306
D. Changes in Internal Control Over Financial Reporting	306
Item 16. Reserved	306
Item 16A. Audit Committee Financial Expert	306
Item 16B. Code of Ethics	306
Item 16C. Principal Accountant Fees and Services	306
Item 16D. Exemption from the Listing Standards for Audit Committees	307
Item 16E. Purchases of Equity Securities by the Issuer and Affiliated Purchasers	307
Item 16F. Change in Registrant’s Certifying Accountant	308
Item 16G. Corporate Governance	308
Item 16H. Mine Safety Disclosures	310
Part III	311
Item 17. Financial Statements	311
Item 18. Financial Statements	311
Item 19. Exhibits	311

SUMMARY OF RISK FACTORS

An investment in our American Depositary Shares (“ADSs”) and common shares is subject to a number of risks, including risks relating to Argentina, Brazil, other countries where we operate, our agricultural business, IRSA’s business in Argentina, our investment in Banco Hipotecario, our business in the United States, our Operations Center in Israel and our ADSs and common shares. The following list summarizes some, but not all, of these risks. Please read the information in the section entitled “Risk Factors” for a more thorough description of these and other risks.

Risks Relating to Argentina, Brazil and other Countries Where We Operate

●

The ongoing COVID-19 pandemic and government measures to contain the virus are adversely affecting our business and results of operations.

●

Governments in the countries where we operate or intend to operate exercise significant influence over their economies.

●

Continuing high rates of inflation, uncertainty with regard to other economic indicators and a depreciation of the currencies of the countries in which we operate may have an adverse effect on the economy and our business, financial condition and results of operations.

●

Restrictions on transfers of foreign currency and the repatriation of capital from Argentina may impair our ability to pay dividends and distributions and investors may face restrictions on their ability collect capital and interest payments in connection with corporate bonds issued by Argentine companies.

●

The imposition of restrictions on acquisitions of agricultural properties by foreign nationals may materially restrict the development of our business and significant environmental regulation may significantly increase our expenses.

Risks Relating to Our Agricultural Business

●

Fluctuation in market prices for our agriculture products could adversely affect our financial condition and results of operations.

●

Unpredictable weather conditions, pest infestations and diseases may have an adverse impact on our crop yields and cattle production. 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.

●

Worldwide competition in the markets for our products could adversely affect our business and results of operations.

●

Our internal processes and controls might not be sufficient to comply with the extensive environmental regulation and current or future environmental regulations could prevent us from fully developing our land affect its operations and ability to pay its debt as it becomes Our level of debt may adversely affect our operations and our ability to pay our debt as it becomes due.

Risks Relating to IRSA’s Business in Argentina

●

Disease outbreaks or other public health concerns could reduce traffic in IRSA’s shopping malls.

●

IRSA is subject to risks inherent to the operation of shopping malls that may affect its profitability. The loss of tenants or the failure of tenants to comply with the terms of their leases could adversely affect IRSA’s operating revenues and value of our properties.

●

The increasingly competitive real estate sector in Argentina may adversely affect IRSA’s ability to rent or sell office space and other real estate.

●

IRSA’s level of debt may adversely affect its operations and ability to pay its debt as it becomes due.

  i

Risks Relating to IRSA’s Investment in Banco Hipotecario

●

COVID-19 may negatively impact the operations and financial situation of Banco Hipotecario.

●

The short-term structure of Banco Hipotecario’s deposit base could lead to a reduction in liquidity levels and limit the long-term expansion of financial intermediation.

●

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

Risks Relating to IRSA’s Operations Center in Israel

●

IDB Development Corporation Ltd. (“IDBD”) was declared insolvent and is in process of liquidation.

●

Capital contributions to IDBD and  any such capital contributions may be subject to claims by creditors.

Risks Relating to our ADSs and Common Shares

●

Common shares eligible for sale could adversely affect the price of our common shares and ADSs.

●

If we issue additional equity securities in the future, you may suffer dilution, and trading prices for our equity securities may decline.

●

We are subject to certain different corporate disclosure requirements and accounting standards than domestic issuers of listed securities in the United States.

●

Investors may not be able to effect service of process within the U.S., limiting their recovery of any foreign judgment.

●

If we are considered to be a passive foreign investment company for United States federal income tax purposes, U.S. holders of our common shares or ADSs would suffer negative consequences.

●

Holders of the ADS may be unable to exercise voting rights with respect to the common shares underlying their ADSs.

●

Under Argentine law, shareholder rights may be fewer or less well defined than in other jurisdictions and our ability to pay dividends is limited by law and our by-laws.

●

Restrictions on the movement of capital out of Argentina may impair your ability to receive dividends and distributions on, and the proceeds of any sale of, the common shares underlying the ADSs.

●

You might be unable to exercise preemptive or accretion rights with respect to the common shares underlying your ADSs.

  ii

DISCLAIMER REGARDING FORWARD-LOOKING STATEMENTS

This annual report includes forward-looking statements, principally under “Risk Factors,” “Information on the Company” and “Operating and Financial Review and Prospects.” We have based these forward-looking statements largely on our current beliefs, expectations and projections about future events and financial trends affecting our business. Many important factors, in addition to those discussed elsewhere in this annual report, could cause our actual results to differ substantially from those anticipated in our forward-looking statements, including, among other things:

Factors that could cause actual results to differ materially and adversely include but are not limited to:

●

changes in general economic, financial, business, political, legal, social or other conditions in Argentina, Brazil, Latin America or Israel or changes in developed, emerging markets or either;

●

changes in capital markets in general that may affect policies or attitudes toward lending to or investing in Argentina or Argentine companies, including volatility in domestic and international financial markets;

●

inflation and deflation;

●

ongoing economic impacts of the COVID-19 pandemic on the Argentine economy;

●

measures adopted by the Argentina Government in response to the COVID-19 pandemic;

●

impact on our business of the COVID-19 pandemic;

●

economic consequences of the pandemic and the related impact on our buinsess and financial condition;

●

fluctuations in the exchanges rates of the peso and in the prevailing interest rates;

●

increases in financing costs or our inability to obtain additional financing on attractive terms, which may limit our ability to fund existing operations and to finance new activities;

●

current and future government regulation and changes in law or in the interpretation by Argentine courts;

●

price fluctuations in the agricultural and real estate market;

●

political, civil and armed conflicts;

●

adverse legal or regulatory disputes or proceedings;

●

fluctuations and declines in the aggregate principal amount of Argentine public debt outstanding, default of sovereign debt;

●

government intervention in the private sector and in the economy, including through nationalization, expropriation, labor regulation or other actions;

●

restrictions on transfer of foreign currencies and other exchange controls;

●

increased competition in the shopping mall sector, office or other commercial properties and related industries;

●

potential loss of significant tenants at our shopping malls, offices or other commercial properties;

●

our ability to take advantage of opportunities in the real estate market of Argentina or Israel on a timely basis;

●

restrictions on energy supply or fluctuations in prices of utilities in the Argentine market;

●

our ability to meet our debt obligations;

  iii

●

shifts in consumer purchasing habits and trends;

●

technological changes and our potential inability to implement new technologies;

●

deterioration in regional, national or global businesses and economic conditions;

●

changes on the applicable regulations to currency exchange or transfers;

●

incidents of government corruption that adversely impact the development of our real estate projects;

●

fluctuations and declines in the exchange rate of the peso, the U.S. dollar against other currencies; and

●

risks related to our investment in Israel; and

●

the risk factors discussed under “Risk Factors.”

You can identify forward-looking statements because they contain words such as “believes,” “expects,” “may,” “will,” “should,” “seeks,” “intends,” “plans,” “estimates,” “anticipates,” “could,” “target,” “projects,” “contemplates,” “potential,” “continue” or similar expressions. Forward-looking statements include information concerning our possible or assumed future results of operations, business strategies, financing plans, competitive position, industry environment, potential growth opportunities, the effects of future regulation and the effects of competition. Forward-looking statements speak only as of the date they were made, and we undertake no obligation to update publicly or to revise any forward-looking statements after we distribute this annual report because of new information, future events or other factors. In light of the risks and uncertainties described above, the forward-looking events and circumstances discussed in this annual report might not occur and are not guarantees of future performance.

You should not place undue reliance on such statements which speak only as of the date that they were made. These cautionary statements should be considered in connection with any written or oral forward-looking statements that we might issue in the future.

AVAILABLE INFORMATION

We file annual and current reports and other information with the United States Securities and Exchange Commission (“SEC”). You may obtain any report, information or other document we file electronically with the SEC at the SEC’s website (http://www.sec.gov) or at our website (http://www.cresud.com.ar). The information contained in our website does not form part of this annual report.

  iv

PRESENTATION OF FINANCIAL AND CERTAIN OTHER INFORMATION

In this annual report (the “Annual Report”), references to “Cresud,” the “Company,” “we,” “us” and “our” means Cresud Sociedad Anónima Comercial, Inmobiliaria, Financiera y Agropecuaria, and its consolidated subsidiaries, unless the context otherwise requires, or where we make clear that such term refers only to Cresud and not to its subsidiaries.

The terms “Argentine government” and “government” refer to the federal government of Argentina, the terms “Central Bank” ans “BCRA” refer to the Banco Central de la República Argentina (the Argentine Central Bank), the terms “CNV” and “CNV Rules” refer to the Comisión Nacional de Valores (the Argentine National Securities Commission) and the rules issued by the CNV, respectively. In this annual report, when we refer to “peso,” “pesos” or “ARS” we mean Argentine pesos, the legal currency of Argentina; when we refer to “U.S. dollar,” “U.S. dollars” or “USD” we mean United States dollars, the legal currency of the United States; when we refer to “Real,” “Reals,” “Rs.” or “BRL” we mean Brazilian Real, the legal currency Brazil; and when we refer to “shekels” or “NIS” we mean Israeli new shekels, the legal currency of Israel.

References to “ADSs” are to the American Depositary Shares, each representing 10 shares of our common stock, issued pursuant to the deposit agreement, dated as of March 18, 1997 (the “deposit agreement”), between us, The Bank of New York, as depositary (the “ADS Depositary”), and the owners and holders of the ADRs issued from time to time thereunder, and references to “ADRs” are to the American Depositary Receipts, which represent the ADSs.

Financial Statements

We prepare and maintain our financial books and records in pesos and in conformity with International Financial Reporting Standards (“IFRS”), as issued by the International Accounting Standards Board (“IASB”), and the CNV Rules. Our fiscal year begins on July 1 and ends on June 30 of each year.

Our audited consolidated financial statements as of June 30, 2020 and 2019 and for the years ended June 30, 2020, 2019 and 2018, and the notes thereto (our “Audited Consolidated Financial Statements”) are set forth on pages F-1 through F- 113 of this Annual Report.

Our Audited Consolidated Financial Statements have beenapproved by resolution of the Board of Directors’ meeting held on September 25, 2020 and have been audited by Price Waterhouse & Co S.R.L., Argentina, member of PriceWaterhouseCoopers International Limited, an independent registered public accounting firm whose report is included herein.

Functional and Presentation Currency; Adjustment for Inflation

Our functional and presentation currency is the peso, and our Audited Consolidated Financial Statements included in this Annual Report are presented in pesos.

IAS 29, Financial Reporting in Hyperinflationary Economies (“IAS 29”) requires that the financial statements of an entity whose functional currency is one of a hyperinflationary economy be measured in terms of the current unit of measurement at the closing date of the financial statements, regardless of whether they are based on the historical cost method or the current cost method. This requirement also includes the comparative information of the financial statements.

In order to conclude that an economy is “hyperinflationary,” IAS 29 outlines a series of factors, including the existence of an accumulated inflation rate in three years that is approximately or exceeds 100%. As of July 1, 2018, Argentina reported a cumulative three-year inflation rate greater than 100% and therefore financial information published as from that date should be adjusted for inflation in accordance with IAS 29. Therefore, our Audited Consolidated Financial Statements and the financial information included in this Annual Report have been stated in terms of the measuring unit current at the end of the reporting year. For more information, see section “Financial Statements” above and Note 2.1 to our Audited Consolidated Financial Statements.

  v

Effective July 1, 2019, we adopted IFRS 16 “Leases” which establishes the criteria for recognition and valuation of leases for lessees and lessors. The changes incorporated mainly impact the tenant's accounting. IFRS 16 provides that the lessee recognizes an asset for the right of use and a liability at present value with respect to those contracts that meet the definition of lease agreements according to IFRS 16. In accordance with the standard, a lease agreement is one that provides the right to control the use of an identified asset for a specific period. In order for a company to have control over the use of an identified asset: a) it must have the right to obtain substantially all the economic benefits of the identified asset and b) it must have the right to direct the use of the identified asset. The standard allows excluding the short-term contracts (under 12 months) and those in which the underlying asset has low value, such option has been adopted by the Company. Likewise, the Company has opted to recognize as consideration for the right of use, the amount of ARS 16,797 million as lease liabilities. The commitments under operating leases reported in Audited Consolidated Financial Statements as of June 30, 2019, amounted to ARS 18,395 million (such difference mainly corresponds to the effect of the discount from future payments and the excluded short-term contracts).

Additionally, in accordance with the amendment to IAS 28, an entity shall implement the provisions of IFRS 9 to Long-term Investments that are essentially part of the entity's net investment in the associate or in the joint venture according to the definitions of said standard. The provisions of IFRS 9 shall apply to such investments with respect to the participation in the losses of an associate or a joint venture, as well as with respect to the recognition of the impairment of an investment in an associate or joint venture. In addition, when applying IFRS 9 to such long-term investments, the entity will make it prior to the adjustments made to the carrying amount of the investment in accordance with IAS 28. We opted for an accounting policy where the currency translation adjustments arising from these loans are recorded as part of other comprehensive income.

See Note 2.2 to our Audited Consolidated Financial Statements for a more comprehensive discussion of the effects of the adoption of these new standards.

Financial Information of our Subsidiaries in Israel

IDB Development Corporation Ltd. (“IDBD”) and Discount Investment Corporation (“DIC”), our principal subsidiaries in the Operations Center in Israel, report their quarterly and annual results following Israeli regulations, whose filing deadlines fall after the filing deadlines in Argentina. In addition, IDBD and DIC’s fiscal year-ends differ from our fiscal year-end, consequently, we consolidate the results of operations from IDBD and DIC on a three-month lag basis adjusted for the effects of any significant transactions taking place within such period. As such, our audited consolidated statement of incomeand other comprehensive income for the fiscal year ended June 30, 2020 includes the results of IDBD and DIC for the twelve-month period from April 1, 2019 to March 31, 2020, adjusted for the significant transactions that occurred between April 1, 2020 and June 30, 2020.

IDBD and DIC have certain restrictions and financial agreements in relation to their financial debt, including their bonds and loans with banks and financial institutions. Regarding IDBD's financial position, its cash flow and its ability to meet its financial debt commitments, the following should be considered:

 As of June 30, 2020, IDBD had a deficit in shareholders’ equity, ongoing negative cash flows from continuing operating activities and a low credit rating, which circumstance may cast significant doubt about IDBD’s ability to continue operating as a going concern. IDBD’s cash flow required to meet its liabilities, including short-term liabilities is based on the realization of assets which the realization date is not under IDBD’s control. These assets include the current price of Clal’s shares and the impact thereof on swap transaction deposits and the fact that IDBD shall receive, among others, the proceeds from the sale of private investments which are directly owned by IDBD.

As of June 30, 2020, the aggregate principal amount of the (i) IDBD Series 9 Bonds was NIS 901 million (“Series 9”), (ii) IDBD Series 14 Bonds was NIS 889 million collateralized by DIC shares owned directly or indirectly by IDBD representing 70% of the share capital of DIC (“Series 14”), (iii) IDBD Series 15 Bonds was NIS 238 million collateralized by shares of Clal representing 5% of the share capital of Clal (“Series 15”).

 In July 2019 and in June 2020, each of debenture holders (Series 9 and Series 14) and debenture holders (Series 15), respectively, decided to appoint a representative and legal and economic advisor, inter alia, in order to maintain contact with IDBD and / or third parties and to examine proposals that will be presented to the bondholders in connection with the repayment of IDBD's obligations towards the bondholders and to evaluate IDBD’s financial position and the remedies which may be available to the debenture holders.

  vi

In June 2020, general meetings of the holders of IDBD's debentures were convened (all of the series, each series separately), where a resolution on the agenda was not to convene a general meeting on the agenda of which would be the making of the debentures repayable immediately. The meetings of the debenture holders (Series 9 and Series 15), each decided to pass the said resolution; The meeting of the debenture holders (Series 14), decided not to pass the said resolution, and a later stage to instruct the trustee for debenture holders (Series 14) to postpone the date of the said meeting to September 17, 2020;

 In July 2020, Dolphin Netherlands and the controlling interest therein, Mr. Eduardo Elsztain committed vis-à-vis the generality of the debenture holders in IDBD, that subject to defined terms and conditions, during a certain period of time, some transactions will not be executed and/or initiated and/or promoted, and that subject to the provisions of the law, the power of control in corporations that are controlled by the controlling interest in IDBD will not be operated in order to promote any of those actions, unless notification has been delivered in writing to the trustees for debenture holders (Series 9, 14 and 15), at least 14 business days in advance.

On August 31, 2019, IDBD 's Audit Committee and the Board of Directors approved the acceptance of an irrevocable commitment by Dolphin Netherlands B.V. (“Dolphin Netherland”), the controlling interest in IDBD, to make capital injections into IDBD in an overall amount of NIS 210 million, in three equal annual payments on September 2 in each of the years 2019 to 2021, which would be made in consideration for shares in IDBD or as a subordinated loan on similar terms to the subordinated loans that had been provided by the controlling interest.

In August 2020, IDBD received a letter from Dolphin Netherlands stating, inter alia, that given the fact that some of IDBD's bondholders are expected to include in their agenda for the bondholder's meetings, a proposal to make the outstanding balances of their bonds immediately due and payable, in preparation for the additional inflow of NIS 70 million scheduled for September 2, 2020, Dolphin Netherlands would examine its undertaking towards IDBD, taking into account the questions that arise from IDBD’s bondholders conducts and intentions. To the said Dolphin Netherlands' letter was attached a letter from IRSA to Dolphin Netherlands, according to which, among other things, IRSA will consider the validity of its undertaking to Dolphin Netherlands to transfer to it (in accordance with Dolphin Netherlands request) the amounts required for Dolphin Netherlands to meet its commitment to carry out the capital injections into IDBD on September 2, 2020, as aforementioned.

IDBD responded to Dolphin Netherlands’ and IRSA’s letters, noting that, among other things, Dolphin Netherlands' commitment (dated August 29, 2019) towards IDBD is binding and irrevocable, and that there is no basis for not making the capital injections into IDBD, due to other events related to IDBD’s bondholders, which do not fall within the scope of the events listed in the wording of the commitment as expropriating the validity of Dolphin Netherlands' commitment. In addition, it was also mentioned in IDBD’s response letter, that failure to make the payments into IDBD is not acceptable and will leave IDBD with no other choice than to use all its power and rights according to the law to enforce Dolphin Netherlands' commitment as well as IRSA’s undertaking.

Following the above mentioned, on September 13, 2020, IDBD submitted a statement of claim against Dolphin Netherlands and against IRSA, in which it has sought to require them to pay it an amount of NIS 70 million (with the addition of linkage differentials and interest in accordance with the law). In tandem with the submission of the lawsuit, as aforesaid, IDBD submitted an urgent petition for placing temporary attachments (in the presence of one party) on Dolphin Netherlands and IRSA (which was not accepted by the Court in the presence of one party and which has been passed on for the respondents to respond to the petition).

On June 2, 2020, IDBD received a draft proposal from Dolphin IL for IDBD and for the trustees for IDBD’s debentures (Series 9, 14 and 15) for the strengthening of IDBD 's capital structure, by way of an arrangement between Dolphin, IDBD and the debenture holders, based on an economic contribution to IDBD on Dolphin IL's part, together with a full or partial (as the case may be) redemption of the generality of IDBD's debentures; On June 21, 2020, IDBD received an updated proposal in relation to the abovementioned proposal and on June 28, 2020, Dolphin IL approached each of the trustees for the debentures with a request to put said proposal, with slight amendments, on the agenda of meetings of the debenture holders.

On July 6, 2020, the Meeting of debenture holders (Series 9) decided to order the trustee for debenture holders (Series 9) not to accept Dolphin IL's offer; On July 7, 2020, the Meeting of the debenture holders (Series 14) decided to negotiate for a fixed period of one month in connection with Dolphin IL's proposal, and on July 8, 2020, the Meeting of debenture holders (Series 15) made a similar decision.

On September 2, 2020 IDBD received an updated offer from Dolphin IL which was addressed to it and to IDBD’s debenture holders (Series 9, 14 and 15); On September 9, 2020, Dolphin IL updated the commercial terms of its proposal for debenture holders (Series 9), and on September 16, 2020, IDBD received binding offers to debenture holders (Series 14) and debenture holders (Series 15), for the purchase of DIC shares pledged in favor of debenture holders (Series 14) of IDBD, as part of an agreed realization process.

As no agreement has been reached, on September 17, 2020, the Series 9 trustee submitted to the District Court in Tel-Aviv-Jaffa (the "Court") a petition to grant an order for the opening of proceedings for IDBD pursuant to the Insolvency and Economic Rehabilitation Law, 5778 – 2018 and to instruct the appointment of a trustee for IDBD pursuant to Section 43 and to grant the trustee any and all authority over the decision making of IDBD.

  vii

On September 21, 2020, the Series 14 bond holders approved the immediate fully payment of the remaining balances of such serie.

On September 22, 2020, IDBD and Dolphin Netherlands B.V. submitted an initial response to the Petition, arguing that it is in the best interest of IDBD and its creditors to exhaust the negotiations among the controlling shareholder and its creditors during a short period with the aim to maximize the value of its assets, avoid costs and additional negative effects.

In addition, responses by the Series 14 trustee and the Series 15 trustee were filed requesting the enforcement of liens and the appointment of a receiver as well as an urgent hearing, which was scheduled for September 24, 2020.

On September 25, 2020, the Court resolved that IDBD is insolvent and therefore it resolved to grant all three orders requested and accordingly, issued an order for the initiation of proceedings and liquidation of IDBD, and has appointed a liquidator to IDBD and interim receivers over the Pledged DIC and Clal Shares.

Under IFRS 10 “Consolidated Financial Statements” (“IFRS 10”), an investor controls an investee if and only if the investor has all the following: a) power over the investee; b) exposure, or rights, to variable returns from its involvement with the investee; and c) the ability to use its power over the investee to affect the amount of the investor’s returns. Based on the facts and circumstances outlined above, our management believe that, as from September 25, 2020, IRSA lost control over IDBD and DIC (as this term is defined by IFRS 10). Accordingly, our investment in IDBD and DIC will be deconsolidated in our financial statements as of and for the three-month period ended September 30, 2020.

  viii

 As of the date of this Annual Report, we are analyzing together with our local and international advisors the judicial decision, alternatives and course of action. For more information see “IRSA´s Recent Developments - Corporate Information: IDBD”.

Organizational Structure

As of June 30, 2020, the Company had two business lines to manage its global business, which we refer to in this Annual Peport as “Agricultural Business” and “Urban Properties and Investments Business” derived from our subsidiary IRSA, which is in turn subdivided into two operations centers which we refer as the “Operations Center in Argentina” and the “Operations Center in Israel.”

(i) 

See “—Financial Information of our Subsidiaries in Operation Center in Israel.”

 

  ix

Currency Translations

We have translated some of the peso amounts contained in this annual report into U.S. dollars for convenience purposes only. Unless otherwise specified or the context otherwise requires, the rate used to convert peso amounts to U.S. dollars is the seller exchange rate quoted by Banco de la Nación Argentina of ARS 70.4600 per USD 1.00 for information provided as of June 30, 2020. The average seller exchange rate for fiscal year 2020, quoted by Banco de la Nación Argentina was ARS 59.5343. The U.S. dollar-equivalent information presented in this annual report is provided solely for the convenience of the reader and should not be construed as implying that the peso amounts represent, or could have been or could be converted into, U.S. dollars at such rates or at any other rate. The seller exchange rate quoted by Banco de la Nación Argentina was ARS 79.7500 per USD1.00 as of November 13, 2020. See “Local Exchange Market and Exchange Rates” and “Risk Factors—Risks relating to Argentina—Continuing high rates of inflation may have an adverse effect on the economy and our business, financial condition and the results of our operations.”

We have also translated certain NIS amounts into U.S. dollars at the offer exchange rate for June 30, 2020 which was NIS 3.4619 per USD 1.00. We make no representation that the peso, NIS 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. See “Local Exchange Market and Exchange Rates.”

Market Share Data

Information regarding market share in a specified region or area is based on data compiled by us from internal sources and from publications such as Bloomberg, the International Council of Shopping Centers, the Argentine Chamber of Shopping Centers (Cámara Argentina de Shopping Centers), and the INDEC.

  x

Certain Measurements

In Argentina the standard measure of area in the real estate market is the square meter (m2), while in the United States and certain other jurisdictions the standard measure of area is the square foot (sq. ft.). All units of area shown in this annual report (e.g., gross leasable area of buildings (“GLA” or “gross leasable area”), and size of undeveloped land) are expressed in terms of square meters (“sqm” and “m2”). One square meter is equal to approximately 10.8 square feet. One hectare is equal to approximately 10,000 square meters and to approximately 2.47 acres.

In Argentina the standard measure of weight are the tons (“Tons,” “tons” or “Tns”) and kilograms (“kg” or “kgs”), while in the United States and certain other jurisdictions the standard measure of weight are the pound or the bushel. 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 kilogram of live weight cattle is equal to approximately 0.5 to 0.6 kilogram of carcass (meat and bones).

As used herein, GLA in the case of shopping malls refers to the total leasable area of the property, regardless of our ownership interest in such property (excluding common areas and parking and space occupied by supermarkets, hypermarkets, gas stations and co-owners, except where specifically stated).

Rounding Adjustments

Certain numbers and percentages included in this annual report have been subject to rounding adjustments. Accordingly, figures shown for the same category presented in various tables or other sections of this annual report may vary slightly, and figures shown as totals in certain tables may not be the arithmetic aggregation of the figures that precede them.

  xi

PART I

Item 1. Identity of Directors, Senior Management and Advisers

This item is not applicable.

Item 2. Offer Statistics and Expected Timetable

This item is not applicable.

Item 3. Key Information

A. SELECTED CONSOLIDATED FINANCIAL DATA

The following table presents our selected financial data as of June 30, 2020, 2019 and 2018 and for the fiscal years ended June 30, 2020, 2019, 2018 and 2017. The selected consolidated statement of income and other comprehensive income data and the selected consolidated statement of cash flow data for the fiscal years ended June 30, 2020, 2019 and 2018 and the selected consolidated statement of financial position data as of June 30, 2020 and 2019 have been prepared in accordance with IFRS, as issued by the IASB, and CNV Rules, and have been derived from our Audited Consolidated Financial Statements included in this Annual Report.

The summary consolidated statement of income and other comprehensive income and cash flow data for the fiscal year ended June 30, 2017 and the summary consolidated statement of financial position data as of June 30, 2018 have been restated pursuant to IAS 29 to reflect the effect of hyperinflation in Argentina. As a result of such restatement, the selected financial information included in this Annual Report differ from previously reported financial information.

The summary financial data as of June 30, 2017 and 2016 and for the fiscal year ended June 30, 2016 has not been presented as these cannot be provided on a restated basis without unreasonable effort or expense. See “Presentation of Financial and Other Information—Functional and Presentation Currency,” “Risk Factors—Risk Related to Argentina,” “Operating and Financial Review and Prospects—Results of Operations— Effects of Changes in Inflation” and Note 2 to our Audited Consolidated Financial Statements.

You should read the information below in conjunction with our Audited Consolidated Financial Statements, including the notes thereto.

In the following table, we have translated peso amounts into U.S. dollars at the seller exchange rate as of June 30, 2020, quoted by the Banco de la Nación Argentina, which was ARS 70.4600 per USD 1.00. The average of the seller exchange rate for the fiscal year 2020, quoted by Banco de la Nación Argentina was ARS 59.5343. We make no representation that these peso or U.S. dollar amounts actually represent, could have been or could be converted into U.S. dollars at the rates indicated, at any particular rate or at all. See “Local Exchange Market and Exchange Rates” and “Risk Factors—Risks Relating to Argentina—Continuing high rates of inflation may have an adverse effect on the economy and our business, financial condition and the results of our operations.” For more information see “Operating and Financial Review and Prospects—Factors Affecting Comparability of our Results”

1

	For the fiscal year ended June 30,
	2020 (i)(ii)	2020	2019	2018	2017
CONSOLIDATED STATEMENT OF INCOME AND OTHER COMPREHENSIVE INCOME DATA	in millions of	in millions of ARS
	USD	(except per share data)
Revenues	1,721	121,256	110,741	93,266	91,254
Costs	(1,192)	(83,971)	(75,384)	(62,078)	(60,302)
Initial recognition and changes in the fair value of biological assets and agricultural products at the point of harvest	40	2,827	2,305	1,674	253
Changes in the net realizable value of agricultural products after harvest	9	657	(43)	532	(360)
Gross profit	578	40,769	37,619	33,394	30,845
Net gain from fair value adjustment of investment properties	440	30,992	(37,746)	18,971	(5,259)
Gain from disposal of farmlands	12	838	665	1,656	630
General and administrative expenses	(174)	(12,267)	(12,152)	(10,876)	(11,057)
Selling expenses	(232)	(16,348)	(13,976)	(13,489)	(14,089)
Impairment of associates	(35)	(2,470)	-	-	-
Other operating results, net	39	2,77	1,101	3,657	(567)
Management fees	(3)	(211)	-	(1,456)	(619)
Profit / (loss) from operations	625	44,073	(24,489)	31,857	(116)
Share of profit of associates and joint ventures	123	8,662	(7,328)	(3,452)	(1,366)
Profit / (loss) before financial results and income tax	748	52,735	(31,817)	28,405	(1,482)
Finance income	21	1,463	1,775	1,476	1,630
Finance cost	(365)	(25,683)	(22,571)	(26,377)	(20,173)
Other financial results	(265)	(18,667)	(5,981)	(22,168)	13,249
Inflation adjustment	3	177	(457)	(321)	(3,445)
Financial results, Net	(606)	(42,710)	(15,272)	(47,390)	(8,739)
Profit / (loss) before income tax	142	10,025	(47,089)	(18,985)	(10,221)
Income tax	(115)	(8,107)	(780)	9,964	(2,087)
Profit / (loss) for the fiscal year from continuing operations	27	1,918	(47,869)	(9,021)	(12,308)
Profit for the period from discontinued operations	257	18,085	7,140	36,441	17,485
Profit / (loss) for the fiscal year	284	20,003	(40,729)	27,420	5,177
Other comprehensive income / (loss):
Items that may be reclassified subsequently to profit or loss:
Currency translation adjustment	74	5,232	-3,113	6,417	8,093
	-	-	-	-	-
Revaluation surplus	9	614	1,111	316	-
Change in the fair value of hedging instruments net of income taxes	(1)	(102)	19	(40)	412
Items that may not be reclassified subsequently to profit or loss:
Actuarial loss from defined benefit plans	(2)	(137)	(66)	(60)	(26)
Other comprehensive income / (loss) for the year from continuing operations	80	5,607	(2,049)	6,633	8,479
Other comprehensive income / (loss) for the year from discontinued operations	82	5,810	1,245	10,059	(2,692)
Total other comprehensive income for the year	162	11,417	(804)	16,692	5,787
Total comprehensive income / (loss) for the year	446	31,420	(41,533)	44,112	10,964
Total comprehensive income / (loss) from continuing operations	107	7,525	(49,918)	(2,389)	(3,832)
Total comprehensive incomefrom discontinued operations	339	23,895	8,385	46,501	14,796
Total comprehensive income / (loss) for the year	446	31,420	(41,533)	44,112	10,964
Profit / (loss) of the year attributable to:
Equity holders of the parent	56	3,929	(26,796)	6,106	(892)
Non-controlling interest	228	16,074	(13,933)	21,314	6,069
Loss from continuing operations attributable to:
Equity holders of the parent	(34)	(2,368)	(28,334)	(9,492)	(3,096)
Non-controlling interest	61	4,286	(19,535)	471	(9,212)
Total comprehensive income attributable to:
Equity holders of the parent	34	2,421	(27,078)	5,775	1,436
Non-controlling interest	412	28,999	(14,455)	38,337	9,528

2

	Fiscal year ended June 30, 2020 (i)(ii)	Fiscal year ended June 30, 2020	Fiscal year ended June 30, 2019	Fiscal year ended June 30, 2018
Consolidated Statements of Financial Position	in millions of	in millions of ARS
	USD	(except per share data)
ASSETS
Non-current assets
Investment properties	3,267	230,167	335,016	363,675
Property, plant and equipment	851	59,956	54,106	52,073
Trading properties	69	4,856	7,855	14,801
Intangible assets	400	28,192	26,018	27,996
Right-of-use assets	311	21,928	-	-
Biological assets	25	1,759	1,805	2,012
Other assets	-	-	31	417
Investments in associates and joint ventures	1,066	75,128	44,870	58,192
Deferred income tax assets	13	927	772	2,610
Income tax and minimum presumed income tax (“MPIT”) credits	1	63	273	1,006
Restricted assets	27	1,936	4,547	4,842
Trade and other receivables	388	27,326	21,730	20,298
Investment in financial assets	50	3,515	4,129	3,815
Financial assets held for sale	-	-	5,972	17,317
Derivative financial instruments	2	164	153	67
Total non-current assets	6,470	455,917	507,277	569,121
Current assets
Trading properties	33	2,316	523	7,285
Right-of-use assets	-	-	-	-
Biological assets	39	2,773	3,795	2,030
Inventories	129	9,070	6,403	5,250
Restricted assets	88	6,209	6,261	9,446
Income tax and minimum presumed income tax (“MPIT”) credits	4	306	559	888
Groups of assets held for sale	622	43,816	11,498	11,544
Trade and other receivables	620	43,717	38,452	38,270
Investment in financial assets	258	18,192	45,134	56,998
Financial assets held for sale	48	3,377	16,666	9,930
Derivative financial instruments	5	321	162	344
Cash and cash equivalents	1,432	100,926	89,304	85,938
Total current assets	3,278	231,023	218,757	227,923
TOTAL ASSETS	9,748	686,940	726,034	797,044
SHAREHOLDERS’ EQUITY
Share capital	7	499	486	482
Treasury shares	-	3	16	20
Inflation adjustment of share capital and treasury shares	139	9,786	9,786	9,786
Share premium	150	10,592	10,592	10,592
Additional paid-in capital from treasury shares	1	90	91	91
Legal reserve	5	373	373	373
Special reserve	11	770	5,179	5,179
Other reserves	14	1,006	36,427	6,124
Retained earnings	29	2,040	(38,908)	20,589
Equity attributable to equity holders of the parent	356	25,159	24,042	53,236
Non-controlling interest	1,377	96,994	103,159	123,218
TOTAL SHAREHOLDERS’ EQUITY	1,733	122,153	127,201	176,454
LIABILITIES
Non-current liabilities
Borrowings	4,548	320,418	397,414	416,820
Deferred income tax liabilities	702	49,469	57,192	59,963
Trade and other payables	41	2,986	2,830	8,241
Provisions	44	3,091	11,478	7,931
Employee benefits	6	447	189	244
Income tax and minimum presumed income tax ("MPIT") liabilities	-	-	-	-
Derivative financial instruments	216	15,194	-	-
Lease liabilities	1	74	1,470	89
Payroll and social security liabilities	4	247	197	169
Total non-current liabilities	5,562	391,926	470,770	493,457
Current liabilities
Trade and other payables	508	35,823	32,299	40,057
Borrowings	1,396	98,389	80,384	71,336
Provisions	35	2,443	2,477	2,355
Group of liabilities held for sale	336	23,649	8,137	7,210
Payroll and social security liabilities	66	4,685	3,802	4,154
Income tax and MPIT liabilities	12	824	699	1,324
Lease liabilities	80	5,661	-	-
Derivative financial instruments	20	1,387	265	697
Total Current liabilities	2,453	172,861	128,063	127,133
TOTAL LIABILITIES	8,015	564,787	598,833	620,590
TOTAL SHAREHOLDERS’ EQUITY AND LIABILITIES	9,748	686,940	726,034	797,044

3

	For the fiscal year ended June 30,
	2020	2020	2019	2018	2017
Consolidated Statements of Cash Flows	in millions of	in millions of ARS
	USD(i)(ii)	(except per share data)
Net cash generated from operating activities	507	35,734	25,546	24,150	23,649
Net cash generated from / (used in) investing activities	572	40,311	10,552	(31,553)	(6,623)
Net cash used in financing activities	(1,031)	(72,624)	(25,735)	(4,009)	6,066
Net increase / (decrease) in cash and cash equivalents	49	3,421	10,363	(11,412)	23,092
Cash and cash equivalents at beginning of the year	1,267	89,304	85,938	73,012	48,168
Cash and cash equivalents at the end of the year	1,432	100,926	89,304	85,938	73,012

	For the fiscal year ended June 30,
	2020	2020	2019	2018
	USD	in millions of ARS (except per share data)
Basic net income per share (1)	(0.112)	(7.867)	(54.790)	12.290
Diluted net income per share (2)	(0.108)	(7.634)	(54.790)	11.820
Basic net income per ADS (1)(3)	(1.117)	(78.670)	(547.900)	122.900
Diluted net income per ADS (2)(3)	(1.083)	(76.340)	(547.900)	118.200
Capital stock	7	502	502	502
Number of common shares	501,642,804	501,642,804	501,642,804	501,642,804
Weighted – average number of common shares outstanding	493,808,696	493,808,696	489,067,648	496,687,276
Diluted weighted – average number of common shares (5)	513,044,949	513,044,949	508,783,905	516,403,816
Dividends paid	(28)	(1,997)	(2,138)	(4,363)
Dividends per share	(0.06)	(4.04)	(4.37)	(8.78)
Dividends per ADS (3)	(0.57)	(40.44)	(43.72)	(87.84)
Depreciation and amortization	253	17,797	11,405	10,241
Capital expenditure	174	12,28	20,642	22,741
Working Capital	825	58,162	90,694	100,79
Gross margin	0.33	0.33	0.33	0.35
Operating margin	0.36	0.36	(0.22)	0.34
Net margin	0.16	0.16	(0.36)	0.29
Ratio of current assets to current liabilities	1.34	1.34	1.71	1.79
Ratio of shareholders’ equity to total liabilities	0.22	0.22	0.21	0.28
Ratio of non current assets to total assets	0.66	0.66	0.70	0.71
Ratio of “Return on Equity” – ROE	0.16	0.16	(0.27)	N/A.

(i) 

Totals may not sum due to rounding.

(ii) 

Solely for the convenience of the reader we have translated peso amounts into U.S. dollars at the seller exchange rate quoted by Banco de la Nación Argentina as of June 30, 2020, which was ARS 70.4600 per USD 1.00. The average seller exchange rate for the fiscal year 2020, quoted by Banco de la Nación Argentina was ARS 59.6343. The seller exchange rate quoted by Banco de la Nación Argentina was ARS 79.7500 per USD 1.00 as of November 13, 2020. 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. See “Local Exchange Market and Exchange Rates.” Totals may not sum due to rounding.

(1)	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,
(2)	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 2019, there is no diluted effect on this result,
(3)	Determined by multiplying per share amounts by ten (one ADS equals ten common shares),

4

Local Exchange Market and Exchange Rates

Operations Center in Argentina

A.1. Local Exchange Market and Exchange Rates

The Argentine government established a series of exchange control measures that restricted the free disposition of funds and the transfer of funds abroad. In 2011, these measures had significantly curtailed access to the foreign exchange market Mercado Único y Libre de Cambios (“MULC”) by both individuals and private sector entities. This made it necessary, among other things, to obtain prior approval from the Banco Central de la República Argentina (the “Central Bank”) to enter into certain foreign exchange transactions such as payments relating to royalties, services or fees payable to related parties of Argentine companies outside Argentina.With the change of government and political environment, in December 2015, one of the first measures taken by the Argentine government was to lift the main restrictions that limited access to individuals and legal entities to the MULC. Despite this, as of September 1, 2019, the Argentine government and the Central Bank implemented new exchange controls and restrictions that limited access to individuals and legal entities to the MULC. For more information about exchange controls see, “Item 10. Additional Information—D. Exchange Controls”.

 The following table shows the maximum, minimum, average and closing exchange rates for each applicable period to purchases of U.S. dollars.

	Maximum(1)(2)	Minimum(1)(3)	Average(1)(4)	At closing(1)
Fiscal year ended:
June 30, 2018	28.8000	16.7500	19.4388	28.8000
June 30, 2019	45.8700	27.1600	37.8373	42.3630
June 30, 2020	70.3600	41.5000	59.5343	70.3600
Month ended:
July 31, 2020	72.2200	70.4200	71.3795	72.2200
August 31, 2020	74.0800	72.4200	73.1980	74.0800
September 30, 2020	76.0800	74.1500	75.1036	76.0800
October 30, 2020	78.2200	76.1500	77.4843	78.2200
November (through November 13, 2020)	79.6500	78.5900	79.1589	79.6500

Source: Banco de la Nación Argentina

(1) Average between the offer exchange rate and the bid exchange rate according to Banco de la Nación Argentina’s foreign currency exchange rate.

(2) The maximum exchange rate appearing in the table was the highest end-of-month exchange rate in the year or shorter period, as indicated.

(3) The minimum exchange rate appearing in the table was the lowest end-of-month exchange rate in the year or shorter period, as indicated.

(4) Average exchange rates at the end of the month.

Operations Center in Israel

The following table shows the maximum, minimum, average and closing exchange rates for each period applicable to purchases of New Israeli Shekels (NIS).

	Maximum(1)(2)	Minimum(1)(3)	Average(1)(4)	At closing(1)
Fiscal year ended:
June 30, 2018	3.6573	3.3902	3.5275	3.6573
June 30, 2019	3.7767	3.5597	3.6443	3.5700
June 30, 2020	3.8224	3.4166	3.5072	3.4643
Month ended:
July 31, 2020	3.4595	3.4030	3.4425	3.4038
August 31, 2020	3.4160	3.3528	3.3993	3.3528
September 30, 2020	3.4787	3.3617	3.4226	3.4258
October 2020	3.4322	3.3750	3.3948	3.4059
November 2020 (through November 13, 2020)	3.4118	3.3676	3.3835	3.3690

Source: Bloomberg

(1) Average between the offer exchange rate and the bid exchange rate of the New Israeli Shekel against the U.S. dollar.

(2) The maximum exchange rate appearing in the table was the highest end-of-month exchange rate in the year or shorter period, as indicated.

(3) The minimum exchange rate appearing in the table was the lowest end-of-month exchange rate in the year or shorter period, as indicated.

(4) Average exchange rates at the end of the month.

5

B. CAPITALIZATION AND INDEBTEDNESS

This section is not applicable.

C. REASONS FOR THE OFFER AND USE OF PROCEEDS

This section is not applicable.

D. RISK FACTORS

You should carefully consider the risks described below, in addition to the other information contained in this Annual Report, before making an investment decision. We also may face additional risks and uncertainties not currently known to us, or which as of the date of this annual report we might not consider significant, which may adversely affect our business. In general, you take more risk when you invest in securities of issuers in emerging markets, such as Argentina, than when you invest in securities of issuers in the United States, and certain other markets. You should understand that an investment in our common shares and American Depositary Shares (“ADSs”) involves a high degree of risk, including the possibility of loss of your entire investment.

Risks Relating to Argentina

The ongoing COVID-19 pandemic and government measures to contain the virus are adversely affecting our business and results of operations, and, as conditions are evolving rapidly, we cannot accurately predict the ultimate impact on our results of operations.

As of the date of this annual report, most of the operations and property of our Operations Center in Argentina are located in Argentina. As a result, the quality of our assets, our financial condition and the results of our operations in the Operations Center in Argentina are dependent upon the macroeconomic, regulatory, social and political conditions prevailing in Argentina. These conditions include changes to growth rates, inflation rates, exchange rates, interest rates, taxes, foreign exchange controls, government policies, social instability, and other political, economic or international developments taking place in, or otherwise affecting, Argentina.

In December 2019, a novel strain of coronavirus (SARS-COV-2) causing a severe acute respiratory syndrome (“COVID-19”) was reported to have surfaced in Wuhan, China. COVID-19 has since spread across the world, including Argentina, and on March 11, 2020, the World Health Organization declared COVID-19 a pandemic. By early November approximately 1,284,519 cases of infections had been confirmed in Argentina. In response, countries have adopted extraordinary measures to contain the spread of the virus, including imposing travel restrictions and closing borders, requiring closures of non-essential businesses, instructing residents to practice social distancing, issuing stay-at-home orders, implementing quarantines and similar actions. The ongoing pandemic and these extraordinary government measures are disrupting global economic activity and resulting in significant volatility in global financial markets. According to the International Monetary Fund (“IMF”), the global economy has recently entered into a recession.

The Argentine government has adopted multiple measures in response to the COVID-19 pandemic, including a nationwide mandatory lockdown that began on March 19, 2020 that has been extended several times, most recently through November 8, 2020. The government has also required during the las months the mandatory shutdown of businesses not considered essential. Finally, on November 6, 2020, the government announced the end of the mandatory lockdown for the AMBA (the “Área Metropolitana de Buenos Aires or “AMBA”) and the beginning of the new phase of social distancing. However, Coronavirus cases have risen over the last few months in several regions of the world and the rate of infections is still increasing. Lockdowns return to Europe as cases rise again. Spain, France and the UK have all recorded more than one million cases, and several others are seeing their highest number of new infections since the start of the pandemic.

6

In order to mitigate the economic impact of the COVID-19 pandemic and mandatory lockdown and shutdown of non-essential businesses, the Argentine government has adopted social aid, monetary and fiscal measures. We cannot assure you whether these measures will be sufficient to prevent a severe economic downturn in Argentina, particularly if current conditions are prolonged and if Argentina’s main trading partners are concurrently facing an economic recession. However, the Argentine government may have more limited resources at this time to support the country’s economy; the pandemic has struck at a time when Argentina is simultaneously struggling to emerge from a two-year recession. On August 31, 2020, the Argentine government announced the results of its bond restructuring offer, announcing that holders owning 93.5% in principal amount of bonds outstanding and that this participation percentage was subsequently increased to 99% by virtue of the application of collective action clauses of the restructured bonds. The Argentine government faces the challenge of restructuring its debt in foreign currency issued under Argentine law, as well as its debt with the IMF. We cannot predict the outcome of these negotiations.

Some of the measures adopted by the Argentine government may adversely affect the business and financial condition of companies operating in the real estate sector, such as our Company. These temporary measures include the issuance of stay-at-home orders, closures of non-essential businesses such as shopping malls, prohibition of layoffs without cause and suspension of workers, among others. These measures have necessitated, among other things, that we shut down our shopping mall properties from March 20 until October 14, 2020, resulting in lower rental revenue from our shopping mall clients whose rent is based in part on sales revenue. For more information in connection with the COVID-19 pandemic and their impact on our Company, see “Item 5.A. Operating Results – The Ongoing COVID-19 Pandemic.” Although these measures may help attenuate the economic impact on the Argentine economy overall, they may have a negative impact on our business and results of operations.

The ongoing COVID-19 pandemic and government measures taken to contain the spread of the virus are adversely affecting our business and results of operations. Shopping malls have been required to remain closed since March 20, 2020, leaving exclusively those premises dedicated to items considered essential such as pharmacies, supermarkets and banks. In the months of May and June, these measures were relaxed and certain activities were reopened in some provinces, such as Salta, Mendoza, Santa Fe and Córdoba, opening the Alto Noa, Mendoza Plaza, Alto Rosario, La Ribera and Córdoba shopping malls. Shopping under a strict safety and hygiene protocol that includes reduced hours, social distancing, and access control. In July 2020, IRCP proceeds with the opened Shopping Neuquén and at the beginning of August 2020, Arcos District, an open-air premium outlet in the city of Buenos Aires, opened as well. On October 14, 2020, IRCP announced the opening of Alto Palermo, Paseo Alcorta, Patio Bullrich, Abasto Shopping and Dot Baires shopping malls, located in the City of Buenos Aires. However, the uncertainty of the situation could cause setbacks in the openings. The shopping malls mentioned above are resuming their operations under a strict safety and hygiene protocol that includes social distancing, reduced hours, access controls, among other measures. Likewise, it should be clarified that the activity in the food courts is limited to the commercialization of products through home delivery or take-away and the entertainment business remains closed.

Also, the DirecTV Arena stadium has been closed since March 20, the date on which social, preventive and all the planned congresses are suspended, a large part of the fairs and conventions were postponed, while the shows scheduled at the DirecTV Arena were mostly canceled. The reopening date of these establishments is uncertain, as well as the future agenda of fairs, conventions and shows.

Additionally, we face various risks arising from the economic impact of the pandemic and government measures which are difficult to predict accurately at this time, such as:

●

Our tenants may terminate their leases, and as a result of the loss of key or anchor tenants our shopping malls and office spaces may become less attractive;

●

Our hotels, including the Libertador and Intercontinental hotels in Buenos Aires and the Llao Llao hotel in Bariloche, are temporarily closed or operating under emergency contingency plans, and we do not know with certainty when they may reopen or be able to operate normally again;

●

Consumer spending has sharply dropped and its persistence may generate a change in consumer habits and a trend in favor of e-commerce, which would translate into lower attendance at shopping malls or public places, thus adversely affecting our tenants’ ability to generate income and default on or terminate our leases;

7

●

The situation generated by COVID-19 could cause an increase in our operating costs and the operating costs of our tenants, who may be unable to meet their payment obligations under the leases entered into with the Company. This situation could cause a reduction in our rental income and negatively affect our financial situation;

●

As a result of financial turmoil in Argentina caused by disruptions in supply chains and public debt restructuring, we may experience difficulties in our ability to pay off our debts and other financial obligations. We could also face difficulties in accessing debt and capital markets and may be forced to refinance our indebtedness;

●

An extended period of remote work by our employees could deplete our technological resources and result in or exacerbate certain operational risks, including an increased risk of cybersecurity. Remote work environments may be less secure and more susceptible to hacking attacks, including phishing and social engineering attempts to exploit the COVID-19 pandemic; and

●

COVID-19 poses a threat to the well-being and morale of our employees. While we have implemented a business continuity plan to protect the health of our employees and we have contingency plans for key employees or executive officers who may become ill or unable to perform their duties for an extended period of time, such plans cannot anticipate all scenarios, and we may experience a possible loss of productivity or a delay in the deployment of certain strategic plans.

We are continuously monitoring the impact of the ongoing COVID-19 pandemic on our Company. The ultimate impact of the pandemic on our business, results of operations and financial condition remains highly uncertain and will depend on future developments outside of our control, including the intensity and duration of the pandemic and the government measures taken in order to contain the virus or mitigate the economic impact. To the extent the COVID-19 pandemic adversely affects our business, it may also have the effect of heightening many of the other risks described in this “Risk Factors” section.

We depend on macroeconomic and political conditions in Argentina.

The Argentine economy has experienced significant volatility in recent decades, characterized by periods of low or negative growth, high levels of inflation and depreciation of the currency. As a consequence, our business and operations have been, and could in the future be, affected to varying degrees by economic and political developments and other material events affecting the Argentine economy, such as: inflation; price controls; foreign exchange controls; fluctuations in foreign currency exchange rates and interest rates; governmental policies regarding spending and investment, national, provincial or municipal tax increases and other initiatives increasing government involvement with economic activity; civil unrest and local security concerns. You should make your own investigation into Argentina’s economy and its prevailing conditions before making an investment in us.

Historically, Argentina went through periods of severe political, economic and social crisis. Among other consequences, these crises resulted in Argentina defaulting on its foreign debt obligations, introducing emergency measures and numerous changes in economic policies that affected utilities, financial institutions, and many other sectors of the economy. Argentina also suffered a significant real depreciation of the Peso, which in turn caused numerous Argentine private sector debtors with foreign currency exposure to default on their outstanding debt. In the past three years, GDP grew 2.7% in 2017, but it contracted 2.5% in 2018 and 2.2% in 2019. On September 22, 2020, the Argentine Treasury announced that it expected GDP to shrink 19.1% in 2020 and fiscal deficit to reach 4.7%, both figures higher than previously forecast.

A decline in international demand for Argentine products, a lack of stability and competitiveness of the Peso against other currencies, a decline in confidence among consumers and foreign and domestic investors, a high rate of inflation and future political uncertainties, among other factors, may affect the development of the Argentine economy, which could lead to reduced aggregate demand and adversely affect our business, financial condition and results of operations.

8

The primary elections (Elecciones Primarias, Abiertas y Simultáneas y Obligatorias or “PASO”, per its acronym in Spanish), which define which political parties and which candidates of the different political parties may run in the general elections, took place in August 11, 2019. In these elections, the Frente de Todos coalition (which included former president Fernandez de Kirchner as a candidate to the vice-presidency) obtained 47.78% of the votes, while the Juntos por el Cambio coalition (then-president Mauricio Macri’s coalition), obtained 31.79% of the votes.

After the results of the primary elections, the Peso depreciated approximately 30% and the share price of Argentine listed companies dropped approximately 38% on average. In turn, the emerging market bond index (EMBI) peaked to one of the highest levels in Argentine history, above 2,000 points on August 28, 2019. As a consequence of the aforementioned effects, the Central Bank re-implemented exchange controls in order to reduce currency outflows and restrict exchange rate fluctuations, strengthen the normal functioning of the economy, foster prudent administration of the exchange market, reduce the volatility of financial variables and contain the impact of the variations of financial outflows on the real economy.

Presidential and Congressional elections in Argentina took place on October 27, 2019, which resulted in Alberto Fernández being elected President of Argentina, having earned 48.1% of the votes. The Fernández administration assumed office on December 10, 2019. As of such date, the Argentine Congress was composed as follows: Frente de Todos commanded a majority in the senate with 41 seats, followed by Juntos por el Cambio with 28 seats. In the house of representatives Juntos por el Cambio held a slight majority with 119 seats and Frente de Todos held 116 seats.

The political uncertainty in Argentina about the impact of the measures that the Fernández administration took and could take with respect to the economy, including with respect to the crisis resulting from the ongoing COVID-19 pandemic, could generate volatility in the price of securities issued by Argentine companies’ or result in a decrease in their prices, in particular companies like ours with operations in the real estate sector.

We can offer no assurances as to the policies that may be implemented by the Fernández administration, or that political developments in Argentina will not adversely affect the Argentine economy and our business, financial condition and results of operations. In addition, we cannot assure you that future economic, regulatory, social and political developments in Argentina will not impair our business, financial condition or results of operations, or cause the market value of our shares to decline.

We cannot predict the effect that changes in economic policies, laws and regulations adopted in recent years by the Argentine government may have on the economy.

The Macri administration took office in December 2015 and immediately implemented significant economic and policy measures, ranging from (i) lifting foreign exchange restrictions, (ii) eliminating certain energy subsidies and ordering a substantial increase in electricity tariffs, (iii) restoring the credibility of the Argentine National Institute of Statistics and Census (the “INDEC”), (iv) reducing foreign trade controls, (v) settling claims by bondholders, (vi) reforming the framework applicable to the transport and distribution of natural gas, among others described in more detail below.

On June 29, 2016, the Argentine Congress enacted the Historical Reparation Program for Retirees and Pensioners (Programa de Reparación Histórica para Jubilados y Pensionados). This Program included (i) payments to more than two million retirees and retroactive compensation for more than 300,000 retirees and (ii) creation of a universal pension for senior citizens, at a total cost of approximately ARS 122,000 million.

In December 2017, the Argentine Congress approved the tax reform law. The reform was intended to eliminate certain inefficiencies in the Argentine tax regime, curb tax evasion, expand the tax base and encourage investment, with the long-term goal of restoring fiscal balance by creating new taxes or increasing the then existing contribution rates.

9

In November 2017, the Argentine Congress approved Law No. 27,401, which establishes a system of criminal liability of corporate entities for criminal offenses against the public administration and national and cross-border bribery committed by, among others, its shareholders, attorneys-in-fact, directors, managers, employees, or representatives. Convicted legal entities are subject to various sanctions including a fine of between 1% and 20% of their annual gross revenue and the partial or total suspension of their activities for up to ten years. In addition, the law expands the national criminal jurisdiction to all cases of bribery including those committed outside the Argentine territory by citizens or companies domiciled or headquartered in Argentina.

At the beginning of September 2018, the Argentine government announced a series of measures in connection with the previously approved IMF loan agreement (“Stand-By Agreement”) and implemented changes in monetary policy, reducing the amount of Pesos to be issued, thus easing pressure on the foreign currency market and on inflation. In terms of fiscal policy, the government also reinstated wheat and corn export duties, and a duty for all other exports.

Following the results of the primary elections held in August 2019, the Argentine government adopted certain exceptional measures to relieve tension in the financial and foreign exchange markets, including:

●

increase of 20% in the federal minimum wage and implementation of special deductions for retirees and formal employees, together with an increase in the income requirements for federal income taxes;

●

exemption from employee contributions and from tax contributions for simplified filers;

●

temporary increases in welfare benefits;

●

adopting a 10-year tax moratorium for small- and medium-sized companies, as well as for self-employed workers and simplified filers;

●

implementing a 90-day freeze on gas prices,

●

exchange controls and restrictions to access to foreing exchange markets.

The fiscal cost of all of the above measures was estimated to be in excess of ARS 40,000 million.

Likewise, in order to mitigate the economic impact of the Covid-19 pandemic, the government has imposed temporary measures that include, among others:

●

the closure of businesses considered non-essential such as shopping centers,

●

the prohibition of dismissals without cause

●

suspension of workers,

●

rate freezing.

We have no control over the implementation of the reforms proposed by the Argentine government nor can we assure you that these reforms will be implemented at all or in a manner that will benefit our business. The failure of these measures to achieve their intended goals could adversely affect the Argentine economy and our business, financial condition and results of operations.

Continuing high rates of inflation may have an adverse effect on the economy and our business, financial condition and results of operations.

Historically, high rates of inflation have undermined the Argentine economy and the Argentine government’s ability to foster conditions for stable growth. High rates of inflation may also undermine Argentina’s competitiveness in international markets and adversely affect economic activity and employment, as well as our business, financial condition and results of operations.

The INDEC reported cumulative variation of the CPI of 24.8% for 2017, 47.6% for 2018, 53.8% for 2019 and 2.3%, 2.0%,3.3%, 1.5%, 1.5%, 2.2%,1.9%, 2.7%, 2.8% and 3.8% for January, February,March, April, May, June, July, August, September and October 2020, respectively.

10

In recent years, the Argentine government has taken certain measures to curb inflation, such as implementing price controls and limiting wage increases. We cannot assure you that inflation rates will not continue to escalate in the future or that the measures adopted or that may be adopted by the Fernández administration to control inflation will be effective or successful. High rates of inflation remain a challenge for Argentina. Significant increases in the rates of inflation could have a material adverse effect on Argentina’s economy and in turn could increase our costs of operation, in particular labor costs, and may negatively affect our business, financial condition and results of operations.

A high level of uncertainty with regard to these economic variables, and a general lack of stability in terms of inflation, could have a negative impact on economic activity and adversely affect our financial condition.

As of July 1, 2018, the Argentine Peso qualified as a currency of a hyperinflationary economy and we were required to restate our historical financial statements in terms of the measuring unit current at the end of the reporting year, which could adversely affect our results of operations and financial condition.

Pursuant to IAS 29 “Financial Reporting in Hyperinflationary Economies”, the financial statements of entities whose functional currency is that of a hyperinflationary economy must be restated for the effects of changes in a suitable general price index. IAS 29 does not prescribe when hyperinflation arises, but includes several characteristics of hyperinflation. The IASB does not identify specific hyperinflationary jurisdictions. However, in June 2018, the International Practices Task Force of the Centre for Quality, which monitors “highly inflationary countries”, categorized Argentina as a country with projected three-year cumulative inflation rate greater than 100%. Additionally, some of the other qualitative factors of IAS 29 were present, providing prima facie evidence that the Argentine economy is hyperinflationary for the purposes of IAS 29. Therefore, Argentine companies that prepare financial statements pursuant to IFRS and use the Peso as their functional currency were required to apply IAS 29 to their financial statements for periods ending on and after July 1, 2018.

Adjustments to reflect inflation, including tax indexation, such as those required by IAS 29, are in principle prohibited in Argentina. However, on December 4, 2018, the Argentine government enacted Law No. 27,468, which lifted the ban on indexation of financial statements. Some regulatory authorities, such as the CNV and the IGJ, have required that financial statements for periods ended on and after December 31, 2018 be restated for inflation in accordance IAS 29.

During the first three fiscal years starting after January 1, 2018, tax indexation will be applicable if the variation of the CPI exceeds 55% in 2019, 30% in 2020 and 15% in 2021. The tax indexation determined as of June 2019 was allocated as follows: One-third in that same year, and the remaining two-thirds in equal parts in the following two years. The tax indexation determined for fiscal years beginning on July 1, 2019 and July 1 2020 will be allocated as follows: One-sixth in that same year, and the remaining five-sixth in equal parts in the following five years. For fiscal years starting after January 1, 2021, the tax indexation procedure will be triggered under similar standards as those set forth by IAS 29.

We cannot predict the future impact that the eventual application of tax indexation and related inflation adjustments described above will have on our financial statements or their effects on our business, results of operations and financial condition.

High levels of public spending in Argentina could generate long-lasting adverse consequences for the Argentine economy.

During recent years, the Argentine government has substantially increased public spending. Argentina recorded a primary deficit of 3.9%, 2.4% and 0.4% of GDP in 2017, 2018 and 2019, respectively. However, the new Fernández administration has indicated that will seek to foster economic growth, which may require additional public spending. If government spending continues to outpace fiscal revenue, the fiscal deficit is likely to increase. Additionally, the economic impact of the COVID-19 pandemic and the nationwide lockdown may also require the Argentine government to increase public spending.

The Argentine government’s ability to access the long-term financial markets to finance such increased spending is limited given the high levels of public sector indebtedness. The inability to access the capital markets to fund its deficit or the use of other sources of financing may have a negative impact on the economy and, in addition, could limit the access to such capital markets for Argentine companies, which could adversely affect our business, financial condition and results of operations.

11

Argentina’s ability to obtain financing in the international capital markets is limited, which may impair our ability to access international credit markets to finance our operations in Argentina.

Argentina’s 2001 sovereign default and its failure to fully restructure its sovereign debt and negotiate with the holdout creditors has limited Argentina’s ability to access international capital markets to obtain financing. In 2005, Argentina completed the restructuring of a substantial portion of its defaulted sovereign indebtedness and settled all of its debt with the IMF. Additionally, in June 2010, Argentina completed the renegotiation of approximately 67% of the principal amount of the defaulted bonds outstanding that were not swapped in the 2005 restructuring. As a result of the 2005 and 2010 debt swaps, Argentina restructured approximately 92.1% of its defaulted debt that was eligible for restructuring. Holdout creditors that had declined to participate in the exchanges commenced numerous lawsuits against Argentina in several countries, including the United States, Italy, Germany, and Japan.

As a result of the litigation filed by holdout bondholders and their related efforts to attach Argentina’s sovereign property located in the United States and other jurisdictions, Argentina’s ability to access the international capital markets was severely limited. In April 2016, the Argentine government settled USD4.2 billion outstanding principal amount of untendered debt.

In 2018, due to Argentina’s limited access to the international capital and lending markets, the Argentine government and the IMF entered into a “stand-by” arrengment forUSD57.1 billion principal amount with a 36-month maturity. As of the date of this annual report, Argentina has received disbursements under the agreement totaling USD 44.8 billion. Notwithstanding the foregoing, the Fernández administration has publicly announced that it will refrain from requesting additional disbursements under this agreement, and instead vowed to renegotiate its terms and conditions in good faith.

Shortly after taking office, the Fernández administration also initiated negotiations with creditors in order to restructure the country’s current Peso- and U.S. dollar-denominated public debt. In this context, on February 5, 2020, the Argentine Congress passed Law No. 27,544, pursuant to which the sustainability of the sovereign debt was declared a national priority, authorizing the Ministry of Economy to renegotiate new terms and conditions with Argentina’s creditors within certain parameters.

Additionally, in the midst of debt restructuring negotiations, on April 5, 2020 the Argentine government issued Decree No. 346/2020, through which the repayment of Argentine law-governed dollar-denominated notes was postponed.

On April 21, 2020, the Argentine government launched an exchange offer with the aim of refinancing its external indebtedness in a manner which does not compromise the development and potential growth of Argentina over the next years. On August 17, 2020, the Argentine government submitted its modified bond restructuring offer to the SEC. On August 31, 2020, the Argentine government announced the results of its bond restructuring offer, announcing that holders owning 93.5% in principal amount of bonds outstanding and that this participation percentage was subsequently increased to 99% by virtue of the application of collective action clauses of the restructured bonds. However, the Argentine government faces the challenge of restructuring its debt in foreign currency issued under Argentine law, as well as its debt with the IMF. We cannot predict the outcome of these negotiations.

Moreover, difficulties in accessing Argentina’s international credit may have an impact on our company as the Argentine government postponed the maturity dates of its bonds, and cut interest rates.

Foreign shareholders of companies operating in Argentina have initiated proceedings against Argentina that have resulted and could result in arbitral awards and/or injunctions against Argentina and its assets and, in turn, limit its financial resources.

In response to the emergency measures implemented by the Argentine government during the 2001-2002 economic crisis, a number of claims were filed before the International Centre for Settlement of Investment Disputes (“ICSID”) against Argentina. Claimants allege that the emergency measures were inconsistent with the fair and equitable treatment standards set forth in various bilateral investment treaties by which Argentina was bound at the time.

Claimants have also filed claims before arbitral tribunals under the rules of the United Nations Commission on International Trade Law (“UNCITRAL”) and under the rules of the International Chamber of Commerce (“ICC”). As of the date of this annual report, it is not certain that Argentina will prevail in having any or all of these cases dismissed, or that if awards in favor of the plaintiffs are granted, that it will succeed in having those awards annulled. Ongoing claims before the ICSID tribunal and other arbitral tribunals could lead to new awards against Argentina, which could have an adverse effect on our capacity to access to financing or the international capital markets. 

12

Significant fluctuation in the exchange rate of the Peso against foreign currencies may adversely affect the Argentine economy as well as our financial condition and results of operations.

Fluctuations in the rates of exchange of the Peso against foreign currencies, particularly the U.S. dollar, may adversely affect the Argentine economy, our financial condition and results of operations. In 2017, 2018, 2019 and the first nine months of the year 2020, the Peso depreciated by approximately 16%, 105%, 59% and 27% against the U.S. dollar, respectively. Depreciation of the Peso in real terms can have a negative impact on the ability of Argentine businesses to honor their foreign currency-denominated debt, and also lead to very high inflation and significant reduced real wages. The depreciation of the Peso can also negatively impact businesses whose success is dependent on domestic market demand, and adversely affect the Argentine government’s ability to honor its foreign debt obligations. A substantial increase in the exchange rate of the Peso against foregin currencies of the Peso against the U.S. dollar also represents risks for the Argentine economy since it may lead to a deterioration of the country’s current account balance and the balance of payments which may have a negative effect on GDP growth and employment, and reduce the revenue of the Argentine public sector by reducing tax revenue in real terms, due to its current heavy dependence on export taxes.

As a result of the greater volatility of the Peso, the former administration announced several measures to restore market confidence and stabilize the value of the Argentine Peso. Among them, during 2018, the Argentine government negotiated two agreements with the IMF, increased interest rates and the Central Bank decided to intervene in the exchange market in order to stabilize the value of the Peso. During 2019, based on a new understanding with the IMF, the Government established new guidelines for stricter control of the monetary base, which would remain in place until December 2019, in an attempt to reduce the amount of Pesos available in the market and reduce the demand for foreign currency. Complementing these measures, in September 2019 foreign currency controls were reinstated in Argentina. As a consequence of the re-imposition of exchange controls, the spread between the official exchange rate and other exchange rates resulting implicitly from certain common capital markets operations (“dólar MEP” or “contado con liquidación”), also known as blue chip swap rate, has broadened significantly, reaching a value of approximately 90% above the official exchange rate. As of November 13, 2020, the official exchange rate was ARS 79.7500 per USD 1.00.

The success of any measures taken by the Argentine government to restore market confidence and stabilize the value of the Argentine Peso is uncertain and the continued depreciation of the Peso could have a significant adverse effect on our financial condition and results of operations. 

13

Certain measures that may be taken by the Argentine government may adversely affect the Argentine economy and, as a result, our business, financial condition and results of operations.

The Argentine government exercises substantial control over the economy and may increase its level of intervention in certain areas of the economy, including through the regulation of market conditions and prices. 

By way of example, in 2008 the Fernández de Kirchner administration nationalized and replaced the former private pension system with a public “pay as you go” pension system. As a result, all resources administered by the private pension funds, including significant equity interests in a wide range of listed companies, were transferred to a separate fund (Fondo de Garantía de Sustentabilidad, or “FGS”) to be administered by the National Social Security Administration (Administración Nacional de la Seguridad Social, or “ANSES”, per its acronym in Spanish). The dissolution of the private pension funds and the transfer of their financial assets to the FGS have had important repercussions on the financing of private sector companies. Debt and equity instruments which previously could be placed with pension fund administrators are now entirely subject to the discretion of the ANSES. Since it acquired equity interests in privately owned companies through the process of replacing the pension system, the ANSES is entitled to designate government representatives to the boards of directors of those entities. Pursuant to Decree No. 1,278/12, issued by the Executive Branch on July 25, 2012, the ANSES’s representatives must report directly to the Ministry of Public Finance are subject to a mandatory information-sharing regime, under which, among other obligations, they must immediately inform the Ministry of Public Finance of the agenda for each meeting of the board of director and provide related documentation.

Also, in April 2012, the Fernández de Kirchner administration decreed the removal of directors and senior officers of YPF S.A. (“YPF”), the country’s largest oil and gas company, that at the time was controlled by the Spanish group Repsol, and submitted a bill to the Argentine Congress to expropriate shares held by Repsol representing 51% of the total outstanding equity of YPF. The Argentine Congress approved the bill in May 2012 through the passage of Law No. 26,741, which declared the production, industrialization, transportation and marketing of hydrocarbons to be activities of public interest and fundamental policies of Argentina, and empowered the Argentine government to adopt any measures necessary to achieve self-sufficiency in hydrocarbon supply. In February 2014, the Argentine government and Repsol announced that they had reached an agreement on the terms of the compensation payable to Repsol for the expropriation of the YPF shares. Such compensation totaled USD5 billion payable by delivery of Argentine sovereign bonds with various maturities. The agreement, which was ratified by Law No. 26,932, settled the claim filed by Repsol before the International Centre for Settlement of Investment Disputes (“ICSID”).

Additionally, in June 2020, President Alberto Fernández announced a project to intervene and expropriate the cereal exporting company Vicentin SAIC (“Vicentin”) under which the national public administration would take control of, 51% of Vicentin, which is in creditor competition as a result of the company’s ARS 350 million debt with state-owned Banco Nación, on a total increase of USD 1.35 billion. However, on June 19, 2020, the holder of the civil and commercial court, responsible for carrying out Vicentin’s call for creditors, decided to restore the company’s original board of directors in office for 60 days and to give the status of mere oversighters to the interveners appointed by the administration of Alberto Fernández.

Historically, actions of the Argentine government concerning the economy, including decisions regarding interest rates, taxes, price controls, wage increases, increased benefits for workers, exchange controls and potential changes in the market of foreign currency, have had a substantial adverse effect on Argentina’s economic growth.

It is widely reported by private economists that expropriations, price controls, exchange controls and other direct involvement by the Argentine government in the economy have had an adverse impact on the level of investment in Argentina, the access of Argentine companies to international capital markets and Argentina’s commercial and diplomatic relations with other countries. If the level of government intervention in the economy continues or increases, the Argentine economy and, in turn, our business, results of operations and financial condition could be adversely affected. 

The Argentine government may mandate salary increases for private sector employees, which would increase our operating costs.

In the past, the Argentine government has passed laws, regulations and decrees requiring companies in the private sector to maintain minimum wage levels and provide specified benefits to employees. Argentine employers, both in the public and private sectors, have experienced significant pressure from their employees and labor organizations to increase wages and to provide additional employee benefits. Due to high levels of inflation, employees and labor organizations regularly demand significant wage increases.

14

Through Decree No. 610/2019, a staggered increase of the minimum salary was approved as follows: (i) ARS 14,125 as of August 1, 2019; (ii) ARS 15,625 as of September 1, 2019; and (iii) ARS 16,875 as of October 1, 2019. In addition, the Argentine government has arranged various measures to mitigate the impact of inflation and exchange rate fluctuation in wages. In December 2019, Decree No. 34/2019, doubled legally-mandated severance pay for termination of employment. The Government went a step further amid the COVID-19 pandemic, and issued Decree No. 329/2020, restricting the ability to terminate employment with or without cause for 60 business days, prorogued it for 60 additional business days by Decree No.624/2020. Also, in January 2020, the Argentine government issued Decree No. 14/2020 which established a general increase for all employees of ARS 3,000 in January 2020, and an additional amount of ARS 1,000 in February 2020 (total ARS 4,000 effective as of February 2020).

It is possible that the Argentine government could adopt measures mandating further salary increases or the provision of additional employee benefits in the future. Any such measures could have a material and adverse effect on our business, results of operations and financial condition.

Property values in U.S. dollars in Argentina could decline significantly.

Property values in U.S. dollars are influenced by multiple factors that are beyond our control, such as a decreased demand for real estate properties due to a deterioration of macroeconomic conditions or an increase in supply of real estate properties that could adversely affect the value in U.S. dollars of real estate properties. We cannot assure you that property values in U.S. dollars will increase or that they will not be reduced. Most of the properties we own are located in Argentina. As a result, a reduction in the value in U.S. dollars of properties in Argentina could materially affect our business and our financial statements due to the valuation of our investment properties at fair market value in U.S. dollars.

Restrictions on transfers of foreign currency and the repatriation of capital from Argentina may impair our ability to pay dividends and distributions and investors may face restrictions on their ability collect capital and interest payments in connection with corporate bonds issued by Argentine companies.

On September 1, 2019, the BCRA issued Communication “A” 6,770, which established various rules for exports of goods and services, imports of goods and services, foreign assets, non-resident operations, financial debt, debts between residents, profits and dividends, and information systems. The Communication was issued in response to the publication of Decree 609/2019, pursuant to which the Argentine government implemented foreign exchange regulations until December 31, 2019. Decree 609/2019 sets forth the obligation to convert the value of goods and services exported into Pesos in the local financial system, in accordance with terms and conditions established by the BCRA.

Additionally, on December 5, 2019 the BCRA issued Communication “A” 6,844, setting forth the consolidated set of rules governing foreign trade and exchange (“Exterior y Cambios” in Spanish).

Among other restrictions, Communication “A” 6,844 requires prior authorization from the BCRA for the pre-cancelation of debts corresponding to imports of goods and services. For overdue or on-demand debts for the import of goods with related parties abroad outstanding as of August 31, 2019, the importer must request authorization from the BCRA if the debts exceed USD2 million per month. BCRA authorization is also required for payments of services with related parties abroad. Prior authorization from the BCRA is required for the “constitution of foreign assets” (e.g., purchase of foreign currency, among others) by legal entities, local governments, mutual funds, trusts and other vehicles. Additionally, individuals must request authorization from the BCRA for the “formation of foreign assets,” family aid and the granting of guarantees in derivative transactions, when those items exceed USD200 in the calendar month, among other circumstances.

With respect to financial debt, borrowers must enter and settle in the foreign exchange market new financial debts from abroad that are disbursed from September 1, 2019. Compliance with this requirement must be proved to access the foreign exchange market and cancel the principal and interest. Communication “A” 6,844 also requires companies to obtain prior authorization from the BCRA before transferring profits and dividends abroad, as a general rule.

Likewise, Communication “A” 6,854, issued on December 27, 2019 established that rules incorporated into the consolidated text of the regulations on foreign trade and exchange other than those applicable for export of goods and services, as set forth in Communication “A” 6,844, shall remain in full force and effect as from December 31, 2019.

15

Subsequently, the BCRA issued Communication “A” 7,030, through which it established that for the purpose of accessing the exchange market for the realization of certain transactions such as (i) payment of imports and other purchases of goods abroad, (ii) purchase of foreign currency by residents with specific application, (iii) payment of profits and dividends, (iv) payment of capital and interest on financial indebtedness, among others, the entity shall have the prior consent of the BCRA unless it has an affidavit from the client stating that at the time of access to the exchange market: (i) all of its foreign currency holdings in the country are deposited in accounts in financial institutions and that it does not have liquid external assets available; and (ii) undertakes to liquidate on the exchange market, within five working days of its making available, those funds that it receives abroad arising from the collection of loans granted to third parties, the collection of a term deposit or the sale of any type of asset, where those funds have been acquired after May 28 2020.

On the other hand, the Communication provides that until June 30, 2020 (a period subsequently extended until July 31, 2020, by Communication “A” 7052) when accessing the market for payment of imports of goods or for the cancellation of debts arising from the import of goods, the BCRA must pre-approve the transaction unless the entity has: (i) a customer's affidavit stating that the total amount of payments associated with its imports of goods during 2020 does not exceed the amount by which the importer would have access to the exchange market that was officialized between January 1, 2020 and the day leading up to accessing the exchange market; and (ii) documentation that allows the company in question to verify compliance with the remaining requirements established for the operation by the exchange regulations.

At the same time, the Communication provides that until June 30, 2020 (a period subsequently extended until July 31, 2020, by Communication “A” 7,052) - prior approval of the BCRA will be required for access to the foreign market for the cancellation of financial indebtedness principal services with the foreign sector where the creditor is a counterparty linked to the debtor.

As for transactions corresponding to foreign market outflows, the Communication amends from 30 to 90 days the period within which (i) no sales of securities with liquidation in foreign currency or transfers thereof to foreign entities can be performed, and (ii) no local sales of securities with liquidation in foreign currency or transfers thereof to entities abroad can be performed, in this case, counted from the moment the foreign market was accessed.

Finally, on September 15, 2020, Communication “A” 7,106 established that companies must refinance maturities of financial debt principal in the period from October 15, 2020 to March 31, 2021. In this sense, the Central Bank will give access to companies for up to 40% of maturities and companies must refinance the rest within at least two years or should be cancelled using currency already in possession of the Company. Furthermore, Resolution No. 862/2020 of the CNV established a three-day “parking” requirement for both transfers of securities from local accounts abroad. As a result of all the exchange restrictions mentioned and all those that may be issued in the future by the BCRA in the context of the exercise of its powers, it is clarified that there may be potential “holdouts” in the context of the restructurings that Argentine companies are obliged to carry out with the consequent possible claims. The Central Bank measure, would, in many cases, result in non-compliance or a default on corporate debt denominated in U.S. dollars. It will be a challenge for issuers of corporate debt denominated in U.S. dollars to fully quantify the implications of Communication “A” 7,106. In order to fulfill the requirements of this regulation, a refinancing plan for financial debt due for registration until December 31, 2020 must be submitted to the Argentine Central Bank before September 30, 2020. For maturities to be registered between January 1, 2021 and March 31, 2021, the plan must be submitted at least 30 calendar days prior to the maturity of the principal to be refinanced, which implies a risk to obtain financing for new productive projects. As a consequence, there could be an increase in the spreads of corporate bonds. In addition, since June 2020, through Communication “A” 7,030, companies could no longer access to the MULC to cancel financial debt between companies in advance. It is also noted that such possible proposals for restructurings will fully comply with the requirements established by the applicable and current regulations, as long as the non-compliance brings the application of the foreign exchange criminal law to the members of our board of directors.

16

As of the date of this annual report, the restrictions outlined above remain in place. Such measures may negatively affect Argentina’s international competitiveness, discouraging foreign investments and lending by foreign investors or increasing foreign capital outflow which could have an adverse effect on economic activity in Argentina, and which in turn could adversely affect our business and results of operations. Any restrictions on transferring funds abroad imposed by the government could undermine our ability to pay dividends on our ADSs in U.S. dollars. Furthermore, these measures may cause delays or impose restrictions on the ability to collect payments of capital and interest on bonds issued by us. The challenge will be to achieve acceptance by creditors, in accordance with the BCRA regulations mentioned above, especially when it has highly diversified and retail creditors.

The Argentine economy could be adversely affected by economic developments in other global markets.

Argentina’s economy is vulnerable to external shocks that could be caused by adverse developments affecting its principal trading partners. A significant decline in the economic growth of any of Argentina’s major trading partners (including Brazil, the European Union, China and the United States), including as a result of the ongoing COVID-19 pandemic, could have a material adverse impact on Argentina’s balance of trade and adversely affect Argentina’s economic growth. In addition, Argentina may be affected by economic and market conditions in other markets worldwide, as was the case in 2008-2009, when the global financial crisis led to a significant economic contraction in Argentina in 2009.

Since 2015, the Brazilian economy, Argentina’s largest export market and the principal source of imports, has experienced heightened negative pressure due to the uncertainties stemming from the ongoing political crisis, including the impeachment of Brazil’s president, which resulted in the Senate of Brazil removing Dilma Rousseff from office for the rest of her term on August 31, 2016. Michel Temer, who previously held office as vice president of Brazil, subsequently took office until the end of the presidential period and in October 2018, Jair Bolsonaro was elected president. Mr. Bolsonaro has libertarian, conservative and nationalist tendenciesand assumed office on January 1, 2019. Given that Brazil is the largest economy in Latin America, the economic measures it implements can have great impact in the region. A further deterioration in economic conditions in Brazil may reduce the demand for Argentine exports to the neighboring country and, if this occurs, it could have a negative effect on the Argentine economy and potentially on our operations.

In addition, financial and securities markets in Argentina have been influenced by economic and market conditions in other markets worldwide. Although economic conditions vary from country to country, investors’ perceptions of events occurring in other countries have in the past substantially affected, and may continue to substantially affect, capital flows into, and investments in securities from issuers in, other countries, including Argentina. International investors’ reactions to events occurring in one market sometimes demonstrate a “contagion” effect in which an entire region or class of investment is disfavored by international investors.

The Argentine financial system and securities markets could be also adversely affected by events in developed countries’ economies, such as the United States and Europe. On June 23, 2016, the United Kingdom voted in favor of the United Kingdom exiting the European Union (“Brexit”). The United Kingdom formally left the European Union on January 31, 2020. Even when the United Kingdom agreed its departure from the European Union, negotiations on the terms and conditions are expected to continue during the transition period, which is due to expire on December 31, 2020. The effects of the Brexit vote and the perceptions as to the impact of the withdrawal of the United Kingdom from the European Union may adversely affect business activity and economic and market conditions in the United Kingdom, the Eurozone and globally, and could contribute to instability in global financial and foreign exchange markets. In addition, Brexit could lead to additional political, legal and economic instability in the European Union and have a negative impact on the commercial exchange of Argentina with that region.

17

On November 8, 2016, Donald Trump was elected president of the United States. His presidency has created significant uncertainty about the future relationships between the United States and other countries, including with respect to the trade policies, treaties, government regulations and tariffs that could apply to trade between the United States and other nations. On November 3, 2020, presidential elections took place in the United States. Former Vice President Joseph R. Biden Jr. is the Democratic nominee to challenge President Trump. Finally, on November 7, 2020, Democrat Joe Biden has been declared president-elect, but President Donald Trump is still planning legal challenges to the results in some key states.President-elect Biden now has 279 electoral college votes, taking him past the 270 needed to win. Donald Trump has 214. Mr Biden will become the 46th president in January 2021, pending the outcome of any legal challenges. We cannot predict how Mr. Biden’s measures will evolve or how they may affect Argentina, nor will the effect that the same or any other measure taken by the Biden administration could cause on global economic conditions and the stability of global financial markets.

In July 2019, the Common Market of the South (“MERCOSUR”) signed a strategic partnership agreement with the European Union (the “EU”), which is expected to enter into force in 2021, once approved by the relevant legislatures of each member country. The objective of this agreement is to promote investments, regional integration, increase the competitiveness of the economy and achieve an increase in GDP. However, the effect that this agreement could have on the Argentine economy and the policies implemented by the Argentine government is uncertain. Recently, in October 2020, The European Parliament passed a non-binding resolution opposing the ratification of the trade agreement between the European Union and Mercosur due to concerns over the environmental policy of the Jair Bolsonaro government.

Changes in social, political, regulatory and economic conditions in other countries or regions, or in the laws and policies governing foreign trade, could create uncertainty in the international markets and could have a negative impact on emerging market economies, including the Argentine economy. Also, if these countries fall into a recession, the Argentine economy would be impacted by a decline in its exports, particularly of its main agricultural commodities. All of these factors could have a negative impact on Argentina’s economy and, in turn, our business, financial condition and results of operations.

Furthermore, the financial markets have also been affected by the oil production crisis in March 2020 arising from the OPEC’s failure to reduce production. Any of these factors could depress economic activity and restrict our access to suppliers and could have a material adverse effect on our business, financial condition and results of operations.

A decline in the international prices for Argentina’s main commodity exports could have an adverse effect on Argentina’s economic growth, which could adversely affect our business, financial condition and results of operations.

High commodity prices contributed to the increase in Argentine exports and to high government tax revenue from export withholdings. Consequently, the Argentine economy has remained relatively dependent on the price of its main agricultural products, primarily soy. This dependence has rendered the Argentine economy more vulnerable to commodity prices fluctuations.

A continuous decline in international prices of Argentina’s main commodity exports could have a negative impact on the levels of government revenue and the government’s ability to service its sovereign debt, and could either generate recessionary or inflationary pressures, depending on the government’s reaction. Either of these results would adversely impact Argentina’s economy and, therefore, our business, results of operations and financial condition.

Failure to adequately address actual and perceived risks of institutional deterioration and corruption may adversely affect the Argentine economy and financial condition, which in turn could adversely affect our business, financial condition and results of operations.

The lack of a solid institutional framework and the notorious incidents of corruption that have been identified as a significant problem for Argentina present meaningful challenges to a robust economic recovery. The Argentine economy is sensitive to local political events. Such political events could generate uncertainty and be adverse for the development of a stable market for business in the country, which could affect the Argentine economy and, indirectly, the business, results of operations and financial situation of the Company.

18

Likewise, institutional deterioration and corruption may adversely affect Argentina’s economy and financial situation, which in turn could adversely affect the business, equity and financial situation and results of the Company’s operations.

The absence of a solid institutional framework and corruption have been pointed out as an important problem for Argentina and continue to be. Recognizing that the failure to address these issues could increase the risk of political instability, distort decision-making processes and adversely affect Argentina’s international reputation and ability to attract foreign investment, the former Macri administration adopted several measures aimed at strengthening Argentina’s institutions and curbing corruption. These measures include the reduction of criminal sentences in exchange for cooperation with the government in corruption investigations, increased access to public information, the seizing of assets from corrupt officials, increasing the powers of the Anticorruption Office (Oficina Anticorrupción) and the passing of a new public ethics law, among others. The Fernández administration’s ability and determination to implement these initiatives taken by the former administration is uncertain, as it would require, among other things, the involvement of the judicial branch, which is independent, as well as legislative support.

We cannot guarantee that the implementation of these measures will be successful or if implemented that such measures will have the intended outcomes.

A decline in the international prices for Argentina’s main commodity exports could have an adverse effect on Argentina’s economic growth, which could adversely affect our business, financial condition and results of operations.

Argentina’s financial recovery from the 2001-2002 crisis occurred in a context of price increases for Argentina’s commodity exports. High commodity prices contributed to the increase in Argentine exports since the third quarter of 2002 and to high government tax revenue from export withholdings. Consequently, the Argentine economy has remained relatively dependent on the price of its main agricultural products, primarily soy. This dependence has rendered the Argentine economy more vulnerable to commodity prices fluctuations.

A continuous decline in international prices of Argentina’s main commodity exports could have a negative impact on the levels of government revenues and the government’s ability to service its sovereign debt, and could either generate recessionary or inflationary pressures, depending on the government’s reaction. Either of these results would adversely impact Argentina’s economy and, therefore, our business, results of operations and financial condition.

Failure to adequately address actual and perceived risks of institutional deterioration and corruption may adversely affect the Argentine economy and financial condition, which in turn could adversely affect our business, financial condition and results of operations.

The lack of a solid institutional framework and the notorious incidents of corruption that have been identified as a significant problem for Argentina present meaningful challenges to a robust economic recovery. The Argentine economy is sensitive to local political events. Such political events could generate uncertainty and be adverse for the development of a stable market for business in the country, which could affect the Argentine economy and, indirectly, the business, results of operations and financial situation of the Company.

Likewise, institutional deterioration and corruption may adversely affect Argentina’s economy and financial situation, which in turn could adversely affect the business, equity and financial situation and results of the Company’s operations.

19

The absence of a solid institutional framework and corruption have been pointed out as an important problem for Argentina and continue to be. Recognizing that the failure to address these issues could increase the risk of political instability, distort decision-making processes and adversely affect Argentina’s international reputation and ability to attract foreign investment, the former Macri administration adopted several measures aimed at strengthening Argentina’s institutions and curbing corruption. These measures include the reduction of criminal sentences in exchange for cooperation with the government in corruption investigations, increased access to public information, the seizing of assets from corrupt officials, increasing the powers of the Anticorruption Office (Oficina Anticorrupción) and the passing of a new public ethics law, among others. The Fernández administration’s ability and determination to implement these initiatives taken by the former administration is uncertain, as it would require, among other things, the involvement of the judicial branch, which is independent, as well as legislative support.

We cannot guarantee that the implementation of these measures will be successful or if implemented that such measures will have the intended outcomes.

Our internal policies and procedures might not be sufficient to guarantee compliance with anti-corruption and anti-bribery laws and regulations.

Our operations are subject to various anti-corruption and anti-bribery laws and regulations, including the Corporate Criminal Liability Law and the U.S. Foreign Corrupt Practices Act of 1977 (the “FCPA”). Both the Corporate Criminal Liability Law and the FCPA impose liability against companies who engage in bribery of government officials, either directly or through intermediaries. The anti-corruption laws generally prohibit providing anything of value to government officials for the purposes of obtaining or retaining business or securing any improper business advantage. As part of our business, we may deal with entities in which the employees are considered government officials. We have a compliance program that is designed to manage the risks of doing business in light of these new and existing legal and regulatory requirements.

Although we have internal policies and procedures designed to ensure compliance with applicable anti-corruption and anti-bribery laws and regulations, there can be no assurance that such policies and procedures will be sufficient. Violations of anti-corruption laws and sanctions regulations could lead to financial penalties being imposed on us, limits being placed on our activities, our authorizations and licenses being revoked, damage to our reputation and other consequences that could have a material adverse effect on our business, results of operations and financial condition. Further, litigations or investigations relating to alleged or suspected violations of anti-corruption laws and sanctions regulations could be costly.

On July 30, 2020, the Executive Branch introduced a bill to the Senate related to a proposed reform of the Judiciary. The project provides for, among other issues: (i) the merger of 12 federal criminal courts with 11 courts with jurisdiction over economic criminal matters, doubling to reach 46 courts in the Federal Criminal judicial system, which will be located in the City of Buenos Aires, (ii) a system of surrogacy to fill in the new courts with the intervention of the National Chamber of Appeal in Criminal and Correctional matters, the Council of the Magistracy and the Senate, (iii) the unification of the appeals chambers and the expansion of the justice system with the creation of new oral courts, prosecutor’s offices and defense offices, and (v) the merger of the Federal Civil and Commercial jurisdiction with the Administrative Litigation.

Risks Relating to Brazil

The Brazilian government has exercised, and continues to exercise, significant influence over the Brazilian economy, which, together with Brazilian political and economic conditions, may adversely affect us.

We may be adversely affected by the following factors, as well as the Brazilian federal government’s response to these factors:

●

the ongoing COVID-19 pandemic and any future epidemics, pandemics or disease outbreaks;

●

economic and social instability;

●

increase in interest rates;

●

exchange controls and restrictions on remittances abroad;

●

restrictions and taxes on agricultural exports;

20

●

exchange rate fluctuations;

●

inflation;

●

volatility and liquidity in domestic capital and credit markets;

●

expansion or contraction of the Brazilian economy, as measured by GDP growth rates;

●

allegations of corruption against political parties, elected officials or other public officials, including allegations made in relation to the Lava Jato investigation;

●

government policies related to our sector; and

●

fiscal or monetary policy and amendments to tax legislation; and other political, diplomatic, social or economic developments in or affecting Brazil.

Historically, the Brazilian government has frequently intervened in the Brazilian economy and has occasionally made significant changes in economic policies and regulations, including, among others, the imposition of new, changes in monetary, fiscal and tax policies, currency devaluations, capital controls and limits on imports.

The Brazilian economy has been experiencing a slowdown – GDP growth rates were 3.9%, 1.8%, 2.7% and 0.1%, in 2011, 2012, 2013 and 2014, respectively, and GDP decreased 3.8% in 2015 and 3.6% in 2016 and increased 1.0% in 2017, 1.1% in 2018 and 1.1% in 2019.

As a result of investigations carried out in connection with the Lava Jato (Car Wash) operation into corruption in Brazil, a number of senior politicians, including congressmen, and executive officers of some of the major state-owned companies in Brazil have resigned or been arrested, while others are being investigated for allegations of unethical and illegal conduct. The matters that have come, and may continue to come, to light as a result of, or in connection with, the Lava Jato operation and other similar operations have adversely affected, and we expect that they will continue to adversely affect, the Brazilian economy, markets and trading prices of securities issued by Brazilian issuers in the near future.

Furthermore, the Brazilian economy continues to be subject to the effects of the outcome of the impeachment proceedings against former President Dilma Rousseff. On August 31, 2016, after a trial by the Senate, the former President was formally charged. Vice President Michel Temer was sworn in as the new President of Brazil until the next presidential elections, which were held in 2018 and from which Jair Bolsonaro emerged as the new President.

The ultimate outcome of these investigations is uncertain, but they have already had an adverse effect on the image and reputation of the implicated companies, and on the general market perception of the Brazilian economy, the political environment and the Brazilian capital markets. The development of these investigations has affected and may continue to adversely affect us. We cannot predict if these investigations will bring further political or economic instability to Brazil, or if new allegations will be raised against high-level members of the Brazilian federal government. In addition, we cannot predict the results of these investigations, nor their effects on the Brazilian economy.

Since assuming office, the government of President Jair Bolsonaro has implemented a series of right-wing policies. Measures include the the approval of the sale of 700,000 state-owned properties, increases in the minimum wage, transfer of the agrarian reform duties from the National Indigenous Foundation (FUNAI) to the Ministry of Agriculture, easing of restrictions for possession of firearms in Brazil and reduction of the educational budget for universities and federal institutes. The President of Brazil has the power to determine government policies and actions related to the Brazilian economy and, consequently, the operations and financial performance of companies, including ours, may be affected.

21

Inflation, coupled with the Brazilian government’s measures to fight inflation, may hinder Brazilian economic growth and increase interest rates, which could have a material adverse effect on us.

Brazil has in the past experienced significantly high rates of inflation. As a result, the Brazilian government adopted monetary policies that have often resulted in high interest rates. The Central Bank’s Monetary Policy Committee (Comitê de Política Monetária do Banco Central, or COPOM), establishes an official interest rate target for the Brazilian financial system based on the level of economic growth, inflation rate and other economic indicators in Brazil. As of June 30, 2020, the SELIC rate was 2.25% per year. The inflation rates, as measured by the General Market Price Index (Índice Geral de Preços–Mercado, or IGP-M), and calculated by Fundação Getúlio Vargas, or FGV, were 10.54% in 2015, 7.18% in 2016, (0.52)% in 2017, 7.54% in 2018 and 7.30% in 2019. Cumulative inflation for the first nine months of 2020, calculated by the same index, was 1.34%.

Inflation and the government measures to fight inflation have had and may continue to have significant effects on the Brazilian economy and our business. In addition, the Brazilian government’s measures to control inflation have often included maintaining a tight monetary policy with high interest rates, thereby restricting the availability of credit and slowing economic growth. On the other hand, an easing of monetary policies of the Brazilian government may trigger increases in inflation. In the event of an increase in inflation, we may not be able to adjust our daily rates to offset the effects of inflation on our cost structure, which may materially and adversely affect us.

An increase in interest rates may have a significant adverse effect on us. In addition, as of June 30, 2020, certain of our loans were subject to interest rate fluctuations, such as the Brazilian long-term interest rate (Taxa de Juros de Longo Prazo, or TJLP), and the interbank deposit rate (Certificados de Depósitos Interbancários, or CDI). In the event of an abrupt increase in interest rates, our ability to comply with our financial obligations may be materially and adversely affected.

A deterioration in general economic and market conditions or the perception of risk in other countries, principally in emerging countries or the United States, may have a negative impact on the Brazilian economy and us.

Economic and market conditions in other countries, including United States and Latin American and other emerging market countries, may affect the Brazilian economy and the market for securities issued by Brazilian companies. Although economic conditions in these countries may differ significantly from those in Brazil, investors’ reactions to developments in these other countries may have an adverse effect on the market value of securities of Brazilian issuers. Crises in other emerging market countries could dampen investor enthusiasm for securities of Brazilian issuers, including ours, which could adversely affect the market price of our common shares. In the past, the adverse development of economic conditions in emerging markets resulted in a significant flow of funds out of the country and a decrease in the quantity of foreign capital invested in Brazil. Changes in the prices of securities of public companies, lack of available credit, reductions in spending, general slowdown of the global economy, exchange rate instability and inflationary pressure may adversely affect, directlyor indirectly, the Brazilian economy and securities market. Global economic downturns and related instability in the international financial system have had, and may continue to have, a negative effect on economic growth in Brazil. Global economic downturns reduce the availability of liquidity and credit to fund the continuation and expansion of business operations worldwide.

In addition, the Brazilian economy is affected by international economic and market conditions generally, especially economic conditions in the United States. Share prices on B3 S.A. – Brasil, Bolsa, Balcão, or B3, for example, have historically been sensitive to fluctuations in U.S. interest rates and the behavior of the major U.S. stock indexes. An increase in interest rates in other countries, especially the United States, may reduce global liquidity and investors’ interest in the Brazilian capital markets, adversely affecting the price of our common shares.

22

The imposition of restrictions on acquisitions of agricultural properties by foreign nationals may materially restrict the development of our business. 

In August 2010, the then-president of Brazil approved the opinion of the Federal Attorney General affirming the constitutionality of Brazilian Law No. 5,709/71, which imposes important limitations on the acquisition and lease of land in Brazil by foreigners and by Brazilian companies controlled by foreigners. Pursuant to this legislation, companies that are majority-owned by foreigners are not permitted to acquire agricultural properties in excess of 100 indefinite exploration modules, or MEI (which are measurement units adopted by the National Institute of Agrarian Development (Instituto Nacional de Colonização e Reforma Agrária, or INCRA), within different Brazilian regions, and which range from five to 100 hectares) absent the prior approval of the Brazilian Congress, while the acquisition of areas measuring less than 100 MEIs by such companies requires the prior approval of INCRA. In addition, agricultural areas that are owned by foreigners or companies controlled by foreigners shall not exceed 25% of the surface area of the relevant municipality, of which area up to 40% shall not belong to foreigners or companies controlled by foreigners of the same nationality, meaning that the sum of agricultural areas that belong to foreigners or companies controlled by foreigners of the same nationality shall not exceed 10% of the surface area of the relevant municipality. In addition, INCRA is also required to verify if the agricultural, cattle-raising, industrial or colonization projects to be developed in such areas were previously approved by the relevant authorities. After that analysis, INCRA will issue a certificate allowing the acquisition or rural lease of the property. The purchase and/or rural lease of agricultural properties that do not comply with the aforementioned requirements need to be authorized by the Brazilian Congress. In both cases, it is not possible to determine an estimated time frame for the approval procedure, since at the date of this annual report, there are no known cases on the grating of such certificates.

On June 30, 2020, approximately 58.4% of Brasilagro’s common shares were held by foreigners. Bearing that in mind, the implementation of Law No. 5,709/71 may impose on us additional procedures and approvals in connection with future acquisitions of land, which may result in material delays and/or our inability to obtain required approvals. There is also a case pending on the Supreme Court (Supremo Tribunal Federal, or STF) on the Opinion No. 461/2012-E, issued by São Paulo’s General Controller of Justice (Corregedoria Geral de Justiça do Estado de São Paulo), which has established that entities providing notary and registrar services located in the State of São Paulo are exempt from observing certain restrictions and requirements imposed by Law No. 5,709/71 and Decree No. 74,965/74. Moreover, on April 16, 2015, the Brazilian Rural Society filed a claim for the acknowledgment of non-compliance with basic principles (ADPF) under certain provisions of the Brazilian Constitution with the Supreme Court in order to (i) rule that paragraph 1, article 1, of Law No. 5,709/71 was repealed by the 1988 Federal Constitution and (ii) reverse the opinion issued by the Federal Attorney General (AGU) of 2010. As of the date hereof, we are not able to provide an estimate of the timeframe for a final judgment to be issued by the STF in both cases.

Depending on the final decisions of these pending lawsuits, we may need to modify our business strategy and intended practices in order to be able to acquire agricultural properties. This might have the effect of increasing the number of transactions we must complete, which would increase our transaction costs. It might also require the execution of joint ventures or shareholder agreements, which increases the complexity and risks associated with such transactions.

Any regulatory limitations and restrictions could materially limit our ability to acquire agricultural properties, increase the investments, transaction costs or complexity of such transactions, or complicate the regulatory procedures required, any of which could materially and adversely affect us and our ability to successfully implement our business strategy. For more information, see“Item 4—Information on the Company—Business Overview—Ownership of Agricultural Land in Brazil by Foreigners.”

23

We are subject to extensive environmental regulation that may significantly increase the company’s expenses.

Our business activities in Brazil are subject to extensive federal, state and municipal laws and regulations concerning environmental protection, which impose on us various environmental obligations, such as environmental licensing requirements, minimum standards for the release of effluents, use of agrochemicals, management of solid waste, protection of certain areas (legal reserve and permanent preservation areas), and the need for a special authorization to use water, among others. The failure to comply with such laws and regulations may subject the violator to administrative fines, mandatory interruption of activities and criminal sanctions, in addition to the obligation to rectify damages and pay environmental and third-party damage compensation, without any caps. In addition, Brazilian environmental law adopts a joint and several and strict liability system for environmental damages, which makes the polluter liable even in cases where it is not negligent and would render us jointly and severally liable for the obligations of our contractors or off-takers. If we become subject to environmental liabilities, any costs we may incur to rectify possible environmental damage would lead to a reduction in our financial resources, which would otherwise remain at our disposal for current or future strategic investment, thus causing an adverse impact on our business, financial condition and results of operations.

As environmental laws and their enforcement become increasingly stricter, our expenses for complying with environmental requirements are likely to increase in the future. Furthermore, the possible implementation of new regulations, changes in existing regulations or the adoption of other measures could cause the amount and frequency of our expenditures on environmental preservation to vary significantly compared to present estimates or historical costs. Any unplanned future expenses could force us to reduce or forego strategic investments and as a result could materially and adversely affect our business, financial condition and results of operations.

Risks Relating to other Countries Where We Operate

Our business is dependent on economic conditions in the countries where we operate or intend to operate.

We have made investments in farmland in Argentina, Brazil, Paraguay and Bolivia and we may possibly make investments in other countries in and outside Latin America, as Israel and United States, among others. Owing that demand for livestock and agricultural products is usually correlated to economic conditions prevailing in the local market, whichin 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 necessary financial resources to implement reforms and foster growth. Any of these adverse economic conditions could have a material adverse effect on 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 such as Paraguay and Bolivia, and other countries such as Israel, among others. Economic and political developments in the countries in which we operate, including future economic changes or crisis (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.

In particular, fluctuations in the economies of Argentina and Brazil and actions adopted by the governments of those countries have had and may continue to have a significant impact on companies operating in those countries, including us. Specifically, we have been affected and may continue to be affected by inflation, increased interest rates, fluctuations in the value of the Argentine Peso and Brazilian Real against foreign currencies, price and foreign exchange controls, regulatory policies, business and tax regulations and in general by the political, social and economic scenarios in Argentina and Brazil and in other countries that may affect Argentina and Brazil.

Although economic conditions in one country may differ significantly from another country, we cannot assure that events in one only country will not adversely affect our business or the market value of, or market for, our common shares and/or ADSs.

24

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 monetary, credit, industry and other policies 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;

●

labor laws;

●

economic growth;

●

currency fluctuations;

●

monetary policy;

●

liquidity and solvency of the financial system;

●

limitations on ownership of rural land by foreigners;

●

developments in trade negotiations through the World Trade Organization or other international organizations;

●

environmental regulations;

●

restrictions on repatriation of investments and on the transfer of funds abroad;

●

expropriation or nationalization;

●

import/export restrictions or other laws and policies affecting foreign trade and investment;

●

price controls or price fixing regulations;

●

restrictions on land acquisition or use or agricultural commodity production

●

interest rates;

●

tariff and inflation control policies;

●

import duties on information technology equipment;

●

liquidity of domestic capital and lending markets;

●

electricity rationing;

●

tax policies;

●

armed conflict or war declaration; and

●

other political, social and economic developments, including political, social or economic instability, in or affecting the country where each business is based.

Uncertainty on whether governments will implement changes in policy or regulation affecting these or other factors in the future may contribute to economic uncertainty and heightened volatility in the securities markets, which may have a material and adverse effect on our business, results of operations and financial condition. In addition, 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.

25

Local currencies used in the conduct of our business are subject to exchange rate volatility and exchange controls.

The currencies of many Latin American countries 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 2015, the U.S. dollar to the peso exchange rate increased 53% as compared to 2014. In 2016, the U.S. dollar to peso exchange rate increased 22% as compared to 2015. In 2017, the U.S. dollar to peso exchange rate increased 18% as compared to 2016. In 2018, the U.S. dollar to peso exchange rate increased 100% as compared to 2017. Since In 2019, the U.S. dollar to the peso exchange rate increased 59% compared to 2018 and so far in 2020 it increased by 31%.We cannot predict future fluctuations in the exchange rate of the Argentine Peso or whether the Argentine government will change its currency policy.

Historically, the Brazilian currency has historically suffered frequent fluctuations. As a consequence of inflationary pressures, in the past, the Brazilian government has implemented several economic plans and adopted a series of exchange rate policies, including sudden devaluations, periodic mini-devaluations during whichthe frequency of adjustments has ranged from daily to monthly, floating exchange rate systems, exchange controls and dual exchange rate markets. Formally the value of the Real against foreign currencies is determined under a free-floating exchange rate regime, but in fact the Brazilian government is currently intervening in the market, through currency swaps and trading in the spot market, among other measures, every time the currency exchange rate is above or below the levels that the Brazilian governmentconsiders appropriate, taking into account, inflation, growth, the performance of the Real against the U.S dollar in comparison with other currencies and other economic factors. Periodically, there are significant fluctuations in the value of the Real against the U.S. dollar. During 2019, the Real depreciated 3.6% against the U.S. dollar and so far in 2020, the Real depreciated 28% against the U.S.dollar

The Israeli currency did not suffer important fluctuations during the last years. During 2019, NIS apreciated 5.3% against the U.S. dollar. During 2020, it remained the same without significant fluctuations.

Future fluctuations in the value of the local currencies relative to the U.S. dollar in the countries in which we operate may occur, and if such fluctuations were to occur in one or a combination of the countries in which we operate, our results of operations or financial condition could be adversely affected.

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.

In the past, high levels of inflation have adversely affected the economies and financial markets of some of the countries in which we operate, particularly Argentina and Brazil, and the ability of their governments to create conditions that stimulate or maintain economic growth. Moreover, governmental measures to curb inflation and speculation about possible future governmental measures have contributed to the negative economic impact of inflation and have created general economic uncertainty. As part of these measures, governments have at times maintained a restrictive monetary policy and high interest rates that has limited the availability of credit and economic growth.

A portion of our operating costs in Argentina are denominated in Argentine Pesos, most of our operating costs in Brazil are denominated in Brazilian Reais and most of our operating costs in Israel are nominated in NIS. Inflation in Argentina, Brazil or Israel without a corresponding Peso, Real or NIS devaluation, could result in an increase in our operating costs without a commensurate increase in our revenues, which could adversely affect our financial condition and our ability to pay our foreign currency denominated obligations.

26

After several years of price stability in Argentina, the devaluation of the Peso in January 2002 imposed pressures on the domestic price system that generated high inflation throughout 2002. In 2003, inflation decreased significantly and stabilized. However, in recent years, encouraged by the pace of economic growth, according to the Instituto Nacional de Estadisticas y Censos, or “INDEC” (Argentine Statistics and Census Agency), the consumer price index increased by 9.5% in 2011, 10.8% in 2012, and 10.9% in 2013; while the wholesale price index increased 10.3% in 2009, 14.6% in 2010, 12.7% in 2011, 13.1% in 2012, 14.7% in 2013 and 28.3% in 2014. The accuracy of the measurements of the INDEC has been questioned in the past, and the actual consumer price index and wholesale price index could be substantially higher than those indicated by the INDEC.

In February 2014 the INDEC modified the methodology for the calculation of the consumer price index (“CPI”) and the gross domestic product. Under the new calculation methodology, the CPI increased by 23.9% in 2014 and 11.9% as of October 2015 (for the first nine months of 2015). However, opposition lawmakers reported an inflation rate of 38.5% and 27.5%, respectively. In December 2015, the Macri administration appointed a former director of a private consulting firm to manage the INDEC. The new director initially suspended the publication of any official data prepared by INDEC and implemented certain methodological reforms and adjusted certain indices based on those reforms. In January 25, 2016, INDEC published two alternative measures of the CPI for the year 2015, 29.6% and 31.6%, which were based on data from the City of Buenos Aires and the Province of San Luis. After implementing these methodological reforms in June 2016, the INDEC resumed its publication of the consumer price index.

Brazil has historically experienced high rates of inflation. Inflation, as well as government efforts to curb inflation, has had significant negative effects on the Brazilian economy, particularly prior to 1995. Inflation rates were 7.8% in 2007 and 9.8% in 2008, compared to deflation of 1.7% in 2009, inflation of 11.3% in 2010, inflation of 5.1% in 2011, inflation of 7.8% in 2012, inflation of 5.5% in 2013, inflation of 3.7% in 2014, inflation of 10.5% in 2015, 7.2% in 2016, (0.53)% in 2017 and 5.39% for the first six months of 2018, as measured by the General Market Price Index (Indice Geral de Preços — Mercado), compiled by the Getúlio Vargas Foundation (Fundação Getúlio Vargas). A significant proportion of our cash costs and our operating expenses are denominated in Brazilian Reais and tend to increase with Brazilian inflation. The Brazilian government’s measures to control inflation have in the past included maintaining a tight monetary policy with high interest rates, thereby restricting the availability of credit and reducing economic growth. This policy has changed in the last two years, when the Brazilian government decreased the interest rate by 525 basis points. Subsequently, the high inflation, arising from the lower interest rate, and the intention to maintain this rate at low levels, led the Brazilian government to adopt other measures to control inflation, such as tax relief for several sectors of the economy and tax cuts for the products included in the basic food basket. These measures were not sufficient to control the inflation, which led the Brazilian government to reinstate a tighter monetary policy. As a result, interest rates have fluctuated significantly. The Special System for Settlement and Custody (Sistema Especial de Liquidação e Custódia, or “SELIC”) interest rate in Brazil at year-end was 10.0% in 2013, 11.75% in 2014, 14.25% in 2015, 13.75% in 2016, 7% in 2017 and 6.75% in 2018 as determined by the Comitê de Política Monetária, or COPOM. As of June 30, 2020, the SELIC was 6.00%.

Supply problems at our farms and processing facilities and impair our ability to deliver our products to our customers in a timely manner Argentina and/or Brazil may experience high levels of inflation in the future, which may impact domestic demand for our products. Inflationary pressures may also weaken investor confidence in Argentina and/or Brazil, curtail our ability to access foreign financial markets and lead to further government intervention in the economy, including interest rate increases, restrictions on tariff adjustments to offset inflation, intervention in foreign exchange markets and actions to adjust or fix currency values, which may trigger or exacerbate increases in inflation, and consequently have an adverse impact on us. In an inflationary environment, the value of uncollected accounts receivable, as well as of unpaid accounts payable, declines rapidly. If the countries in which we operate experience high levels of inflation in the future and price controls are imposed, we may not be able to adjust the rates we charge our customers to fully offset the impact of inflation on our cost structures, which could adversely affect our results of operations or financial condition.

27

Depreciation of the Peso or the Real relative to the U.S. Dollar or the Euro may also create additional inflationary pressures in Argentina or Brazil that may negatively affect us. Depreciation generally curtails access to foreign financial markets and may prompt government intervention, including recessionary governmental policies. Depreciation also reduces the U.S. Dollar or Euro value of dividends and other distributions on our common shares and the U.S. Dollar or Euro equivalent of the market price of our common shares. Any of the foregoing might adversely affect our business, operating results, and cash flow, as well as the market price of our common shares.

Conversely, in the short term, a significant increase in the value of the Peso or the Real against the U.S. Dollar would adversely affect the respective Argentine and/or Brazilian government’s income from exports. This could have a negative effect on GDP growth and employment and could also reduce the public sector’s revenues in those countries by reducing tax collection in real terms, as a portion of public sector revenues are derived from the collection of export taxes.

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 countries where we operate or intend to operate. Such movements advocate land reform and mandatory property redistribution by governments. 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 assure you that our properties will not be subject to invasion or occupation. A land invasion or occupation could materially affect the normal use of our properties or have a material adverse effect on us or the value of our common shares and 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 therefore we may invest in countries other than Argentina, Brazil and Israel including countries in other emerging markets outside Latin America (e.g., 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.

Disruption of transportation and logistics services or insufficient investment in public infrastructure could adversely affect our operating results.

One of the principal disadvantages of the agricultural sector in the countries in which we operate is that key growing regions lie far from major ports. As a result, efficient access to transportation infrastructure and ports is critical to the growth of agriculture as a whole in the countries in which we operate and of our operations in particular. Improvements in transportation infrastructure are likely to be required to make more agricultural production accessible to export terminals at competitive prices. A substantialportion of agricultural production in the countries in which we operate is currently transported by truck, a means of transportation significantly more expensive than the rail transportation available to U.S. and other international producers. Our dependence on truck transportation may affect our position as a low-cost producer so that our ability to compete in the world markets may be impaired.

28

Even though road and rail improvement projects have been considered for some areas of Brazil, and in some cases implemented, substantial investments are required for road and rail improvement projects, which may not be completed on a timely basis, if at all. Any delay or failure in developing infrastructure systems could reduce the demand for our products, impede our products’ delivery or impose additional costs on us. We currently outsource the transportation and logistics services necessary to operate our business. Any disruption in these services could result in supply problems at our farms and processing facilities and impair our ability to deliver our products to our customers in a timely manner.

The result of our operations are dependent upon economic conditions in Paraguay, in which we operate, and any decline in economic conditions could harm our results of operations or financial condition.

As of June 30, 2020, 6.7% of our assets were located in Paraguay. Paraguay has a history of economic and political instability, exchange controls, frequent changes in regulatory policies, corruption, and weak judicial security. However, in 2013, Paraguay had the highest GDP growth rate in Latin America and the third highest in the world with 14%. Since then, GDP has grown by 4% in 2014, 3% in 2015, 3.8% in 2016, 4.3% in 2017,3.6% in 2018 and 0.2% in 2019. The Paraguay’s GDP is closely related to the performance of the Paraguayan agricultural sector, which can be volatile and could adversely affect our business, financial condition and results of operations.

The exchange rate of Paraguay is free and floating and the Central Bank of Paraguay participates actively in the exchange market in order to reduce volatility. In 2018, the Paraguayan currency appreciated against the dollar by 6.7%, while in 2019 the appreciation was 8.26%. A significant depreciation of the local currency could adversely affect our business, financial condition and results of operations. However, since most of our costs of raw materials and supplies are denominated in U.S. dollars, a significant depreciation of the local currency could adversely affect our business, financial condition and results of operations, as well as impact other expenses, such as as professional fees and maintenance costs.

In addition, a significant deterioration in the economic growth of Paraguay or any of its main trading partners, such as Brazil or Argentina, could have a material impact on the trade balance of Paraguay and could adversely affect their economic growth, which could adversely affect our business, financial condition and results of operations.

The result of our operations are dependent upon economic conditions in Bolivia, in which we operate, and any decline in economic conditions could harm our results of operations or financial condition.

As of June 30, 2020, 5.8% of our assets were located in Bolivia. Bolivia is exposed to frequent has a history of economic, social and political instability, exchange controls, frequent changes in regulatory frameworks policies, civic and labour strikes, high tax rates and corruption among state officials, the judiciary and also the private sector.

Bolivia is exposed to high risk of social unrest, causing marches and roadblocks deployed by protesters to pressure the government, increasing disruption risks. Furthermore, protests over environmental issues often overlap significantly with labour disputes, which can escalate into disruptive forms of protest, including site occupations.

In turn, the Bolivian economy is the 14th largest in Latin America and is heavily dependent on export commodities such as natural gas and minerals. Bolivia’s GDP growth over the last decade has been among the highest in Latin America, growing by 4.9% in 2015, 4.3% in 2016,4.2% in 2017, 4.2% in 2018 and 2.2% in 2019, also. Within this context, inflation has been relatively low and under control for the last 30 years. The inflation rate for 2019 was around 1.47% with a slightly higher figure expected for 2020. In addition, Bolivia it is in the process of becoming an active partner of MERCOSUR, a common market aiming to gradually integrate economic activity among Brazil, Argentina, Uruguay, Paraguay and Bolivia.

A significant deterioration in the global and internal macroeconomics, political stability or social unrest of Bolivia, could have a material impact on their economic growth, which could adversely affect our business, financial condition and results of operations. On October 18, 2020, Bolivia’s general elections were held, with the aim of electing e President, Vice-President and deputies of the country. Luis Arce, belonging to the Movement to Socialism (MAS) was elected in the first round, with 54.41% of the votes. The elections were announced by Bolivia’s former president, Evo Morales, on November 10, 2019, hours before his resignation. They were scheduled to be held on May 3, 2020, but due to the outbreak of the COVID-19 pandemic elections had to be postponed to the aforementioned date.

29

Risks Relating to Our Agricultural Business

Fluctuation in market prices for our agriculture products could adversely affect our financial condition and results of operations.

Prices for crops, oilseeds and by-products, like those of other commodities, have historically been cyclical and sensitive to domestic and international changes in supply and demand and can be expected to fluctuate significantly. In addition, the agricultural products and by-products we produce are traded on commodities and futures exchanges and thus are subject to speculative trading, which may adversely affect us. 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;

●

changes to trade barriers of certain important consumer markets (including China, India, the U.S. and the E.U.) and the adoption of other governmental policies affecting industry market conditions and prices;

●

changes in government policies for biofuels;

●

world inventory levels, i.e., the supply of commodities carried over from year to year;

●

climatic conditions and natural disasters in areas where agricultural products are cultivated;

●

the production capacity of our competitors; and

●

demand for and supply of competing commodities and substitutes.

Unpredictable weather conditions, pest infestations and diseases may have an adverse impact on our crop yields and 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 cattle and wool production, and may otherwise adversely affect the supply and price of the agricultural commodities that we sell and use in our business. 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. Additionally, higher than average temperatures and rainfall can contribute to an increased presence of pest and insects that may adversely impact our agricultural production.

According to the United States Department of Agriculture (“USDA”) estimates, Argentina’s crops output (wheat, corn and soybean) for the 2017/2018 season is expected to decrease by 23%, reaching a production of 87.8 million tons, as compared to the previous cycle. The forecast shows mainly an increase in the planted area, with a focus on wheat and corn, which is additionally enhanced by a slightly better expected yield in comparison with the 2016/2017 campaign. The estimated production of soybean is supposed to reach 37.8 million tons, the wheat production 18 million tons and the corn production 32 million tons.

The occurrence and effects of disease and plagues can be unpredictable and devastating to agricultural products, potentially rendering all or a substantial portion of the affected harvests unsuitable for sale. Our agricultural products are also susceptible to fungus and bacteria that are associated with excessively moist conditions. Even when only a portion of the production is damaged, our results of operations could be adversely affected because all or a substantial portion of the production costs have been incurred. Although some diseases are treatable, the cost of treatment is high, and we cannot assure you that such events in the future will not adversely affect our operating results and financial condition. Furthermore, if we fail to control a given plague or disease and our production is threatened, we may be unable to supply our main customers, which could affect our results of operations and financial condition.

As a result, we cannot assure you that the current and future severe adverse weather conditions or pest infestations will not adversely affect our operating results and financial condition.

30

Our cattle are subject to diseases.

Diseases among our cattle herds, such as mastitis, tuberculosis, brucellosis and foot-and-mouth disease, can have an adverse effect on fattening production, rendering cows unable to produce meat for human consumption. Outbreaks of cattle diseases may also result in the closure of certain important markets, such as the United States, to our 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 cattle diseases will not occur. A future outbreak of diseases among our cattle herds may adversely affect our cattle sales which could adversely affect our operating results and financial condition.

In addition, outbreaks, or fears of outbreaks, of any of these or other animal diseases can lead to the cancellation of our customers’ orders and, particularly if the disease can affect humans, or create adverse publicity that can have adverse material effect in the consumer demand of our products. In addition, animal disease outbreaks may result in foreign government actions to close the export markets of some or all of our products, which may result in the destruction of some or all of these animals.

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 and results of operations.

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 No. 35/02, No. 160/2002, No. 307/2002 and No. 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 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 No. 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 lower chamber of the national congress 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.

31

In December 2015, the government of Mauricio Macri announced the reduction of 35 to 30% of export duties on soybean and the removing of all of the export duties for the rest of the products. To the date, the Argentine government is analyzing the possibility of reducing again the tax for soybean exports. In addition, Decree 1343/17 implemented a monthly reduction of 0.5% of the export duty in force on soybean, wheat and soybean oil from January 2018 to December 2019 inclusive.

On September 4, 2018, pursuant to Decree 793/2018, the Argentine Government restablished, until December 31, 2020, a 12% export tax on goods and services included in the MERCOSUR Common Nomenclature with a cap of ARS 3 for each dollar of taxable value or the official FOB price, as appropriate, for the goods and services set forth in Annex I of the aforementioned decree and of ARS 4 for all other manufactured products.

On December 28, 2018, the Argentine government issued Decree No. 1201/2018, which establishes, until December 31, 2020, an export tax of 12% to the export of services rendered in the country, whose effective use or exploitation is carried out abroad and establishes that said export duty may not exceed ARS 4 for each U.S. dollar of the taxable value. If applicable, that limit will remain in pesos until the obligation is canceled. The measure took effect on January 1, 2019 and will take effect for operations that are lent and billed as of that date. We cannot assure that in case of assuming a new government, retention rates could be increased, mainly for exports of primary products and that such taxes could have an adverse impact on our financial condition and results of operations.

Export taxes may have a material adverse effect on our sales and results of operations. 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.

We may face risks associated with land-takings in Argentina.

Land-taking is a long-standing problem in Argentina that has escalated throughout the years with every economic crisis, especially now in the context of the COVID-19 economic crisis.

The most serious problem arises in the province of Buenos Aires, the most densely populated in the country, where there were already more than 1,800 land usurpations so far this year, according to estimates by the local Ministry of Security. The most notorious case being the usurpation of Guernica’s lands, the largest land take, which began on July 2020, in the department of Presidente Perón, in the outskirts of the city of Buenos Aires. It is estimated that around 3,000 people, especially young people and some families, occupied this private area in the absence of intervention by the authorities. Land neighbors reported increased insecurity and theft of electricity by occupants. On October 29, more than 4,000 troops under the direction of Sergio Berni, Security Minister of the Province of Buenos Aires, carried out the eviction from Guernica’s lands, property usurped since the beginning of July. After almost 100 days, negotiations between provincial authorities and usurpers failed and as a consequence, the Security Minister carried out the above mentioned eviction, resulting in several injuries and detainees. After two hours of operation, the lands were completely liberated.

Another relevant land usurpation problem, which has been going on for three years, in southern Argentina, near the city of San Carlos de Bariloche, in the Patagonian province of Rio Negro, relates to groups identified with the Mapuche indigenous people who have occupied what they consider ancestral lands and have broken into properties in the area.

The spread of land takes has revived in Argentina an old debate in Argentina. There is a conflict between two groups that claim, on the one hand, a right to decent housing, and on the other hand a group that claims that the right to private property should be respectedArgentina's constant and cyclical economic crises over the past 50 years have also caused poverty to rise sharply, so less people can access a roof, resulting in a housing deficit

As a consequence, we cannot provide assurance that government responses to such disruptions will restore investor confidence in Argentine lands, which could have an adverse impact on our financial condition and results of operations.

32

A global economic recession could decrease the demand for our products or lower prices.

The demand for the products we sell may be affected by international, national and local economic conditions that are beyond our control. Adverse changes in the real or perceived economic climate, such as rising fuel prices, higher interest rates, falls and / or volatility of realestate and real estate markets, more restrictive credit markets, taxes higher and changes in government policies could reduce the level of demand or prices of the products we produce. We cannot predict the time or duration, magnitude or strength of this slowdown or economic recovery. If a recession continues for a prolonged period of time or worsens, we may experience a prolonged period of declining demand and prices. In addition, economic recessions have and can negatively affect our suppliers, which can lead to interruptions in goods and services and financial losses.

An 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 most recent international credit crisis that started in 2008 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 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 the 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 our crop storage facilities; therefore, if a fire or other disaster damages some or all of our harvest, we will not be completely covered.

Our production is, in general, subject to different risks and hazards, including adverse weather conditions, fires, diseases, pest infestations and other natural phenomena. 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 them 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.

33

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 in which we operate, 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. The market forcommodities is highly fragmented. Small producers can also be important competitors, some of which operate in the informal economy and are able to offer lower prices by meeting lower quality standards. Competition from other producers is a barrier to expanding our sales in the domestic/foreign market. 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.

Social movements may affect the use of our agricultural properties or cause damage to them.

Social movements, such as the Landless Rural Workers’ Movement (Movimento dos Trabalhadores Rurais Sem Terra) and the Pastoral Land Commission (Comissão Pastoral da Terra) are active in Brazil and advocate land reform and property redistribution by the Brazilian government. Invasion and occupation of agricultural land by large numbers of people is a common practice among the members of such movements and, in certain regions, including those where we currently invest, remedies such as police protection or eviction procedures are inadequate or non-existent. As a result, we cannot assure you that our agricultural properties will not be subject to invasion or occupation by any social movement. Any invasion or occupation may materially impair the use of our lands and adversely affect our business, financial condition, and results of operations.

If we are unable to maintain our relationships with our customers, our business may be adversely affected.

Our cattle sales are diversified but we are and will continue to be significantly dependent on a number of third party relationships, mainly with our customers for crop sales. For the fiscal year 2020, our sales from the agribusiness segment (excluding sales of farms) were made to approximately 300 customers. Sales to our ten largest customers represented approximately 45% to 50% of our net sales. Some of these customers included Cargill, FASA, Bunge Alimentos S.A. and GLENCORE. 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.

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 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 due to its nature and cycle. 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 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.

34

A substantial portion of our assets is farmland that is highly illiquid.

We have been successful in partially rotating and monetizing a portion of our investments in farmland. Ownership of a significant portion of the land we operate is a key part of our business model. However, agricultural real estate is generally an illiquid asset. Moreover, the adoption of laws and regulations that impose limitations on ownership of rural land by foreigners in the jurisdictions in which we operate may also limit the liquidity of our farmland holdings. See “—Risks Related to Argentina— The Rural Land Law and its application.” As a result, it is unlikely that we will be able to adjust our owned agricultural real estate portfolio promptly in response to changes in economic, business or regulatory conditions. Illiquidity in local market conditions may adversely affect our ability to complete dispositions, to receive proceeds generated from any such sales or to repatriate any such proceeds.

The restrictions imposed on our subsidiaries’ dividend payments may 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 may restrict their ability to pay dividends or proceed with other types of distributions. If our subsidiaries are prevented from making payments to us or if they are only allowed to pay limited amounts, we may be unable to pay dividends or to repay our indebtedness.

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, 2020, we owned 33.55% of the outstanding common shares of Brasilagro.

Labor relations could negatively impact us.

As of June 30, 2020, 62% of our employees were represented by unions under collective agreements. While we currently enjoy good relations with our employees and unions, we cannot assure that such good labor relations will continue in the future positively or that their eventual deterioration does not affect us materially or negatively.

35

Our internal processes and controls might not be sufficient to comply with the extensive environmental regulation and current or future environmental regulations could prevent us from fully developing our land reserves.

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 associatedhazardous 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, includingthe 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. We cannot ensure that our internal processes and controls may be sufficient to comply with the extensive environmental regulation.

As of June 30, 2020, we owned land reserves extending over more than 359,965 hectares that were purchased at very attractive prices. In addition, we have a concession over 102,598 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.

New restrictions on agricultural and food products we produce that contain genetically modified organisms could be established which could have an adverse effect on our business.

Our agricultural products contain genetically modified organisms in varying proportions according to the year and the country of production. The use of genetically modified organisms in food has been achieved with varying degrees of acceptance in the markets in which we operate. Argentina and Brazil, for example, have approved the use of genetically modified organisms in food products, and genetically modified organisms and non-genetically modified organisms grains in those countries are produced and mixed frequently during the process of grain origination. Elsewhere, adverse publicity aboutgenetically modified foods has led to government regulation that limits sales of genetically modified organisms products. It is possible that new restrictions may be imposed on genetically modified organisms products in the main markets for some of our products, which could have an adverse effect on our business, equity and the result of our operations.

If our products become contaminated, we may be subject to product liability claims, product withdrawals and export restrictions that could adversely affect our business.

While we are subject to strict production protocols, the sale of products implies the risk of injury to consumers. These injuries may result from manipulation by third parties, bioterrorism, product contamination or deterioration, including the presence of bacteria, pathogens, foreign objects, substances, chemicals, other agents or waste introduced during the growth phases, storage, handling or transport.

We cannot be sure that the consumption of our products will not cause a health-related illness in the future or that we will not be subject to claims or judgments related to such matters. Even if a product liability claim is unsuccessful or not fully realized, the negative publicity surrounding any claim that our products caused a disease or injury could negatively affect our reputation with current and potential customers and our image as a Company, and we could also incur significant incidents. In addition, claims or liabilities of this nature may not be covered by any compensation or contribution rights we may have against others, which could have a material adverse effect on our business, equity status and the result of our operations.

36

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.

Over the last few years, the Argentine government has taken certain measures in order to reduce the use of energy during peak months of the year by frequently cutting energy supply to industrial facilities and large consumers to ensure adequate supply for residential buildings. If energy supply is cut for an extended period of time or energy tariffs continue increasing and we are unable to find replacement sources at comparable prices, or at all, our business and results of operations could be adversely affected.

Our level of debt may adversely affect our operations and our ability to pay our debt as it becomes due.

We had, and expect to have, substantial liquidity and capital resource requirements to finance our business. As of June 30, 2020, our consolidated financial debt amounted to ARS 418,807 million (including IDBD’s debt outstanding as of that date plus accrued and unpaid interest on such indebtedness and deferred financing costs). We cannot assure you that we will have sufficient cash flows and adequate financial capacity in the future. While the commitments and other covenants applicable to IDBD’s debt obligations do not apply to IRSA since there is no recourse to IRSA and it is not guaranteed by IRSA’s assets, these covenants and restrictions may impair or restrict our ability to operate IDBD and implement our business strategy. Although we are generating sufficient funds from our operating cash flows to meet our debt service obligations and our ability to obtain new financing is adequate, considering the current availability of loan financing in Argentina, we cannot assure you that we will have sufficient cash flows and adequate financial structure in the future. For more information see “Recent Events – Recent IRSA Events - Corporate Information: IDBD”.On September 15, 2020, Communication “A” 7,106 established that companies must refinance maturities of financial debt capital in the period from October 15, 2020 to March 31, 2021. In this sense, the Central Bank will give access to companies for up to 40% of maturities and companies must refinance the rest within at least two years. For more information see: “Item 10. Additional Information—D. Exchange Controls.”

As a consequence of the new restrictions on access to the Foreign Exchange Market, on October 23, 2020, we launched an exchange offer on our Series XXIV Notes due on November 14, 2020. The exchange offer consisted on two options for the bondholders: i) a cash consideration of USD 0.95741755 for each USD 1 of existing notes presented to the Exchange and the remaining amount until completing USD 1 for each USD 1 of existing notes presented to the Exchange, in notes Series XXXI, and ii) a par for par exchange of notes Series XXXII for each Existing Notes presented to the Exchange. Also on October 22, 2020, IRSA launched an exchange offer and consent solicitation on its Series I Notes due on November 15, 2020. The exchange offer consisted on two options for the bondholders: i) a cash consideration of USD 0.69622593 for each USD 1 of existing notes presented to the Exchange and the remaining amount until completing 1 USD for each 1 USD of existing notes presented to the Exchange, in notes Series VIII, and ii) a par for par exchange of notes Series IX for each Existing Notes presented to the Exchange.

Our exchange offer consisted on the following, exchange consideration of Series XXIV Notes and Issuance of Series XXXI Notes and Series XXXII Notes. The Exchange Offer expired on November 10, 2020 and the Nominal Value of Existing Notes presented and accepted for the Exchange (for both Series) was USD 65,075,746, which represents 88.41% acceptance.

IRSA’s Exchange Offer expired on November 10, 2020 and the Nominal Value of Existing Notes presented and accepted for the Exchange (for both Series) was USD 178,458,188, which represents 98.31% acceptance.Considering that consent has been obtained for an amount greater than 90% of the capital of the existing notes, the Company made the Non-Essential Proposed Modifications and / or the Essential Proposed Modifications, by means of which the terms and conditions of the existing notes will be modified and replaced.

For more information see: “Recent Developments - Exchange Offer - Issuance of Series XXXI and XXXII Notes” and “IRSA’s Recent Developments - Exchange Offer- Issuance of Series VIII and IX Notes.”

Our leverage may affect our ability to refinance existing debt or borrow additional funds to finance working capital requirements, acquisitions and capital expenditures. In addition, the recent disruptions in the local capital and the macroeconomic conditions of Argentine markets, 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 economic circumstances may last. This would require us 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. Our leverage could also affect our competitiveness and limit our ability to changes in market conditions, changes in the real estate industry and economic downturns.

The success of our businesses and the feasibility of our transactions depend on the continuity of investments in the real estate markets and our ability to access capital and debt financing. In the long term, lack of confidence in real estate investment and lack of access to credit for acquisitions could restrict growth. As part of our business strategy, we will strive to increase our real estate portfolio through strategic acquisitions of properties at favorable prices and properties with added value which we believe meet the requirements to increase the value of our properties.

We may not be able to generate sufficient cash flows from operations to satisfy our debt service requirements or to obtain future financing. If we cannot satisfy our debt service requirements or if we default on any financial or other covenants in our debt arrangements, the lenders and/or holders of our debt will be able to accelerate the maturity of such debt or cause defaults under the other debt arrangements. Our ability to service debt obligations or to refinance them will depend upon our future financial and operating performance, which will, in part, be subject to factors beyond our control such as macroeconomic conditions and regulatory changes in Argentina. If we cannot obtain future financing, we may have to delay or abandon some or all of our planned capital expenditures, which could adversely affect our ability to generate cash flows and repay our obligations as they become due.

37

We depend on our chairman and senior management.

Our success depends, to a significant extent, on the continued employment of Mr. Eduardo S. Elsztain, our chairman, and Alejandro G. Elsztain, our chief executive officer, and second vice-chairman. 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 (“Investment Company Act”), 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, are required to register with the SEC 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 SEC 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 SEC would issue such an order.

As of June 30, 2020, we owned approximately 61.95% 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 U.S. capital markets have historically been an important source of funding for us, and our ability to obtain financing in the future may be adversely affected by a lack of access to the U.S. 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 under the investment company act 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.

38

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 securities, corporate debt securities, 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 IRSA’s business in Argentina

Disease outbreaks or other public health concerns could reduce traffic in our shopping malls.

As a result of the outbreak of Swine Flu during the winter of 2009, consumers and tourists dramatically changed their spending and travel habits to avoid contact with crowds. Recently, as a result of the COVID-19 pandemic, the Argentine government enacted several regulations limiting the operation of schools, cinemas and shopping malls, which has significantly reduced traffic at our shopping malls. See “Risks Relating to Argentina – The ongoing COVID-19 pandemic and government measures to contain the virus are adversely affecting our business and results of operations, and, as conditions are evolving rapidly, we cannot accurately predict the ultimate impact on our results of operation.” IRSA cannot assure you that new disease outbreaks or health hazards will not occur in the future, or that such an outbreak or health hazard would not significantly affect consumer and/or tourists’ activity. The recurrence of such a scenario could adversely affect IRSA’s business and IRSA’s results of operations.

IRSA is subject to risks inherent to the operation of shopping malls that may affect our profitability.

IRSA’s shopping malls are subject to various factors that affect their development, administration and profitability, including:

●

declines in lease prices or increases in levels of default by our tenants due to economic conditions;

●

increases in interest rates and other factors outside our control;

●

the accessibility and attractiveness of the areas where our shopping malls are located;

●

the intrinsic attractiveness of the shopping mall;

●

the flow of people and the level of sales of rental units in our shopping malls;

●

the increasing competition from internet sales;

●

the amount of rent collected from tenants at our shopping malls;

●

changes in consumer demand and availability of consumer credit, both of which are highly sensitive to general macroeconomic conditions; and

●

fluctuations in occupancy levels in our shopping malls.

39

Worldwide competition in the markets for our products could adversely affect our business and results of operations.  An increase in our operating costs could also have a material adverse effect on us if our tenants were to become unable to pay higher rent we may be required to impose as a result of increased expenses. Moreover, the shopping mall business is closely related to consumer spending and affected by prevailing economic conditions. All of our shopping malls and commercial properties are located in Argentina, andconsequently, these operations may be adversely affected by recession or economic uncertainty in Argentina. Persistently poor economic conditions could result in a decline in consumer spending which could have a material adverse effect on shopping mall revenue.

IRSA could be adversely affected by decreases in the value of our investments.

IRSA’s investments are exposed to the risks generally inherent to the real estate industry, many of which are out of our control. Any of these risks could adversely and materially affect IRSA’s business, financial condition and results of operations. Any returns on capital expenditures associated with real estate are dependent upon sales volumes and/or revenues from leases and the expenses incurred. In addition, there are other factors that may adversely affect the performance and value of a property, including local economic conditions prevailing in the area where the property is located, macroeconomic conditions in Argentina and globally, competition, IRSA’s ability to find lessees and their ability to perform on their leases, changes in legislation and in governmental regulations (such as the use of properties, urban planning and real estate taxes) as well as exchange controls (given that the real estate market in Argentina relies on the U.S. dollar to determine valuations), variations in interest rates (including the risk of an increase in interest rates that reduces sales of lots for residential development) and the availability of third party financing. In addition, andgiven the relative illiquidity of the Argentine real estate market, we could be unable to effectively respond to adverse market conditions and/or be compelled to undersell one or more properties. Some significant expenses, such as debt service, real estate taxes and operating and maintenance costs do not fall when there are circumstances that reduce the revenues from an investment, increasing our relative expenditures. These factors and events could impair IRSA’s ability to respond to adverse changes in the returns on IRSA’s investments, which in turn could have an adverse effect on our financial position and the results of IRSA’s operations.

IRSA issue debt in the local and international capital markets as one of its main sources of funding and our capacity to successfully access the local and international markets on favorable terms affects IRSA’s cost of funding.

IRSA’s ability to successfully access the local and international capital markets on acceptable terms depends largely on capital markets conditions prevailing in Argentina and internationally. IRSA has no control over capital markets conditions, which can be volatile and unpredictable. If IRSA is unable to issue debt in the local and/or international capital markets and on terms acceptable to us, whether as a result of regulationsand foreingn exchange restrictions, a deterioration in capital markets conditions or otherwise, IRSA would likely be compelled to seek alternatives for funding, which may include short-term or more expensive funding sources. If this was to happen, IRSA may be unable to fund our liquidity needs at competitive costs and our business results of operations and financial condition may be materially and adversely affected.

IRSA’s assets are highly concentrated in certain geographic areas and an economic downturn in such areas could have a material adverse effect on our results of operations and financial condition.

As of June 30, 2020, most of IRSA’s revenue from leases and services provided by the Shopping Malls segment derived from properties located in the City of Buenos Aires and the Greater Buenos Aires metropolitan area. In addition, all of IRSA’s office buildings are located in Buenos Aires and a substantial portion of IRSA’s revenue is derived from such properties. Although IRSAowns properties and may acquire or develop additional properties outside Buenos Aires and the Greater Buenos Aires metro area, IRSA expects to continue to be largely affected by economic conditions affecting those areas. Consequently, an economic downturn in those areas could cause a reduction in our rental income and adversely affect its ability to comply with IRSA’s debt service and fund operations.

40

IRSA’s performance is subject to the risks associated with our properties and with the real estate industry.

IRSA’s operating performance and the value of our real estate assets, and as a result, the value of its securities, are subject to the risk that its properties may not be able to generate sufficient revenue to meet its operating expenses, including debt service and capital expenditures, its cash flow needs and its ability to service our debt obligations. Events or conditions beyond its control that may adversely affect its operations or the value of its properties include:

●

downturns in national, regional and local economies;

●

declines in consumer spending and consumption;

●

competition from other shopping malls and sales outlets;

●

local real estate market conditions, such as oversupply or lower demand for retail space;

●

changes in interest rates and availability of financing;

●

the exercise by our tenants of their right to early termination of their leases;

●

vacancies, changes in market rental rates and the need to periodically repair, renovate and re-lease space;

●

increased operating costs, including insurance expenses, salary increases, utilities, real estate taxes, federal and local taxes and higher security costs;

●

the impact of losses resulting from civil disturbances, strikes, natural disasters, terrorist acts or acts of war;

●

significant fixed expenditures associated with each investment property, such as debt service payments, real estate taxes, insurance and maintenance costs;

●

declines in the financial condition of our tenants and our ability to collect rents when due;

●

changes in our or our tenants’ ability to provide for adequate maintenance and insurance that result in a reduction in the useful life of a property; and

●

changes in law or governmental regulations (such as those governing usage, zoning and real property taxes) or changes in the exchange controls or government action (such as expropriation).

If any one or more of the foregoing conditions were to affect IRSA’s activities, this could have a material adverse effect on our financial condition and results of operations, and as a result, on the Company’s results.

An adverse economic environment for real estate companies and the credit crisis may adversely affect IRSA’s results of operations.

The success of IRSA’s business and profitability of our operations depend on continued investment in real estate and access to long-term financing. A prolonged crisis of confidence in real estate investments and lack of credit for acquisitions may constrain our growth and the maintenance of our current business and operations. As part of IRSA’s strategy, IRSA intends to increase our properties portfolio through strategic acquisitions at favorable prices, where IRSA believes IRSA can bring the necessary expertise to enhance property values. In order to pursue acquisitions, IRSA may require capital or debt financing. Recent disruptions in the financial markets may adversely impact IRSA’s ability to refinance existing debt and the availability and cost of credit in the future. Any consideration of sales of existing properties or portfolio interests may be offset by lower property values. IRSA’s ability to make scheduled payments or to refinance IRSA’s existing debt obligations depends on our operating and financial performance, which in turn is subject to prevailing economic conditions. If disruptions in financial markets prevail or arise in the future, we cannot provide assurances that government responses to such disruptions will restore investor confidence, stabilize the markets or increase liquidity and the availability of credit.

41

IRSA’s revenue and profit may be materially and adversely affected by continuing inflation and economic activity in Argentina.

IRSA’s business is mainly driven by consumer spending, since a portion of the revenue from its Shopping Mall segment derives directly from the sales of our tenants, whose revenue relies on the sales to consumers. As a result, IRSA’s revenues and net income are impacted to a significant extent by economic conditions in Argentina, including the development in the textile industry and domestic consumption, which experienced a significant decline during 2019 and 2020. Consumer spending is influenced by many factors beyond IRSA’s control, including consumer perception of current and future economic conditions, inflation, political uncertainty, rates of employment, interest rates, taxation and currency exchange rates. Any continuing economic slowdown, whether actual or perceived, could significantly reduce domestic consumer spending in Argentina and therefore adversely affect our business, financial condition and results of operations.

The loss of tenants or the failure of IRSA’s tenants to comply with the terms of their leases could adversely affect our operating revenues and value of our properties.

Although no single tenant represents more than 3.7% of IRSA’s revenues in any fiscal year, if a significant number of tenants at its retail or office properties were to experience financial difficulties, including bankruptcy, insolvency or a general downturn of business, or if IRSA failed to retain them, IRSA’s business could be adversely affected. Further, IRSA’s shopping malls typically have a significant “anchor” tenant, such as well-known department stores, that generate consumer traffic at each mall. A decision by such tenants to cease operating at any of our shopping mall properties could have a material adverse effect on our financial condition and the results of our operations. In addition, the closing of one or more stores that attract consumer traffic may motivate other tenants to terminate or to not renew their leases, to seek rent concessions and/or close their stores. Moreover, tenants at one or more properties might terminate their leases as a result of mergers, acquisitions, consolidations, dispositions or bankruptcies. The bankruptcy and/or closure of multiple stores, if IRSA is not able to successfully release the affected space, could have a material adverse effect on both the operating revenues and underlying value of the properties involved.See “Item 5.A. Operating Results – The Ongoing COVID-19 Pandemic.”

IRSA may face risks associated with acquisitions of properties.

As part of IRSA’s growth strategy, IRSA has acquired, and intend to do so in the future, properties, including large properties (such as Edificio República, Abasto de Buenos Aires and Alto Palermo Shopping), that tend to increase the size of our operations and potentially alter our capital structure. Although IRSA believes that the acquisitions IRSA has completed in the past and that IRSA expects to undertake enhance IRSA’s financial performance, the success of such transactions 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 IRSA’s estimates;

●

acquired properties may be located in new markets where IRSA may have limited knowledge and understanding of the local economy, absence of business relationships in the area or are unfamiliar with local governmental and permitting procedures; and

●

IRSA may not be able to efficiently integrate acquired properties, particularly portfolios of properties, into IRSA’s organization and to manage new properties in a way that allows it to realize cost savings and synergies.

42

IRSA’s future acquisitions may not be profitable. 

IRSA seeks to acquire additional shopping malls to the extent IRSA manages to acquire them on favorable terms and conditions and they meet our investment criteria. Acquisitions of commercial properties entail general investment risks associated with any real estate investment, including: 

●

IRSA’s estimates of the cost of improvements needed to bring the property up to established standards for the market may prove to be inaccurate;

●

properties IRSA acquires may fail to achieve, within the time frames we project, the occupancy or rental rates we expect to achieve at the time we make the decision to acquire, which may result in the properties’ failure to achieve the returns we projected;

●

IRSA’s pre-acquisitions evaluation and the physical condition of each new investment may not detect certain defects or identify necessary repairs, which could significantly increase our total acquisition costs; and

●

IRSA’s investigations of a property or building prior to its acquisition, and any representations 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 our acquisition cost.

If IRSA acquires a business, IRSA will be required to merge and integrate the operations, personnel, accounting and information systems of such acquired business. In addition, acquisitions of or investments in companies may cause disruptions in our operations and divert management’s attention away from day-to-day operations, which could impair our relationships with our current tenants and employees.

The properties IRSA acquires may be subject to unknown liabilities.

The properties that IRSA acquires may be subject to unknown liabilities, in respect to which IRSA may have limited or no recourse to the former owners. If a liability were asserted against us based on IRSA’s ownership of an acquired property, IRSA may be required to incur significant expenditures to settle, which could adversely affect IRSA’s financial results and cash flow. Unknown liabilities relating to acquired properties could include:

●

liabilities for clean-up of undisclosed environmental contamination;

●

the costs of changes in laws or in governmental regulations (such as those governing usage, zoning and real property taxes); and

●

liabilities incurred in the ordinary course of business.

IRSA’s dependence on rental income may adversely affect IRSA’s ability to meet IRSA’s debt obligations.

A substantial part of IRSA’s revenue is derived from rental income. As a result, our performance depends on our ability to collect rent from IRSA’s tenants. Our revenue and profits would be negatively affected if a significant number of our tenants or any significant tenant were to:

●

delay lease commencements;

●

decline to extend or renew leases upon expiration;

●

fail to make rental payments when due; or

●

close stores or declare bankruptcy.

Any of these actions could result in the termination of leases and the loss of related rental income. In addition, IRSA cannot assure you that any tenant whose lease expires will renew that lease or that we will be able to re-let the space on economically reasonable terms. The loss of rental revenue from a number of our tenants and IRSA’s inability to replace such tenants may adversely affect our profitability and its ability to comply with our debt service obligations.These factors are particularly disruptive in the context of emergency situations such as the COVID-19 pandemic which has caused significant adverse impacts on our business as tenants have been required to shutdown or significantly reduce their operating activities.

43

It may be difficult to buy and sell real estate quickly and transfer restrictions may apply to part of IRSA’s portfolio of properties.

Real estate investments are relatively illiquid and this tends to limit our ability to vary IRSA’s portfolio in response to economic changes or other conditions. In addition, significant expenditures associated with each investment, such as mortgage payments, real estate taxes and maintenance costs, are generally not reduced when circumstances cause a decrease in income from an investment. If income from a property declines while the related expenses do not decline, our business would be adversely affected. Certain properties are mortgaged to secure payment of debt, and if we were unable to meet our payment obligations under such mortgages, we could suffer losses as a result of foreclosures on the mortgage properties. Further,if it becomes necessary or desirable for us to dispose of one or more of our mortgaged properties, we may not be able to obtain a release of the security interest on the property without payment of the associated debt. The foreclosure of a mortgage on a property or inability to sell a property could adversely affect our business. In this kind of transactions, we may agree, subject to certain exceptions, not to sell the acquired properties for a considerable time.

Some of the land IRSA has purchased is not zoned for development purposes, and IRSA 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 IRSA intends to develop. In addition, IRSA has not yet applied for the required land-use, building, occupancy and other required governmental permits and authorizations for these properties. IRSA cannot assure you that IRSA will continue to be successful in our attempts to rezone land and to obtain all necessary permits and authorizations, or that rezoning efforts and permit requests will not be unreasonably delayed or rejected. Moreover, IRSA may be affected by building moratorium and anti-growth legislation. If IRSA is unable to obtain all of the governmental permits and authorizations we need to develop our present and future projects as planned, IRSA may be forced to make unwanted modifications to such projects or abandon them altogether.

IRSA’s ability to grow will be limited if IRSA cannot obtain additional financing.

Although IRSA is liquid as of the date of this annual report, we must maintain liquidity to fund our working capital, service our outstanding indebtedness and finance investment opportunities. Without sufficient liquidity, we could be forced to curtail our operations or we may not be able to pursue new business opportunities. IRSA’s growth strategy is focused on the development and redevelopment of properties IRSA already owns and the acquisition and development of additional properties. As a result, IRSA is likely to depend on an important degree on the availability of debt or equity capital, which may or may not be available on favorable terms or at all. IRSA cannot assure you that additional financing, refinancing or other capital will be available in the amounts we require or on 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 r growth potential, IRSA’sability to pay dividends, IRSA’s financial condition, IRSA’s credit rating and our current and potential future earnings. Depending on these factors, we could experience delays or difficulties in implementing IRSA’s growth strategy on satisfactory terms or at all. The capital and credit markets for Argentine have been experiencing extreme volatility and disruption since the last years. If IRSA’s current resources do not satisfy our 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 our credit ratings, as well as the possibility that lenders could develop a negative perception of the prospects of risk in Argentina, of IRSA’s company or the industry generally. IRSA may not be able to successfully obtain any necessary additional financing on favorable terms, or at all.

44

Adverse incidents that occur in IRSA’s shopping malls may result in damage to IRSA’s reputation and a decrease in the number of customers.

Given that IRSA’s shopping malls are open to the public, with ample circulation of people, accidents, theft, robbery, public protest and other incidents may occur in our facilities, regardless of the preventative measures we adopt. In the event such an incident or series of incidents occurs, shopping mall customers and visitors may choose to visit other shopping venues that they believe are safer, which may cause a reduction in the sales volume and operating income of our shopping malls.

Argentine laws governing leases impose restrictions that limit IRSA’s flexibility.

Argentine laws governing leases impose certain restrictions, including the following:

●

a prohibition on including automatic price adjustment clauses based on inflation increases in leases; and

●

the imposition of a two-year minimum lease term for all purposes, except in particular cases such as embassy, consulate or international organization venues, room with furniture for touristic purposes for less than three months, custody and bailment of goods, exhibition or offering of goods in fairs or in cases where due to the circumstances, the subject matter of the lease requires a shorter term.

As a result, IRSA is exposed to the risk of higher rates of inflation under IRSA’s leases, and any exercise of rescission rights by our tenants could materially and adversely affect IRSA’s business and results of operations. IRSA cannot assure you that IRSA’s tenants will not exercise such right, especially if rental rates stabilize or decline in the future or if economic conditions continue to deteriorate.

On October 1, 2014, the Argentine Congress adopted the amended Civil and Commercial Code which is in force since August 1, 2015 (the “Argentine Civil and Commercial Code”) which provides that leases must have a minimum term of two years and a maximum term of 20 years for residential properties and of 50 years for non-residential. The Argentine Civil and Commercial Code modifies the regime applicable to contractual provisions relating to foreign currency payment obligations by establishing that such obligations may be discharged in Pesos.

The prior legal framework required that debtors could only discharge their foreign currency payment obligations by paying in that currency. Although judicial decisions have held that this feature of the regulation can be set aside by the parties to an agreement, it is too early to determine if this is legally enforceable. Moreover, there are not enough judicial decisions on the scope of this amendment and, in particular, its impact on the ability of landlords and tenants to set aside the new provision and enforce such agreements before an Argentine court. In recent years certain rulings have been rendered affirming the obligation of a tenant to pay in foreign currency if the obligation was freely assumed.

IRSA may be liable for certain defects in IRSA’s buildings.

The Argentine Civil and Commercial Code imposes liability on real estate developers, builders, technical project managers and architects in case of hidden defects in a property for a period of three years from the date title to the property is tendered to the purchaser, even when those defects did not cause significant property damage. If any defect affects the structural soundness or make the property unfit for use, the liability term is ten years. In IRSA’s real estate developments, IRSA usually acts as developers and sellers while construction generally is carried out by third party contractors. Absent a specific claim, IRSA cannot quantify the potential cost of any obligation that may arise as a result of a future claim, and IRSA has not recorded provisions associated with them in IRSA’s financial statements. If IRSA was required to remedy any defects on completed works, our financial condition and results of operations could be adversely affected.

IRSA could have losses if we have to resort to eviction proceedings in Argentina to collect unpaid rent because such proceedings are complex and time-consuming.

Although Argentine law permits filing of an executive proceeding to collect unpaid rent and a special proceeding to evict tenants, eviction proceedings in Argentina are complex and time-consuming. Historically, the heavy workloads of the courts and the numerous procedural steps required have generally delayed landlords’ efforts to evict tenants. Eviction proceedings generally take between six months and two years from the date of filing of the suit to the time of actual eviction.

45

Historically, IRSA has sought to negotiate the termination of leases with defaulting tenants after the first few months of non-payment in an effort to avoid legal proceedings. Delinquency may increase significantly in the future, and such negotiations with tenants may not be as successful as they have been in the past. Moreover, new Argentine laws and regulations may forbid or restrict eviction, and in each such case they would likely have a material and adverse effect on our financial condition and results of operations.

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.

The global credit crisis has a significant negative impact on businesses around the world. Similarly, Argentina is undergoing a credit crisis that could negatively impact IRSA’s tenants’ ability to comply with their lease obligations. The impact of a future credit crisis on IRSA’s major tenants cannot be predicted and may be quite severe. A disruption in the ability of IRSA’s significant tenants to access liquidity could pose serious disruptions or an overall deterioration of their businesses, which could lead to a significant reduction in future orders of their products and their inability or failure to comply with their obligations, any of which could have a material adverse effect on our results of operations and liquidity.

IRSA is subject to risks inherent to the operation of office buildings that may affect IRSA’s profitability.

Office buildings are exposed to various factors that may affect their development, administration and profitability, including the following factors:

●

lower demand for office space;

●

a deterioration in the financial condition of our tenants that causes defaults under leases due to lack of liquidity, access to capital or for other reasons;

●

difficulties or delays renewing leases or re-leasing space;

●

decreases in rents as a result of oversupply, particularly offerings at newer or re-developed properties;

●

competition from developers, owners and operators of office properties and other commercial real estate, including sublease space available from our tenants;

●

maintenance, repair and renovation costs incurred to maintain the competitiveness of our office buildings;

●

exchange controls that may interfere with their ability to pay rents that generally are pegged to the U.S. dollar;

●

theconsequences of a pandemic, epidemic or disease outbreak that would produce lower demand for offices spaces; and

●

an increase in our operating costs, caused by inflation or by other factors could have a material adverse effect on us if our tenants are unable to pay higher rent as a result of increased expenses.

IRSA’s investment in property development and management activities may be less profitable than IRSA anticipate.

IRSA is engaged in the development and construction of properties to be used for office, residential or commercial purposes, shopping malls and residential complexes, in general through third-party contractors. Risks associated with our development, reconversion and construction activities include the following, among others:

●

abandonment of development opportunities and renovation proposals;

●

construction costs may exceed our estimates for reasons including higher interest rates or increases in the cost of materials and labor, making a project unprofitable;

●

occupancy rates and rents at newly completed properties may fluctuate depending on a number of factors, including market and economic conditions, resulting in lower than projected rental revenue and a corresponding lower return on our investment;

46

●

pre-construction buyers may default on their purchase contracts or units in new buildings may remain unsold upon completion of construction;

●

lack of affordable financing alternatives in the private and public debt markets;

●

sale prices of residential units may be insufficient to cover development costs;

●

construction and lease commencements may not be completed on schedule, resulting in increased debt service expense and construction costs;

●

failure or delays in obtaining necessary zoning, land-use, building, occupancy and other required governmental permits and authorizations, or building moratoria and anti-growth legislation;

●

significant time lags between the commencement and completion of projects subjects us to greater risks due to fluctuation in the general economy;

●

construction may be delayed because of a number of factors, including weather, strikes or delays in receipt of zoning or other regulatory approvals, or man-made or natural disasters, resulting in increased debt service expense and construction costs;

●

changes in our tenants’ demand for rental properties outside of Buenos Aires; and

●

IRSA may incur capital expenditures that require considerable time and effort and which may never be completed due to government restrictions or overall market conditions.

In addition, IRSA may face constructors’ claims for the enforcement of labor laws in Argentina. 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 courts 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 our control, as well as financing costs that, may exceed original estimates, possibly making the associated investment unprofitable. Any substantial unanticipated delays or expenses could adversely affect the investment returns from these development projects and harm our operating results.

Greater than expected increases in construction costs could adversely affect the profitability of IRSA’s new developments.

IRSA’s businesses activities include real estate developments. One of the main risks related to this activity corresponds to potential increases in constructions costs, which may be driven by higher demand and new development projects in the shopping malls and buildings sectors. Increases higher than those included in the original budget may result in lower profitability than expected.

47

The increasingly competitive real estate sector in Argentina may adversely affect IRSA’s ability to rent or sell office space and other real estate and may affect the sale and lease price of our premises.

IRSA’s real estate activities are highly concentrated in the Buenos Aires metropolitan area, where the real estate market is highly competitive due to a scarcity of properties in sought-after locations and the increasing number of local and international competitors. Furthermore, the Argentine real estate industryis generally highly competitive and fragmented and does not have high barriers to entry restricting new competitors from entering the market. 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 us 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 and shopping mall business in Argentina, further increasing this competition. To the extentthat one or more of our competitors are able to acquire and develop desirable properties, as a result of greater financial resources or otherwise, our business could be materially and adversely affected. If we are not able to respond to such pressures as promptly as our competitors, or the level of competition increases, our financial condition and results of our operations could be adversely affected.

All of IRSA’s shopping mall and commercial office properties are located in Argentina. There are other shopping malls and numerous smaller retail stores and residential properties within the market area of each of our properties. The number of competing properties in a particular area could have a material adverse effect both on our ability to lease retail space in our shopping malls or sell units in our residential complexes and on the amount of rent or the sale price that we are able to charge. IRSA cannot assure you that other shopping mall operators, including international shopping mall operators, will not invest in Argentina in the near future. If additional companies become active in the Argentine shopping mall market in the future, such competition could have a material adverse effect on our results of operations. Substantially all of IRSA’s offices and other non-shopping mall rental properties are located in developed urban areas. There are many office buildings, shopping malls, retail and residential premises in the areas where IRSA’s properties are located. This is a highly fragmented market, and the abundance of comparable properties in our vicinity may adversely affect our ability to rent or sell office space and other real estate and may affect the sale and lease price of our premises. In the future, both national and foreign companies may participate in Argentina’s real estate development market, competing with us for business opportunities.

Some potential losses are not covered by insurance and certain kinds of insurance coverage may become prohibitively expensive.

IRSA currently carries insurance policies that cover potential risks such as civil liability, fire, loss profit, floods, including extended coverage and losses from leases on all of IRSA’s properties. Although we believe 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 under the insurance policies offered in the national market. In the event of a loss that was not insured or a loss in excess of insured limits, IRSA could lose all or a portion of the capital IRSA 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 IRSA’s properties were to experience a catastrophic loss, it could seriously disrupt our operations, delay revenue and result in large expenses to repair or rebuild the property. IRSA does not hire life or disability insurance for our key employees. If any of our key employees were to die or become disabled, IRSA could experience losses caused by a disruption in our operations which will not be covered by insurance, and this could have a material adverse effect on our financial condition and results of operations. In addition, IRSA cannot assure you that IRSA will be able to renew our 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.

48

An uninsured loss or a loss that exceeds policies on IRSA’s properties could subject us to lost capital or revenue on those properties. The terms of IRSA’s standard form property leases currently in effect, require tenants to indemnify and hold us harmless from liabilities resulting from injury to persons or property at or outside the premises, due to activities conducted on the properties, except for claims arising from negligence or intentional misconduct of IRSA’s agents. Tenants are generally required, at the tenant’s expense, to obtain and keep in full force during the term of the lease, liability insurance policies. IRSA cannot provide assurance that IRSA’s tenants will be able to properly maintain their insurance policies or have the ability to pay deductibles. If an uninsured loss occurs or a loss arises that exceeds the combined aggregate limits for the policies, or if a loss arises that is subject to a substantial deductible under an insurance policy, we could lose all or part of IRSA’s capital invested in, and anticipated revenue from, one or more of IRSA’s properties, which could have a material adverse effect on our business, financial condition and results of operations.

Demand for IRSA’s premium properties, aimed at high-income consumers, may not be sufficient.

IRSA have focused on development projects that cater to affluent consumers and IRSA has entered into property barter arrangements pursuant to which IRSA contributes undeveloped land parcels to joint venture entities with developers who agree to deliver units at premium development locations in exchange for IRSA’s land contribution. When the developers return these properties to us, 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 time frame, which could have an adverse effect on IRSA’s financial condition and results of operations.

IRSA’s level of debt may adversely affect our operations and our ability to pay IRSA’s debt as it becomes due.

As of June 30, 2020, IRSA’s consolidated financial debt amounted to ARS 376,159 million (including the Operation Center in Israel’s outstanding debt of ARS 311,674 million, and current and non-current financial loans plus accrued and unpaid interest and deferred financing costs). IRSA cannot assure the Company that we will have sufficient cash flows and adequate financial capacity to finance its business in the future. While the commitments and other covenants applicable to IDBD’s debt obligations do not apply to IRSA since there is no recourse to IRSA and such debt obligations are not guaranteed by IRSA’s assets, these covenants and restrictions may impair or restrict our ability to operate IDBD and implement its business strategy. Although IRSA is generating sufficient funds from our operating cash flows to meet IRSA’s debt service obligations and IRSA’s ability to obtain new financing is adequate, considering the current availability of loan financing in Argentina, IRSA cannot assure the Company that IRSA will have sufficient cash flows and adequate financial structure in the future. For more information see “Recent Events – RECENT IRSA Events - Corporate Information: IDBD”. IRSA’s leverage may affect our ability to refinance existing debt or borrow additional funds to finance working capital requirements, acquisitions and capital expenditures. In addition, the recent disruptions in the local capital and the macroeconomic conditions of Argentine markets, 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 economic circumstances may last. This would require us 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. IRSA’s leverage could also affect our competitiveness and limit IRSA’s ability to changes in market conditions, changes in the real estate industry and economic downturns. The success of IRSA’s businesses and the feasibility of IRSA’s transactions depend on the continuity of investments in the real estate markets and IRSA’s ability to access capital and debt financing. In the long term, lack of confidence in real estate investment and lack of access to credit for acquisitions could restrict growth. As part of IRSA’s business strategy, we will strive to increase IRSA’s real estate portfolio through strategic acquisitions of properties at favorable prices and properties with added value which we believe meet the requirements to increase the value of our properties.

49

IRSA may not be able to generate sufficient cash flows from operations to satisfy our debt service requirements or to obtain future financing. If we cannot satisfy our debt service requirements or if we default on any financial or other covenants in our debt arrangements, the lenders and/or holders of our securities will be able to accelerate the maturity of such debt or default under other debt arrangements. IRSA’s ability to service debt obligations or to refinance them will depend upon our future financial and operating performance, which will, in part, be subject to factors beyond our control such as macroeconomic conditions and regulatory changes in Argentina. If we cannot obtain future financing, IRSA may have to delay or abandon some or all of our planned capital expenditures, which could adversely affect our ability to generate cash flows and repay our obligations as they become due. On November 2, 2020, IRSA, announced the results of the Early Bird of Series IX Notes. As of October 30, 2020, deadline for accessing the Early Bird, exchange orders have been submitted for a total amount equivalent to USD 70,971,181 for Series IX Notes. On November 11, 2020, IRSA reported the results of the Exchange Offer. Eligible holders have been presented for a total amount equivalent (for both Classes) to USD 178,458,188, representing 98.31% of the face value of the Existing Notes in Circulation, through the participation of 6,571 orders. For more information see: “Recent Developments - Exchange Offer- Issuance of Series VIII and IX Notes.”

IRSA is subject to risks affecting the hotel industry.

The full-service segment of the lodging industry in which our hotels operate is highly competitive. The operational success of IRSA’s hotels is highly dependent on our 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 our hotels depends on:

●

our ability to form successful relationships with international and local operators to run our hotels;

●

changes in tourism and travel trends, including seasonal changes and changes due to pandemic outbreaks, such as the Influenza A Subtype H1N1 and Zika viruses, a potential Ebola outbreak, among others, or weather phenomena’s or other natural events, such as the eruption of the Puyehué and the Calbuco volcano in June 2011 and April 2015, respectively;

●

affluence of tourists, which can be affected by a slowdown in global economy; and

●

taxes and governmental regulations affecting wages, prices, interest rates, construction procedures and costs.

The shift by consumers to purchasing goods over the Internet, where barriers to entry are low, may negatively affect sales at IRSA’s shopping malls.

In recent years, internet retail sales have grown significantly in Argentina, even though the market share of such sales is still modest. The Internet enables manufacturers and retailers to sell directly to consumers, diminishing the importance of traditional distribution channels such as retail stores and shopping malls. IRSA believes that our target consumers are increasingly using the Internet, from home, work or elsewhere, to shop electronically for retail goods, and this trend is likely to continue. Retailers at IRSA’s properties face increasing competition from online sales and this could cause the termination or non-renewal of their leases or a reduction in their gross sales, affecting our percentage rent based revenue. If e commerce and retail sales through the Internet continue to grow, retailers’ and consumers’ reliance on our shopping malls could be materially diminished, having a material adverse effect on our financial condition, results of operations and business prospects. For more information with respect to the COVID-19 pandemic and its impact on our business, see “Item 5.A. Operating Results – The Ongoing COVID-19 Pandemic.”

50

IRSA’s business is subject to extensive regulation and additional regulations may be imposed in the future. IRSA’s activities are subject to Argentine federal, state and municipal laws, and to regulations, authorizations and licenses required with respect to construction, zoning, use of the soil, environmental protection and historical landmark preservation, consumer protection, antitrust and other requirements, all of which affect IRSA’s ability to acquire land, buildings and shopping malls, develop and build projects and negotiate with customers. In addition, companies in this industry are subject to increasing tax rates, the introduction of new taxes and changes in the taxation regime. IRSA’s is required to obtain permits from different government agencies in order to carry out our projects. Maintaining IRSA’s licenses and authorizations can be costly. If we fail to comply with such laws, regulations, licenses and authorizations, IRSA may face fines, project shutdowns, and cancellation of licenses and revocation of authorizations. In addition, public agencies may issue new and stricter standards, or enforce or construe existing laws and regulations in a more restrictive manner, which may force us to incur expenditures in order to comply. Development activities are also subject to risks of potential delays in or an inability to obtain all necessary zoning, environmental, land-use, development, building, occupancy and other permits and authorizations. Any such delays or failures to obtain such government approvals may have an adverse effect on IRSA’s business. In the past, the Argentine government issued 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 tenants pay all costs and taxes related to their respective leased areas. In the event of a significant increase in such costs and taxes, the Argentine government may respond to political pressure to intervene by regulating this practice, thereby negatively affecting 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 shopping malls and office properties in Argentina could negatively affect the real estate and the rental market and materially and adversely affect IRSA’s operations and financial condition.

Labor relations may negatively impact to IRSA.

As of June 30, 2020, 62% of IRSA’s workforce was represented by unions under collective bargaining agreements. Although IRSA currently enjoys good relations with IRSA’s employees and their unions, IRSA cannot assure you that labor relations will continue to be positive or that deterioration in labor relations will not materially and adversely affect us.

IRSA’s results of operations include unrealized revaluation adjustments on investment properties, which may fluctuate significantly over financial periods and may materially and adversely affect IRSA’s business, results of operations and financial condition.

During the year ended June 30, 2020, IRSA had fair value gains on investment properties of ARS 30,742 million. Although the upward or downward revaluation adjustments reflect unrealized capital gains or losses on our investment properties during the relevant periods, the adjustments do not reflect the actual cash flow or profit or losses generated from the sales or rental of our investment properties. Unless such investment properties are disposed of at similarly revalued amounts, IRSA will not realize the actual cash flow. The amount of revaluation adjustments has been, and will continue to be, significantly affected by the prevailing property markets and macroeconomic conditions prevailing in Argentina and will be subject to market fluctuations in those markets. IRSA cannot guarantee whether changes in market conditions will increase, maintain or decrease the historical average fair value gains on our investment properties or at all. In addition, the fair value of our investment properties may materially differ from the amount we receive from any actual sale of an investment property. If there is any material downward adjustment in the revaluation of our investment properties in the future or if our investment properties are disposed of at significantly lower prices than their valuation or appraised value, our business, results of operations and financial condition may be materially and adversely affected.

51

Due to the currency mismatches between IRSA’s assets and liabilities, IRSA has high currency exposure.

As of June 30, 2020 the majority of our liabilities in our Operations Center in Argentina, such as our Series 1 and 2 Notes, the Series 2 and 4 Notes issued by IRSA’s subsidiary IRSA Commercial Properties (“IRSA CP”) (which were fully canceled on September 14, 2020),and IRSA’s Series 8 and 9 Notes issued on November 12, 2020, were denominated in U.S. dollars while IRSA’s revenues are mainly denominated in Pesos. This currency gap and restrictions to access to foreingn exchange markets to acquire the required U.S. dollars to pay our U.S. dollar denominated debt exposes us to a risk of volatility, which circumstances may adversely affect our financial results if the U.S. dollar appreciates against the Peso and may affected our ability to our U.S. dollar denominated debt. Any depreciation of the Peso against the U.S. dollar increases the nominal amount of our debt in Pesos, which further adversely affects IRSA’s results of operation and financial condition and may increase the collection risk of IRSA’s leases and other receivables from IRSA’s tenants and mortgagees, most of which generate Peso denominated revenues.

52

Property ownership through joint ventures or investees may limit our ability to act exclusively in our interest.

We develop and acquire properties in joint ventures with other persons or entities or make minority investments in entities when we believe circumstances warrant the use of such structures. As of June 30 2020, through IRSA’s subsidiary IRSA CP, it owns 50% of Quality Invest S.A. In the Sales and Developments segment, 50% of the equity of Puerto Retiro and 50% of the equity of Cyrsa S.A. In the Hotel segment, IRSA owns 50% of the equity of Hotel Llao Llao and the other 50% is owned by the Sutton Group. In addition, IRSA holds approximately 29.91% of the equity of Banco Hipotecario, of which the Argentine government is the controlling shareholder. It also holds approximately 18.9% of the equity of Condor Hospitality Trust Inc. (“Condor”), which is under a sale process. IRSA could engage in a dispute with one or more of its joint venture partners or controlling shareholder in an investment that might affect its ability to operate a jointly-owned property. Moreover, its joint venture partners or controlling shareholder in an investment 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 its 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 or controlling shareholder in an investment may have competing interests in their markets that could create conflicts of interest. If the objectives of its joint venture partners or controlling shareholder in an investment are inconsistent with our own objectives, IRSA will not be able to act exclusively in our 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 IRSA’s financial performance. Should a joint venture partner or controlling shareholder in an investment declare bankruptcy, IRSA could be liable for its partner’s common share of joint venture liabilities or liabilities of the investment vehicle.

Dividend restrictions in our subsidiaries may have an adverse effect on us.

Dividends paid by IRSA’s subsidiaries are an important source of funds for us as are other permitted payments from subsidiaries. The debt agreements of our subsidiaries contain or may in the future contain covenants restricting their ability to pay dividends or make other distributions to us. If our subsidiaries are unable to make such payments to us, or are able to pay only limited amounts, we may be unable to pay dividends or make payments on our indebtedness.

53

IRSA is dependent on our Board of Directors senior management and other key personnel.

IRSA’s success, to a significant extent, depends on the continued employment of Eduardo S. Elsztain and certain other members of our board of directors and senior management, who have significant expertise and knowledge of our business and industry. The loss or interruption of their services for any reason could have a material adverse effect on our business and results of operations. Our future success also depends in part upon our ability to attract and retain other highly qualified personnel. We cannot assure you that we will be successful in hiring or retaining qualified personnel, or that any of our personnel will remain employed by us, which may have a material adverse effect on our financial condition and results of operations.

IRSA may face potential conflicts of interest relating to our principal shareholders.

IRSA’s largest beneficial owner is Mr. Eduardo S. Elsztain, according to his indirect shareholding through Cresud S.A.C.I.F. y A. As of June 30, 2020, such beneficial ownership consisted of 359,102,211 common shares held by Cresud S.A.C.I.F. y A. Conflicts of interest between our management and that of our related companies may arise in connection with the performance of their respective business activities. As of June 30, 2020, Mr. Eduardo S. Elsztain also beneficially owned (i) approximately 63.1% of our common shares and (ii) approximately 84.7% of the common shares of IRSA CP. IRSA cannot assure you that our principal shareholders and our affiliates will not limit or cause us to forego business opportunities that our affiliates may pursue or that the pursuit of other opportunities will be in our interest.

Risks Related to IRSA’s Investment in Banco Hipotecario

As of June 30, 2020, IRSA owned approximately 29.91% of the outstanding capital stock of Banco Hipotecario S.A. (“Banco Hipotecario”), which represented 1.7% of its consolidated assets from its operations center in Argentina as of such date. All of Banco Hipotecario’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 short-term structure of the deposit base of the Argentine financial system, including Banco Hipotecario, could lead to a reduction in liquidity levels and limit the long-term expansion of financial intermediation.

Given the short-term structure of the deposit base of the Argentine financial system, credit lines are also predominantly short-term, with the exception of mortgages, which represent a low proportion of the existing credit base. Although liquidity levels are currently reasonable, no assurance can be given that these levels will not be reduced due to a future negative economic scenario. Therefore, there is still a risk of low liquidity levels that could increase funding cost in the event of a withdrawal of a significant amount of the deposit base of the financial system, and limit the long-term expansion of financial intermediation including Banco Hipotecario.

The growth and profitability of Argentina’s financial system partially depend on the development of long-term funding. During the last year, Central Bank reserves registered an abrupt fall mainly due to U.S. Dollars sales by the Central Bank and the National Treasury to the private sector; cancellation of public debt; and outflow of dollar deposits from the private sector. As a consequence, there is a reduction of loans denominated in U.S. Dollars and there is low liquidity of U.S. Dollars in the market. If this trend continues, the financial banking system could result affected. Since most deposits in the Argentine financial system are short-term, a substantial portion of the loans have the same or similar maturities, and there is a small portion of long-term credit lines. The uncertainty with respect to the level of inflation in future years is a principal obstacle to a faster recovery of Argentina’s private sector long-term lending. This uncertainty has had, and may continue to have a significant impact on both the supply of and demand for long-term loans as borrowers try to hedge against inflation risk by borrowing at fixed rates while lenders hedge against inflation risk by offering loans at floating rates. If longer-term financial intermediation activity does not grow, the ability of financial institutions, including Banco Hipotecario, to generate profits will be negatively affected.

54

Banco Hipotecario issues debt in the local and international capital markets as one of its main sources of funding and its capacity to successfully access the local and international markets on favorable terms affects its cost of funding.

In recent years, Banco Hipotecario has diversified its financing sources based on its greater presence in the local and international capital markets. As of June 30, 2020, Banco Hipotecario’s financial indebtedness accounted for 37.8% of its financing. Likewise, as of June 30, 2020, the issuance of notes represented 29.7% of its total liabilities. The ability of Banco Hipotecario to successfully access the local and international capital markets and on acceptable terms depends largely on capital markets conditions prevailing in Argentina and internationally. Banco Hipotecario has no control over capital markets conditions, which can be volatile and unpredictable. If Banco Hipotecario is unable to issue debt in the local and/or international capital markets and on terms acceptable, whether as a result of regulations, a deterioration in capital markets conditions or otherwise, Banco Hipotecario would likely be compelled to seek alternatives for funding, which may include short-term or more expensive funding sources. If this were to happen, Banco Hipotecario may be unable to fund our liquidity needs at competitive costs and Banco Hipotecario business results of operations and financial condition may be materially and adversely affected. On October 9, 2020, the Banco Hipotecario successfully completed the placement and issuance of its Series No.4 Notes in an aggregate amount of USD78,336,000. This Exchange Offer was carried out as a consequence of the new restrictions on access to the Foreign Exchange Market to obtain United States dollars since additional conditions have been established under Communication “A” 7106 for the purchase of foreign currency intended for repayment of principal maturing between October 15, 2020 and March 31, 2021 in respect of the issuance of foreign currency-denominated debt securities registered with official registries in Argentina by private sector clients or the entities themselves.The Series No.4 Notes due 2025, which will bear an interest at a fixed rate of 9.750% per annum and are, payable on a semiannual basis, were issued at a price of 100% of face value in the context of the exchange of Banco Hipotecario’s USD 130,560,000 face value of its Outstanding 9.750% Series 29 Notes due 2020.In accordance with the provisions of the Offer Documents, the nominal value of existing Notes submitted for in kind represented approximately 46.66% of the total amount of the Notes, the remainder will be cancelled by the bank.

The stability of the financial system depends upon the ability of financial institutions, including Banco Hipotecario, to maintain and increase the confidence of depositors.

The measures implemented by the Argentine government in late 2001 and early 2002, in particular the restrictions imposed on depositors to withdraw money freely from banks and the “pesification” and restructuring of their deposits, were strongly opposed by depositors due to the losses on their savings and undermined their confidence in the Argentine financial system and in all financial institutions operating in Argentina.

If depositors once again withdraw their money from banks in the future, there may be a substantial negative impact on the manner in which financial institutions, including Banco Hipotecario, conduct their business, and on their ability to operate as financial intermediaries. Loss of confidence in the international financial markets may also adversely affect the confidence of Argentine depositors in local banks.

In the future, an adverse economic situation, even if it is not related to the financial system, could trigger a massive withdrawal of capital from local banks by depositors, as an alternative to protect their assets from potential crises. Any massive withdrawal of deposits could cause liquidity issues in the financial sector and, consequently, a contraction in credit supply.

The occurrence of any of the above could have a material and adverse effect on Banco Hipotecario’s expenses and business, results of operations and financial condition.

55

The asset quality of financial institutions is exposed to the non-financial public sector’s and Central Bank’s indebtedness. 

Financial institutions carry significant portfolios of bonds issued by the Argentine government and by provincial governments as well as loans granted to these governments. The exposure of the financial system to the non-financial public sector’s indebtedness had been shrinking steadily, from 49.0% of total assets in 2002 to 10.0% as of June 30, 2020. To an extent, the value of the assets held by 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 government’s ability to foster sustainable long-term growth, generate fiscal revenues and reduce public expenditure.

In addition, financial institutions currently carry securities issued by the Central Bank in their portfolios, which generally are short-term. As of June 30, 2020 such securities issued by the Central Bank represented approximately 27.0% of the total assets of the Argentine financial system. As of June 30, 2020, Banco Hipotecario’s total exposure to the public sector was ARS 2,669.5 million, which represented 2.2% of its assets as of that date, and the total exposure to securities issued by the Central Bank was ARS 13,581.5 million, which represented 11.2% of its total assets as of June 30, 2020,

The quality of Banco Hipotecario’s assets and that of other financial institutions may deteriorate if the Argentine private sector is affected by economic events in Argentina or international macroeconomic conditions.

The capacity of many Argentine private sector debtors to repay their loans has in the past deteriorated as a result of certain economic events in Argentina or macroeconomic conditions, materially affecting the asset quality of financial institutions, including us. The ratio of non-performing private sector loans has increased in recent years, as Argentina’s economic outlook deteriorated. Banco Hipotecario recorded non-performing loan ratios of 3.8%, 6.0%, 12.3% and 12.7% for 2017, 2018, 2019 and 2020 respectively. The quality of its loan portfolio is highly sensitive to economic conditions prevailing from time to time in Argentina, and as a result if Argentina were to experience adverse macroeconomic conditions, the quality of Banco Hipotecario’s loan portfolio and the recoverability of our loans would likely be adversely affected. This might affect the creditworthiness of Banco Hipotecario’s loan portfolio and the results of operations.

The Consumer Protection Law may limit some of the rights afforded to Banco Hipotecario.

Argentine Law No. 24,240 (the “Consumer Protection Law”) sets forth a series of rules and principles designed to protect consumers, which include Banco Hipotecario’s customers. The Consumer Protection Law was amended by Law No. 26,361 on March 12, 2008 to expand its applicability and the penalties associated with violations thereof. Additionally, Law No. 25,065 (as amended by Law N° 26,010 and Law N° 26,361, the “Credit Card Law”) also sets forth public policy regulations designed to protect credit card holders. Recent Central Bank regulations, such as Communication “A” 5388, also protect consumers of financial services.

In addition, the Civil and Commercial Code has a chapter on consumer protection, stressing that the rules governing consumer relations should be applied and interpreted in accordance with the principle of consumer protection and that a consumer contract should be interpreted in the sense most favorable to it. The applicationof both the Consumer Protection Law and the Credit Card Law by administrative authorities and courts at the federal, provincial and municipal levels has increased. This trend has increased general consumer protection levels. If Banco Hipotecario is found to be liable for violations of any of the provisions of these laws, the potential penalties could limit some of Banco Hipotecario’s rights, for example, with respect to its ability to collect payments due from services and financing provided by us, and adversely affect Banco Hipotecario’s financial results of operations.

We cannot assure you that court and administrative rulings based on the newly-enacted regulation or measures adopted by the enforcement authorities will not increase the degree of protection given to Banco Hipotecario’s debtors and other customers in the future, or that they will not favor the claims brought by consumer groups or associations. This may prevent or hinder the collection of payments resulting from services rendered and financing granted by us, which may have an adverse effect on Banco Hipotecario’s business and results of operations.

56

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

Certain public and private organizations have initiated class actions against financial institutions in Argentina. The 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 Banco Hipotecario’s business.

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

Financial institutions are subject to a major number of regulations concerning functions historically determined by the Central Bank and other regulatory authorities. The Central Bank may penalize Banco Hipotecario and its directors, members of the Executive Committee and members of its Supervisory Committee, in the event of any breach of the applicable regulation. Potential sanctions, for any breach on the applicable regulations may vary from administrative and/or disciplinary penalties to criminal sanctions. Similarly, the CNV, which authorizes securities offerings and regulates the capital markets in Argentina, has the authority to impose sanctions on us and Banco Hipotecario’s Board of Directors for breaches of corporate governance established in the capital markets laws and the CNV Rules. The Financial Information Unit (Unidad de Información Financiera, or “UIF” as per its acronym in Spanish) 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.

We cannot assure you whether such regulatory authorities will commence proceedings against Banco Hipotecario, its shareholders, directors or its Supervisory Committee, or penalize Banco Hipotecario. Banco Hipotecario has adopted “Know Your Customer” and other policies and procedures to comply with its duties under currently applicable rules and regulations.

In addition to regulations specific to the banking 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. We cannot assure you 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.

The effects of legislation that restricts our ability to pursue mortgage foreclosure proceedings could adversely affect us.

The ability to pursue foreclosure proceedings through completion, in order to recover on defaulted mortgage loans, has an impact on financial institutions activities. On December 13, 2006, pursuant to Law No. 26,177, the “Restructuring Unit Law” was created to allow all mortgage loans to be restructured between debtors and the former Banco Hipotecario Nacional, insofar as such mortgages had been granted prior to the effectiveness of 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 establish the procedure to be followed in the restructuring of 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 recalculation was established for certain mortgage loans originated by the former Banco Hipotecario Nacional before April 1, 1991.

Executive Branch Decree No. 2,107/08 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 effect on December 31, 2008 and agreed upon prior to April 1, 1991, and in arrears at least since November 2007 and remaining in arrears on December 31, 2008. In turn, the Executive Branch Decree No. 1,366/10, 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 insofar as they met the other requirements imposed by Executive Branch Decree No. 2,107/08. 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.

57

Subject to the Central Bank’s supervision, Banco Hipotecario implemented the recalculation of mortgage loans within the scope of the aforementioned rules by adjusting the value of the new installments to a maximum amount not in excess of 20% of household income. In this respect, we estimate that Banco Hipotecario has sufficient loan loss provisions to face any adverse economic impact on the portfolio involved. We cannot assure that the Argentine government will not enact additional laws restricting our ability to enforce our rights as a creditor and/or imposing a condition or a reduction of principal on the amounts unpaid in our mortgage loan portfolio. Any such circumstance could have a significant adverse effect on our financial condition and the results of our operations.

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

Banco Hipotecario foresees increased competition in the banking sector. If the trend towards decreasing spreads is not offset by an increase in lending volumes, the ensuing losses could lead to mergers in the industry. These mergers could lead to the establishment of larger, stronger banks with more resources than us. Therefore, although the demand for financial products and services in the market continues to grow, competition may adversely affect Banco Hipotecario’s results of operations, resulting in shrinking spreads and commissions.

Future governmental measures may 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. We cannot assure you that the laws and regulations currently governing the economy or the banking sector will remain unaltered in the future or that any such changes will not adversely affect Banco Hipotecario’s business, financial condition or results of operations and Banco Hipotecario’s ability to honor its debt obligations in foreign currency.

Several legislative bills to amend the Financial Institutions Law have been sent to the Argentine Congress. If the law currently in force were to be comprehensively modified, the financial system as a whole could be substantially and adversely affected. If any of these legislative bills were to be enacted or if the Financial Institutions Law were amended in any other way, the impact of the subsequent amendments to the regulations on the financial institutions in general, Banco Hipotecario’s business, its financial condition and the results of operations is uncertain.

Law No. 26,739 was enacted to amend the Central Bank’s charter, the principal aspects of which are: (i) to broaden the scope of the 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; and (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.”

In addition, the Civil and Commercial Code, among other things, modifies the applicable regime for contractual provisions relating to foreign currency payment obligations by establishing that foreign currency payment obligations may be discharged in Pesos. This amends the legal framework, pursuant to which debtors may only discharge their foreign currency payment obligations by making payment in the specific foreign currency agreed upon in their agreements; provided however that the option to discharge in Pesos a foreign currency obligation may be waived by the debtor is still under discussion. However, in recent years some court decisions have established the obligation to pay the in foreign currency when it was so freely agreed by the parties. We are 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 Central Bank’s charter) will not result in significant costs to Banco Hipotecario, or will otherwise have an adverse effect on Banco Hipotecario’s operations.

58

The Covid-19 pandemic may negatively impact the operations and financial situation of Banco Hipotecario 

In order to mitigate the impact of the COVID-19 pandemic and mandatory confinement across Argentina, the Central Bank took certain measures to provide financial support to households. In particular, the new regulations include: (i) limitations on bank holdings of Central Bank notes in order to make funds available to borrowers and encourage the provision of credit lines to SMEs and loans granted in part by a state agency (the Argentine Guarantee Fund (FoGAr)), (ii) temporary easing of bank loan classification rules (providing an additional 60-day default period before a loan should be classified as delinquent), (iii) financial institutions cannot distribute dividends until, at least 30 June 2020 (term extended until 31 December 2020 by Central Bank Communication “A” 7,035), (iv) a capital requirement of 1.250% on exposure to credit card loans for tourism-related purchases made abroad, (v) a temporary prohibition on charging fees related to ATM services, (vi) mortgage relief, freezing until September 30, 2020, the interest and principal amount of mortgage payments based on the amounts payable as of March 2020, and postponing any foreclosure through September 30, 2020, (vii) the deferment of payments of unpaid credit card balances from April to September 2020 for a period of one year with a three-month interest-free grace period (according to Central Bank Communications “A” 6,964 and 7,095) (viii) reduction in the maximum credit card interest rate from 49% to 43%, and (ix) the postponement of all loan payments due during the second and third quarters of 2020 without punitive interest.As a result of the economic effects of the COVID-19 pandemic, Banco Hipotecario’s non-financial private sector loan portfolio (which accounted for 35.8% of Banco Hipotecario’s total assets as of June 30, 2020) may experience an increase in delinquencies. In addition, the application of IFRS 9 and the expected credit loss-based impairment model could accelerate the recognition of loss forecasts. Provisions for insolvencies for the six-month period ended June 30, 2020 were of ARS 710.1 million.

These and other measures taken by the Central Bank or other government authorities in response to the COVID-19 pandemic, as well as the effect of the COVID-19 pandemic on the Banco Hipotecario’s borrowers, may affect Banco Hipotecario’s business, financial condition and results of operations, including its ability to refinance its indebtedness as it comes due.

Banco Hipotecario’s obligations as trustee of the Programa de Crédito Argentino del Bicentenario para la Vivienda Única Familiar (“PROCREAR”) trust are limited.

Banco Hipotecario currently acts as trustee of the PROCREAR Trust, which aims to facilitate access to housing solutions by providing mortgage loans for construction and developing housing complexes across Argentina. Under the terms and conditions of the PROCREAR Trust, all the duties and obligations under the trust have to be settled with the trust estate. Notwithstanding, if the aforementioned is not met, Banco Hipotecario could have its reputation affected. In addition, if the Argentine government decides to terminate the PROCREAR Trust and/or terminate Banco Hipotecario’s role as trustee of the PROCREAR Trust, this may adversely affect Banco Hipotecario’s results of operations.

The exposure of Banco Hipotecario to individual borrowers could lead to higher levels of past due loans, allowances for loan losses and charge-offs.

A substantial portion of Banco Hipotecario’s loan portfolio consists of loans to individual customers in the lower-middle to middle income segments of the Argentine population. The quality of Banco Hipotecario’s portfolio of loans to individuals is dependent to a significant extent on economic conditions prevailing from time to time in Argentina. Lower-middle to middle income individuals are more likely to be exposed to and adversely affected by adverse developments in the Argentine economy than corporations and high-income individuals. As a result, lending to these segments represents higher risk than lending to such other market segments. Consequently, Banco Hipotecario may experience higher levels of past due amounts, which could result in higher provisions for loan losses. Therefore, there can be no assurance that the levels of past due amounts and subsequent charge-offs will not be materially higher in the future.

59

An increase in fraud or transaction errors may adversely affect Banco Hipotecario. 

As with other financial institutions, Banco Hipotecario is susceptible to, among other things, fraud by employees or outsiders, unauthorized transactions by employees and other operational errors (including clerical or record keeping errors and errors resulting from faulty computer or telecommunications systems). Given the high volume of transactions that may occur at a financial institution, errors could be repeated or compounded before they are discovered and remedied. In addition, some of our transactions are not fully automated, which may further increase the risk that human error or employee tampering will result in losses that may be difficult to detect quickly or at all. Losses from fraud by employees or outsiders, unauthorized transactions by employees and other operational errors might adversely affect Banco Hipotecario’s reputation, business, the results of operations and financial condition.

Risks Relating to IRSA’s Operations Center in Israel 

IDBD was declared insolvent and is under liquidation.

On September 25, 2020, the District Court in Tel Aviv-Jaffa (the “Court”), in response to a petition from IDBD’s creditors, declared the insolvency of IDBD and initiated liquidation proceedings (the “Liquidation Proceedings”). The Court appointed a trustee for IDBD’s shares and receivers for DIC’s and Clal’s shares. We are analyzing together with our local and international advisors the decision, including alternatives and courses of action. Insolvency proceedings will be governed by Israeli law, which are different from the corporate insolvency or bankruptcy laws of the United States. We cannot assure that we will be successful in avoiding liquidation by converting such liquidation proceedings to a reorganization, which would permit us to develop and propose, for creditor and court approval, a reorganization plan that would enable us to continue having a controlling stake in and managing IDBD. Even if we were to propose a reorganization plan, any reorganization plan would likely require that we obtain new post-petition funding, which may be unavailable. Further, in the event of bankruptcy, IDBD’s secured creditors that have encumbrances on all of its assets would likely execute and take all of its assets, which may leave nothing for its other creditors or its stockholders.

Our investment in IDBD is without recourse to IRSA. IDBD’s debt is not guaranteed by IRSA’s assets. Therefore, IRSA’s financial risk with respect to its investment in Israel is limited to the value of such investment However, we cannot guarantee that the liquidation of IDBD will not result in legal claims against our directors or that it may adversely affect our reputation and, consequently, our business, the outcome of our operations and our financial situation.

Capital contributions to IDBD, and any such capital contributions may be subject to claims by creditors.

On September 7, 2020, IRSA reported that with respect to the commitment to make capital contributions in the sum of NIS 70,000,000 on September 2, 2020 and other NIS 70,000,000 on September 2, 2021 the Company has considered that there are doubts as to the fulfilment of the conditions established for making such contributions and has therefore resolved not to make the 2020 NIS 70 million capital contribution.

60

The deterioration of the global economy and changes in capital markets in Israel and around the world may affect IDBD, DIC and their respective subsidiaries. A recession or deterioration of capital markets around the world and in Israel (including volatility in securities prices, exchange rates and interest rates), are affecting and may negatively affect IDBD, DIC and their subsidiaries, on a) the profits of operations due to lower demand for products of the subsidiaries of IDBD or DIC, b) on the value of the marketable securities or other assets owned by them, c) liquidity and equity position of IDBD, DIC and their subsidiaries, d) raise of capital or e) access the capital markets in Israel and abroad on financial terms acceptable to IDBD, DIC and their respective subsidiaries, which f) could limit their ability to or financial covenants under IDBD’s credit agreement and other financial agreements, on g) their ratings, h) their ability to distribute dividends; i) certain subsidiaries import or buy raw materials which are required for their activities, and therefore, their business results may also be affected by changes in the prices of raw materials around the worldand (j) make it difficult to find sources of financing and raise or recycle debt funds when necessary to finance their current activities and long-term operations, as well as the financing terms of financial institutions and banks.

61

Risks Related to the ADSs and the Common Shares.

Common shares eligible for sale could adversely affect the price of our common shares and ADSs.

The market prices of our common shares and ADS could decline as a result of sales by our existing shareholders of common shares or ADSs, or the perception that these sales could occur. These sales also might make it difficult for us to raise capital by selling equity securities at a time and at the conditions that we may deemed appropriate. Eduardo Elsztain, which as of June 30, 2020, was the beneficial owner of approximately 36.9% of our common shares (or approximately 185,229,897 common shares which may be exchanged for an aggregate of 18,522,989 ADSs, for more information see “Item 6. Directors, Senior Management and Employees - E. Share Ownership”), may sell or otherwise dispose of any or all of its common shares or ADSs at any time. Sales of a large number of our common shares and/or ADSs may have an adverse effect on the market price of our common shares and the ADSs.

If we issue additional equity securities in the future, you may suffer dilution, and trading prices for our equity securities may decline.

We may issue additional shares of our common stock for financing future acquisitions or new projects or for other general corporate purposes. Any such issuance could result in a dilution of your ownership stake and/or the perception of any such issuances could have an adverse impact on the market price of the ADSs.

We are subject to certain different corporate disclosure requirements and accounting standards than domestic issuers of listed securities in the United States

There is less publicly available information about the issuers of securities listed on the Argentine stock exchanges than information publicly available about domestic issuers of listed securities in the United States and certain other countries.

Although the ADSs are listed on the NASDAQ Global Market, as a foreign private issuer we are able to rely on home country governance requirements rather than relying on the NASDAQ corporate governance requirements. See “Item 16G. Corporate Governance—Compliance with NASDAQ listing Standards on Corporate Governance.” Additionally, as a foreign private issuer, we are exempt from certain rules under the Exchange Act including (i) the sections of the Exchange Act regulating the solicitation of proxies, consents or authorizations in respect of a security registered under the Exchange Act; (ii) the sections of the Exchange Act requiring insiders to file public reports of their stock ownership and trading activities and liability for insiders who profit from trades made in a short period of time; and (iii) the rules under the Exchange Act requiring the filing with the SEC of quarterly reports on Form 10-Q containing unaudited financial and other specified information, or current reports on Form 8-K, upon the occurrence of specified significant events. In addition, foreign private issuers are not required to file their annual report on Form 20-F until four months after the end of each fiscal year, while U.S. domestic issuers that are accelerated filers are required to file their annual report on Form 10-K within 75 days after the end of each fiscal year. Foreign private issuers are also exempt from the Regulation Fair Disclosure, aimed at preventing issuers from making selective disclosures of material information. As a result of the above, you may not have the same protections afforded to shareholders companies that are not foreign private issuers.

Investors may not be able to effect service of process within the U.S., limiting their recovery of any foreign judgment.

We are a publicly held corporation (sociedad anónima) organized under the laws of Argentina. Most of our directors and our senior managers, are located in Argentina. As a result, it may not be possible for investors to effect service of process within the United States upon us or such persons or to enforce against us or them in United States courts judgments obtained in such courts predicated upon the civil liability provisions of the United States federal securities laws. We have been advised by our Argentine counsel, Zang, Bergel & Viñes, that there is doubt whether the Argentine courts will enforce, to the same extent and in as timely a manner as a U.S. or foreign court, an action predicated solely upon the civil liability provisions of the United States federal securities laws or other foreign regulations brought against such persons or against us.

62

If we are considered to be a passive foreign investment company for United States federal income tax purposes, U.S. holders of our common shares or ADSs would suffer negative consequences. 

Based on the past and projected composition of our income and assets and the valuation of our assets, including goodwill, we do not believe we were a passive foreign investment company, or “PFIC,” for United States federal income tax purposes for the taxable year ending June 30, 2020, and do not currently expect to become a PFIC, although there can be no assurance in this regard. The determination of whether we are a PFIC is made annually. Accordingly, it is possible that we may be a PFIC in the current or any future taxable year due to changes in our asset or income composition or if our projections are not accurate. The volatility and instability of Argentina’s economic and financial system may substantially affect the composition of our income and assets and the accuracy of our projections. In addition, this determination is based on the interpretation of certain U.S. Treasury regulations relating to rental income, which regulations are potentially subject to differing interpretation. If we become a PFIC, U.S. Holders (as defined in “Item 10. Additional Information—Taxation—United States Taxation”) of our common shares or ADSs will be subject to certain United States federal income tax rules that have negative consequences for U.S. Holders such as additional tax and an interest charge upon certain distributions by us or upon a sale or other disposition of our common shares or ADSs at a gain, as well as reporting requirements. See “Item 10. F—Taxation—United States Taxation—Passive Foreign Investment Company” for a more detailed discussion of the consequences if we are deemed a PFIC. You should consult your own tax advisors regarding the application of the PFIC rules to your particular circumstances.

Changes in Argentine tax laws may affect the tax treatment of our common shares or ADSs.

On September 12, 2013, Law No. 26,893, which amended Law No. 20,628 (the “Income Tax Law”), was enacted and published in the Official Gazette on September 23, 2013. According to the amendments, the distribution of dividends by an Argentine corporation was subject to income tax at a rate of 10.0%, unless such dividends were distributed to Argentine corporate entities (the “Dividend Tax”)

The Dividend Tax was repealed by Law No. 27,260, published in the Official Gazette on July 22, 2016, and consequently no income tax withholding was applicable on the distribution of dividends in respect of both Argentine and non-Argentine resident shareholders, except when dividends distributed were greater than the income determined according to the application of the Income Tax Law, accumulated at the fiscal year immediately preceding the year in which the distribution is made. In such case, the excess was subject to a rate of 35%, for both Argentine and non-Argentine resident shareholders. This treatment still applies to dividends to be distributed at any time out of retained earnings accumulated until the end of the last fiscal year starting before January 1, 2018.

However, pursuant to Law No. 27,430, as amended by Law No. 27,541, dividends to be distributed out of earnings accrued in fiscal years starting on or after January 1, 2018, and other profits paid in cash or in kind —except for stock dividends or quota dividends— by companies and other entities incorporated in Argentina referred to in the Income Tax Law, to Argentine resident individuals, resident undivided estates and foreign beneficiaries will be subject to income tax at a 7% rate on profits accrued during fiscal years starting on January 1, 2018 to December 31, 2019, and at a 13% rate on profits accrued in fiscal years starting on January 1, 2020 and onwards. If dividends are distributed to Argentine corporate taxpayers (in general, entities organized or incorporated under Argentine law, certain traders and intermediaries, local branches of foreign entities, sole proprietorships and individuals carrying on certain commercial activities in Argentina), no dividend tax should apply.

Nevertheless, the initial date for the application of the tax rates mentioned above was modified by Law No. 27,541, published in the Official Gazette on December 23, 2019. According to said law and recent interpretations made by the Federal Tax Department, the 7% tax rate is currently applicable for fiscal years starting on, or prior to December 31, 2020 and the 13% tax rate is applicable for fiscal years starting as from January 1, 2021.

In addition, capital gains originated from the disposal of shares and other securities, including securities representing shares and deposit certificates, are subject to capital gains tax. Law No. 27,430 effective as of January 1, 2018, provides that capital gains obtained by Argentine resident individuals from the disposal of shares and ADSs are exempt from capital gains tax in the following cases: (i) when the shares are placed through a public offering authorized by the CNV, (ii) when the shares are traded in stock markets authorized by the CNV, under segments that ensure priority of price-time and interference of offers, and/or (iii) when the sale, exchange or other disposition of shares is made through an initial public offering and/or exchange of shares authorized by the CNV.

63

Such law also provides that the capital gains tax applicable to non-residents for transactions entered into until December 30, 2017 is still due, although no taxes will be claimed to non-residents with respect to past sales of Argentine shares or other securities traded in the CNV’s authorized markets (such as ADSs) as long as the cause of the non-payment was the absence of regulations stating the mechanism of tax collection at the time the transaction was closed. General Resolution (AFIP) No. 4,227, which came into effect on April 26, 2018, stipulates the procedures through which the income tax should be paid to the AFIP. The payment of capital gains tax applicable for transactions entered into before December 30, 2017 was due on June 11, 2018.

In addition, Decree No. 824/2019, published in the Official Gazette on December 6, 2019 and which introduced the new consolidated text of the Income Tax Law- maintains the 15% capital gains tax (calculated on the actual net gain or a presumed net gain equal to 90% of the sale price) on the disposal of shares or securities by non-residents. However, non-residents are exempt from the capital gains tax on gains obtained from the sale of (a) Argentine shares in the following cases: (i) when the shares are placed through a public offering authorized by the CNV, (ii) when the shares were traded in stock markets authorized by the CNV, under segments that ensure priority of price-time and interference of offers, and/or (iii) when the sale, exchange or other disposition of shares is made through an initial public offering and/or exchange of shares authorized by the CNV; and (b) depositary shares or depositary receipts issuedabroad, when the underlying securities are shares (i) issued by Argentine companies, and (ii) with authorization of public offering. The exemptions will only apply to the extent the foreign beneficiaries reside in, and the funds used for the investment proceed from, jurisdictions not considered as not cooperating for purposes of fiscal transparency.

In case the exemption is not applicable and, to the extent foreign beneficiaries neither reside in, nor the funds arise from, jurisdictions considered as not cooperating for purposes of fiscal transparency, the gain realized from the disposition of shares would be subject to Argentine income tax at a 13.5% effective rate on the gross price. In case such foreign beneficiaries reside in, or the funds arise from, jurisdictions considered as not cooperating for purposes of fiscal transparency, a 31.5% effective rate on the gross price should apply.

Therefore, holders of our common shares, including in the form of ADSs, are encouraged to consult their tax advisors as to the particular Argentine income tax consequences under their specific facts.

Holders of our ADSs may be unable to exercise voting rights with respect to the common shares underlying their ADSs.

As a holder of ADS, we will not treat you as one of our shareholders and you will not have shareholder rights. The depositary will be the holder of the common shares underlying your ADSs and holders may exercise voting rights with respect to the common shares represented by the ADSs only in accordance with the deposit agreement relating to the ADSs. There are no provisions under Argentine law or under our bylaws that limit the exercise by ADS holders of their voting rights through the depositary with respect to the underlying common shares. However, there are practical limitations on the ability of ADS holders to exercise their voting rights due to the additional procedural steps involved in communicating with these holders. For example, holders of our common shares will receive notice of shareholders’ meetings through publication of a notice in the CNV’s website, an Official Gazette in Argentina, an Argentine newspaper of general circulation and the bulletin of the Buenos Aires Stock Exchange, and will be able to exercise their voting rights by either attending the meeting in person or voting by proxy. ADS holders, by comparison, will not receive notice directly from us. Instead, in accordance with the deposit agreement, we will provide the notice to the ADS Depositary. If we ask the ADS Depositary to do so, the ADS Depositary will mail to holders of ADSs the notice of the meeting and a statement as to the manner in which instructions may be given by holders. To exercise their voting rights, ADS holders must then instruct the ADS Depositary as to voting the common shares represented by their ADSs. Under the deposit agreement, the ADS Depositary is not required to carry out any voting instructions unless it receives a legal opinion from us that the matters to be voted would not violate our by-laws or Argentine law. We are not required to instruct our legal counsel to give that opinion. Due to these procedural steps involving the ADS Depositary, the process for exercising voting rights may take longer for ADS holders than for holders of common shares and common shares represented by ADSs may not be voted as you desire.

64

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 areillegal 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.

Restrictions on the movement of capital out of Argentina may impair your ability to receive dividends and distributions on, and the proceeds of any sale of, the common shares underlying the ADSs.

The Argentine government imposed restrictions on the conversion of Argentine currency into foreign currencies and on the remittance to foreign investors of proceeds from their investments in Argentina. Argentine law currently permits the government to impose these kind of restrictions temporarily in circumstances where a serious imbalance develops in Argentina’s balance of payments or where there are reasons to foresee such an imbalance. We cannot assure you that ADS Depositary for the ADSs may hold the Pesos it cannot convert for the account of the ADS holders who have not been paid. No assurance can be given that payments to non-resident investors will not suffered delays or be subject to any additional restrictions, under the current foreign exchange market regulations or future regulations that may be enacted. In this regard, we suggest consulting with the corresponding custodian banks about the exchange regulations applicable. See “Item 10. Additional Information—D. Exchange Controls.”

The protections afforded to minority shareholders in Argentina are different from and more limited than those in the United States and may be more difficult to enforce.

Under Argentine law, the protections afforded to minority shareholders are different from, and much more limited than, those in the United States and some other Latin American countries. For example, the legal framework with respect to shareholder disputes, such as derivative lawsuits and class actions, is less developed under Argentine law than under U.S. law as a result of Argentina’s short history with these types of claims and few successful cases. In addition, there are different procedural requirements for bringing these types of shareholder lawsuits. As a result, it may be more difficult for our minority shareholders to enforce their rights against us or our directors or controlling shareholder than it would be for shareholders of a U.S. company.

We may not pay any dividends.

In accordance with Argentine corporate law, we may pay dividends to shareholders out of net and realized profits, if any, as set forth in our Audited Financial Statements prepared in accordance with IFRS. The approval, amount and payment of dividends are subject to the approval by our shareholders at our annual ordinary shareholders meeting. The approval of dividends requires the affirmative vote of a majority of the shareholders entitled to vote present at the meeting. As a result, we cannot assure you that we will be able to generate enough net and realized profits so as to pay dividends or that our shareholders will decide that dividends will be paid.

65

Our ability to pay dividends is limited by law and our by-laws. 

In accordance with Argentine corporate law, we may pay dividends in Pesos out of retained earnings, if any, to the extent set forth in our Audited Financial Statements prepared in accordance with IFRS. Our shareholders’ ability to receive cash dividends may be limited by the ability of the ADS Depositary to convert cash dividends paid in Pesos into U.S. dollars. Under the terms of our deposit agreement with the depositary for the ADSs, to the extent that the depositary can in its judgment convert Pesos (or any other foreign currency) into U.S. dollars on a reasonable basis and transfer the resulting U.S. dollars to the United States, the depositary will promptly as practicable convert or cause to be converted all cash dividends received by it on the deposited securities into U.S. dollars. If in the judgment of the depositary this conversion is not possible on a reasonable basis (including as a result of applicable Argentine laws, regulations and approval requirements), the depositary may distribute the foreign currency received by it or in its discretion hold such currency uninvested for the respective accounts of the owners entitled to receive the same. As a result, if the exchange rate fluctuates significantly during a time when the depositary cannot convert the foreign currency, you may lose some or all of the value of the dividend distribution.

You might be unable to exercise preemptive or accretion rights with respect to the common shares underlying your ADSs.

Under Argentine corporate law, if we issue new common shares as part of a capital increase, our shareholders will generally have the right to subscribe for a proportional number of common shares of the class held by them to maintain their existing ownership percentage, which is known as preemptive rights. In addition, shareholders are entitled to the right to subscribe for the unsubscribed common shares of either the class held by them or other classes which remain unsubscribed at the end of a preemptive rights offering, on a pro rata basis, which is known as accretion rights. Under the deposit agreement, the ADS Depositary will not exercise rights on your behalf or make rights available to you unless we instruct it to do so, and we are not required to give that instruction. In addition, you may not be able to exercise the preemptive or accretion rights relating to the common shares underlying your ADSs unless a registration statement under the US Securities Act of 1933, as amended is effective with respect to those rights or an exemption from the registration requirements of the Securities Act is available. We are not obligated to file a registration statement with respect to the common shares relating to these preemptive rights, and we cannot assure you that we will file any such registration statement. Unless we file a registration statement or an exemption from registration is available, you may receive only the net proceeds from the sale of your preemptive rights by the ADS Depositary or, if the preemptive rights cannot be sold, they will be allowed to lapse. As a result, US holders of common shares or ADSs may suffer dilution of their interest in our company upon future capital increases.

Our shareholders may be subject to liability for certain votes of their securities.

Our shareholders are not liable for our obligations. Instead, shareholders are generally liable only for the payment of the shares they subscribe. However, shareholders who have a conflict of interest with us and do not abstain from voting may be held liable for damages to us, but only if the transaction would not have been approved without such shareholders’ votes. Furthermore, shareholders who willfully or negligently vote in favor of a resolution that is subsequently declared void by a court as contrary to Argentine Companies Law or our bylaws may be held jointly and severally liable for damages to us or to other third parties, including other shareholders.

Item 4. Information on the Company

A. HISTORY AND DEVELOPMENT OF THE COMPANY

General Information

Our legal name is 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, 23rd Floor (C1091AAQ), Ciudad Autónoma de Buenos Aires, Argentina. Our telephone is +54 (11) 4814-7800, and our website is www.cresud.com.ar.

66

All references in this annual report to this or other internet sites are inactive textual references to these URLs, or “uniform resource locators” and are for your information reference only. We assume no responsibility for the information contained on these sites. Our depositary agent for the ADSs in the United States is The Bank of New York Mellon whose address is 240 Greenwich Street, New York, NY 10286, and whose telephone numbers are +1-888-BNY-ADRS (+1-888-269-2377) for U. S. calls and +1-201-680-6825 for calls outside U.S.

History

We were 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 manage real estate holdings foreclosed by Credit Foncier. Credit Foncier was liquidated in 1959, and as part of such liquidation, our shares were distributed to Credit Foncier’s shareholders and in 1960 were listed on the Buenos Aires Stock Exchange (“BASE”). During the 1960s and 1970s, our business shifted to exclusively agricultural activities.

In 1993 and 1994, Consultores Asset Management acquired, on behalf of certain investors, approximately 22% of our shares on the BASE. In late 1994, an investor group led by Consultores Asset Management (including Dolphin Fund plc.) acquired additional shares increasing their aggregate shareholding to approximately 51.4% of our outstanding shares. In 1997, 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. We started our agricultural activities with seven farmlands and 20,000 hectares under management.

In 2002, we acquired a 19.85% interest in IRSA, a real estate company related to certain shareholders of Cresud, and 2009, we increased its ownership percentage in IRSA to 55.64% and IRSA became Cresud’s directly principal subsidiary. As of June 30, 2020, we had a 61.95% equity interest in IRSA (without considering treasury shares) and a majority of our directors are also directors of IRSA. IRSA is one of Argentina’s largest real estate companies and is engaged in a range of diversified real estate activities including residential properties, office buildings, shopping malls and luxury hotels, as well as the sales and development residential properties, it has a 29.9% interest in Banco Hipotecario, one of the main financial institutions in the country, and selected investments outside of Argentina. Also, IRSA has international investments, both in the United States in relation to the lease of office buildings (Lipstick Building) and hotels, through “Condor” a hotel REIT in that country, and in Israel, through IDBD and DIC, one of the largest and most diversified investment groups of Israel, which, participates in numerous markets and industry sectors, including real estate, retail, agroindustry, insurance, telecommunications, among others.

In March 2008 we launched and offered to sell up to which 180 million shares. In the local and international markets, which were fully subscribed. In addition, each shareholder received, without additional cost, one warrant for each share subscribed. The proceeds allowed us to expand our international operations to Paraguay and Bolivia.

As of June 30, 2020, we owned, directly and though our subsidiaries, 26 farms, with a total area of 629,794 hectares distributed in Argentina, Brazil, Bolivia and Paraguay. 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.

In line with our international expansion strategy, in September of 2005 we participated in the creation of Brasilagro with the purpose of replicating our business model in Brazil. 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. On May 2, 2006, BrasilAgro’s shares were listed on the Novo Mercado of the Brazilian Stock Exchange (“BOVESPA”) with the symbol AGRO3 and on November 8, 2012, Brasilagro’s ADRs became listed on the NYSE, under the ticker LND. As of June 30, 2020, we held a 33.55% interest in Brasilagro’s stock capital, which, as of June 30, 2020 has 10 farmland properties and 215,330 hectares under management Brazil and Paraguay. On July 15, 2020, the Company, through its subsidiary Brasilagro, entered into an agreement for the sale of of 1,875 hectares (1,500 are production hectares) of the Jatobá Establishment. For more information see: “Cresud’s Recent Developments - Jatobá sale”

67

Significant acquisitions, dispositions and development of business

Agricultural business

Sale and purchase of Farmlands

Acquisition of Serra Grande Farmland

On May 18, 2020, the Group through its subsidiary BrasilAgro purchased a farm in Baixa Grande do Ribeiro, Piauí of 4,500 hectares (of which 2,900 can be developed for crop production). The amount of the acquisition was set at BRL 25 million (equivalent ARS 316 million), with an initial payment of BRL 8 million (equivalent ARS 101 million). The balance will be cancelled in three annual installments.

Sale of Alto Taquari Farmland

On May 29, 2020, the Group through its subsidiary BrasilAgro has entered into a purchase-sale agreement for an area of 105 hectares of Alto Taquari farm. The total amount of the sale was 115,478 soybean bags per arable hectare equivalent BRL 11 million (equivalent ARS 139 million). The buyer made the initial payment of BRL 1,8 million (equivalent ARS 22 million). The remaining balance will be paid in five annual installments. The Company has recognized gains of BRL 8 million (equivalent ARS 100 million) as result of this transaction.

On October 29, 2019, the Group through its subsidiary BrasilAgro has entered into a purchase-sale agreement for an area of 85 hectares (65 are production hectares) of Alto Taquari farm, a rural property located in the municipality of Alto Taquari, for a total amount of BRL 5.5 (equivalent ARS 94 million). The same date, the buyer made the initial payment of 14,300 soybean bags per arable hectare equivalent BRL 1 million (equivalent ARS 18 million). The remaining balance will be paid in four annual installments. The Company has recognized gains of BRL 4 million (equivalent ARS 68 million) as result of this transaction.

On November 21, 2018, the Group through its subsidiary BrasilAgro has entered into a purchase-sale agreement for an area of 103 hectares of Alto Taquari farm. The total amount of the sale was 1,100 soybean bags per arable hectare equivalent to BRL 7 million (equivalent to ARS 114 million). The buyer made the initial payment of 22,656 soybeans bags equivalent to equivalent to BRL 1.5 million (equivalent to ARS 17 million); and the remaining balance will be paid in eight biannual installments. The Company has recognized gains of BRL 5 (equivalent to ARS 91) as result of this transaction.

Jatobá

On June 30, 2020, the Group through its subsidiary BrasilAgro has entered into a purchase-sale agreement for an area of 1,875 hectares (1,500 are production hectares) of Jatobá farm. The total amount of BRL 45 million (equivalent ARS 567 million), of which BRL 5 million (equivalent ARS 63 million) were already collected. The remaining balance will be paid in six annual installments. The Company has recognized gains of BRL 32.8 million (equivalent ARS 413 million) as result of this transaction. On July 15, 2020 BrasilAgro entered into an agreement fore the sale of 1,875 hectacres (1,500 are production acres) of the Jatobá Establishment. For more information see: “Cresud’s Recent Developments – Jatobá sale”

On July 11, 2019, the Group through its subsidiary BrasilAgro has entered into a purchase-sale agreement for an area of 1,134 hectares (893 are production hectares) of Jatobá Farmland, a rural property located in the municipality of Jaborandi – BA. The total amount of sale was 302 soybean bags per arable hectare equivalent or BRL 23 million (equivalent ARS 394 million). The buyer, on September 2, 2019 made the initial payment of 38,000 soybean bags per arable hectare equivalent BRL 3 million (equivalent ARS 45 million). The remaining balance will be paid in six annual installments. Handover of possession and gains as result of this transaction has recognized on September 30, 2019, approximately, BRL 17 million (equivalent ARS 272 million).

On June 2019, the Group through its subsidiary BrasilAgro has entered into a purchase-sale agreement for an area of 3,124 hectares of Jatobá Farm. The total amount of the sale was 285 soybean bags per arable hectare or BRL 47 (equivalent to ARS 776). The buyer already made an initial payment of BRL 5 (equivalent to ARS 83) and on July 31, 2019 had pay BRL 5 (equivalent to ARS 83) more; and the remaining balance, equivalent to 563,844 soybeans bags, will be paid in six equal annual installments. This sale was accounted on June 30, 2019, the gain of this transaction amount BRL 36.5 million (equivalent to ARS 573 million).

68

On June 13, 2018, the Group, through its subsidiary BrasilAgro, entered into a sales agreement for a total area of 9,784 hectares (7,485 are production hectares) of the Jatobá Establishment, a rural property located in the Municipality of Jaborandi. On July 31, 2018, the buyer made the payment of the first installment of 300,000 bags of soybeans, equivalent to an amount of BRL 21 million (equivalent to ARS 223 million) according to the conditions set in the agreement, obtaining the transfer of the possession and thus recognizing the disposal of the farmland, for the value of 285 bags per useful hectare, equivalent BRL 123 million (equivalent to ARS 1,309 million). The remaining balance will be paid in six annual installments. The group did not recognize the result of this operation since almost all of the hectares sold corresponded to the Investment Property, and therefore were valued at fair value.

La Suiza

On June 29, 2018 Cresud signed a deed with a non-related third party for the sale of a fraction of 10,000 hectares of livestock activity of “La Suiza”. The total amount of the transaction was set at USD 10 million, of which USD 3 have been already paid. The remaining balance of USD 7 million, guaranteed by a mortgage on the property, will be collected in 10 installments of the same amount ending on June 2023, which will accrue an annual interest of 4.5% on the remaining balances. The gain of the transaction amounts approximately to ARS 380 million.

La Esmeralda

On July 20, 2017, we executed a purchase-sale agreement for all of “La Esmeralda” establishment consisting of 9,352 hectares devoted to agricultural and cattle raising activities in the 9 de Julio district, Province of Santa Fe, Argentina. On June 25, 2018, the Company has made effective with the sign of the deed and delivery of the property, the sale of “La Esmeralda” farm. The amount of the transaction was set at USD 19, of which USD 7 have been already paid. The balance, guaranteed with a mortgage on the property, will be collected in 4 installments of the same amount ending in April 2022, which will accrue an annual interest of 4% on the remaining balances. The gain from the sale amounts approximately to ARS 686 million.

Araucária

On May 3, 2018, the Company through its subsidiary Brasilagro, has entered into a purchase-sale agreement for the partial sale 956 hectares (660 arable hectares) of Araucaria Farm, located in Mineiros, Brazil, for an amount of 1,208 soybean bags per arable hectare or BRL 66.2 million (equal to ARS 639.2 million) (BRL/ha. 93,356). The company has recognized gains of ARS 590 million as result of this transaction.

Merger of BrasilAgro-Agrifirma, Purchase and Sale of BrasilAgro Shares

Sale of BrasilAgro’s shares

On January 20, 2020, the Company sold in the market 3,400,000 shares of its subsidiary BrasilAgro representatives of 6.30% of the share capital for an amount of USD 15.6 million (equivalent ARS 962 million).

Agrifirma

On January 27, 2020, and in accordance with the terms and conditions established in the Merger Agreement signed on November 22, 2019, Agrifirma Holding was merged by BrasilAgro and extinguished for all legal purposes, becoming BrasilAgro the controlling shareholder of Agrifirma Agropecuária owning 100% of the total voting share capital. The capital of BrasilAgro increased by BRL 115,586,580 from BRL 584,224,000 to BRL 699,810,577, through the issuance of 5,215,385 new common, registered, book-entry shares with no par value, which were subscribed and paid-up by the shareholders of Agrifirma Holding, in such manner that the share capital of BrasilAgro increased to 62,104,201 shares.

A subscription warrant was also issued in favor of AB Holdings, a shareholder of Agrifirma Holding, which will entitle AB Holding (or its permitted successors and assigns) to subscribe up to 654,487 new ordinary shares, registered with no par value of BrasilAgro, subject to the terms and conditions established in the Merger Agreement.

69

The merger was made upon exchange of shares and the initial exchange rate was BRL 31.50 per share of BrasilAgro based on the net worth of BrasilAgro and Agrifirma Holding, as of June 30, 2019 (taken into consideration, especially, the properties owned by BrasilAgro and Agrifirma Holding) as per the appraisal made by Deloitte Touche Tohmatsu Consultores Ltda., adjusted in view of the negotiations between the parties, in accordance with the Merger Agreement.

Below is a breakdown of the fair value of the assets acquired, liabilities assumed and minority interest of the acquisiton:

	03.31 20
Fair value of identifiable assets and assumed liabilities:
(In million of ARS)
Cash and cash equivalents	16
Trade and other receivables	387
Inventories	22
Biological assets	74
Taxes and contributions to recover	45
Group of assets held for sale	362
Property, plant and equipment	3,365
Trade and other payables	(297)
Borrowings	(1,884)
Taxes to pay	(9)
Payroll and social security liabilities	(43)
Provisions	(1)
Deferred income tax liabilities	(423)
Total identifiable net assets	1,614
Non-controlling interest	-
Key pending allocation	63
Total consideration	1,677

70

Acquisition of Brasilagro’s shares

On March 30, 2020, Cresud purchased in the market 19,100 ordinary shares of its subsidiary BrasilAgro, representing 0.03% of its issued capital, for an amount of ARS 6 million. 

As a result of the above-mentioned sale and purchase of shares and the merger with Agrifirma, the Company reduced its equity interest in BrasilAgro from 43.17% to 33.55% of its issued capital.

On June 29, 2020, Cresud made a contribution in kind to the 100% its controlled subsidiary Helmir S.A. It corresponds to 18,576,400 ADRs of BrasilAgro Comphania de Propriedades Agrícolas, in which the Company currently participates as a shareholder. The total value was USD 69.7 million (equivalent to ARS 4,892 million). At the end of the fiscal year, the Cresud percentage, the percentage of direct ownership is 2.25% and the percentage of indirect ownership through Helmir is 31.30%. In this way, Cresud will continue to control BrasilAgro indirectly through its control of Helmir S.A.

Althoght Cresud maintains less than 50% of the voting rights, in accordance with IFRS, control may exist without a majority of voting rights.

Cresud exercises “de facto control” over BrasilAgro as a result of:

i) 

the percentage and concentration of voting rights of the Group and the absence of other shareholders with significant voting rights,

ii) 

the absence of a voting agreement among the other shareholders to vote together as a group,

iii) 

the record of attendance to Shareholders’ Meetings and the record of votes casted by the other shareholders; and

iv) 

the effective control exercised by the Group to direct Brasilagro’s relevant activities through its seat in the Board of Directors.

Urban properties and investments business

Operation Center in Argentina

Distribution of dividends in kind

On October 30, 2019, the General Ordinary Shareholders’ Meeting approved the distribution of a dividend in kind for an equivalent of ARS 480 million (representing ARS 0.83 per share and equivalent of ARS 589 million at current currency as of June 30, 2020) payable in IRSA CP shares. For distribution, the quoted price of the IRSA CP share was taken as of October 29, 2019, which was ARS 205 per share. The number of shares distributed amounts to 2,341,463. This transaction was accounted for in equity as a decrease in the net equity attributable to the parent company for an amount of ARS 504 million, restated as of the date of these financial statements. The stake of the Group in IRSA CP as at year-end is 80.65%.

On October 29, 2018 a General Ordinary and Extraordinary Shareholder’s meeting was held, whereby the distribution of a dividend in kind for an equivalent of ARS 1,827 million payable in shares of IRSA CP was resolved (representing ARS 2.44 per share and equivalent of ARS 2,610 million at current currency as of June 30, 2020). For the distribution, the value of IRSA CP share was taken as of October 26, 2018, which was ARS 220 per share. The number of shares distributed amounted to 6,418,182. This transaction was accounted for as an equity transaction generating a decrease in the net equity attributable to the parent for ARS 1,534 million, restated as of the date of these financial statements.

Sale of IRSA CP floors

On June 9, 2020, IRSA CP executed the assignment and transfer the right to sign a title deed, with delivery of possession, with respect to two medium-height floors in the tower under construction known as “200 Della Paolera”, located in the Catalinas district of the Autonomous City of Buenos Aires, covering a total area of approximately 2,430 sq. meters and 16 parking lots, located in the building.

The transaction price was set at approximately ARS 1,165 million (USD 16.9 million), which has already been fully paid.

Fore more information about dispositions please see the “Recent Developments” section.

71

Condor Merger Agreement 

On July 19, 2019, Condor executed a merger agreement. As per the contractual terms, each common share of Condor, with a par value of USD 0.01 per share, shall be cancelled prior to the merger and converted into the right to receive an amount in cash equivalent of USD 11.10 per common share. Additionally, pursuant to the terms and conditions of the merger agreement, each convertible Class E share shall be automatically cancelled and shall be converted into the right to receive an amount in cash equivalent of USD 10.00 per share.

The closing of the transaction, scheduled for March 23, 2020, has been canceled.

On October 12, 2020, Condor executed an agreement with Nextponint Hospitality Trust and some of its affiliates (“NHT Parties”) to resolve and settle any and all claims between them related to the merger agreement mentioned hereinabove.

According to the agreement with NHT Parties shall make three payments to Condor in three instalments ending the last payment on December 30, 2020 and totalling USD 7,0 million.

As of the date of presentation of these financial statements, the Company has 2,197,023 common shares and 325,752 Series E shares.

TGLT – Recapitalization Agreement

On August 8, 2019, IRSA entered into certain arrangements with TGLT S.A. (“TGLT”) providing for collaboration in TGLT’s financial restructuring and recapitalization. We participated in the recapitalization agreement whereby TGLT committed: (i) to make a public offer to subscribe Class A preferred shares at a subscription price of USD 1.00 per TGLT share; (ii) to make a public offering of new Class B preferred shares which may be subscribed by (a)the exchange for ordinary shares of TGLT, at an exchange ratio of one Class B preferred share for every 6.94 ordinary shares of the Company and / or (b) the exchange for convertible notes, at an exchange ratio of a Class B preferred share for each USD 1.00 of convertible notes (including accumulated and unpaid interests under the existing convertible notes); and (iii) to grant an option to subscribe new Class C preferred shares in a public offer for cash to be carried out if: (a) the public offer of Class A and Class B preferred shares are consummated and (b) a minimum number of option holders have exercised that option at a subscription price per Class C preferred share of USD 1.00 (or its equivalent in pesos).

Likewise, IRSA CP signed as a holder of convertible notes of TGLT an agreement for deferment of payment of interest payable as of February 15, 2019 and August 15, 2019 until November 8, 2019 and an option agreement which may be subscribed Class C preferred shares.

Finally, supporting the recapitalization plan, IRSA CP signed with TGLT a subscription commitment for Class A preferred shares under Class A Public Offer to make a contribution in kind of shares of the company La Maltería SA, 100% of its ownership, for an amount up to USD 24 million and promised to exchange its convertible negotiable obligations into preferred Class B shares.

In turn, on November 22, 2019, TGLT held a bondholders of convertible negotiable obligations meeting in order to consider the modification of different clauses of the indenture in force at that date, and in line with what was agreed in the recapitalization agreement, IRSA CP voted in favor of the modifications.

Under the agreements described above, the successful consummation of the offer by TGLT, and having reached the thresholds of consent of the holders of convertible notes of TGLT, on December 11, 2019, the Company concluded the envisaged process in the recapitalization agreement and related documents through the subscription of preferred Class A shares, integrating them in kind through the contribution of the shares of the company La Maltería SA, 100% of their ownership and, likewise, proceeded to the exchange of the convertible note - including deferred interest and accrued interest from August 15, 2019 to December 11, 2019 - in preferred Class B shares.

During the year ended June 30, 2020, preferred shares were converted into ordinary shares, giving IRSA CP significant influence over TGLT, which became an associate as from that date.

Sale of Tarshop

On February 14, 2019, IRSA CP sold its entire stake in Tarshop to BHSA. Following this acquisition, BHSA became the holder of 100% of the capital stock of said company.

The loss recognized for this transaction was approximately ARS 177 million, restated as of the date of these financial statements. 

72

Purchase of equity interest in HASAU (owner of Libertador Hotel)

On February 28, 2019, IRSA reported the acquisition, from an unrelated third party, of the twenty percent (20%) of HASAU for an amount of USD 1.2 million. As a result of this acquisition, IRSA holds 100% of HASAU’ s share capital. This transaction was accounted for as an equity transaction generating a decrease in the net equity attributable to the controlling shareholders by ARS 3 restated at the date of these financial statements.

Operations Center in Israel

On September 25, 2020, the Court resolved that IDBD is insolvent and therefore it resolved to grant all three orders requested and accordingly, issued an order for the initiation of proceedings and liquidation of IDBD, and has appointed a liquidator to IDBD and interim receivers over the Pledged DIC and Clal Shares.

As of the date of this Annual Report, we are analyzing together with our local and international advisors the judicial decision, alternatives and course of action. For more information see “IRSA’s Recent Developments - Corporate Information: IDBD”.

Sales and Swap transactions

On May 1, 2017, August 30, 2017, January 1, 2018, May 3, 2018, August 30, 2018, and January 2, 2019, continuing with the instructions given by the Israel Capital Market, Insurance and Savings Commission, IDBD sold 5% of its stake in Clal on each occasion and 4.5% on the last one respectively, with a subsequent swap transaction with a 2- year expiration term for each transaction. The consideration for the transactions amounted to approximately NIS 944.5 million, which is partially restricted according to these agreements until the swap expires. These transactions did not meet the de-recognition criteria so the Company maintains the asset as “Financial assets available for sale” and accounted for the loans as a financial liability.

On December 16, 2019, Clal made a public capital increase for 12,066,000 shares at a price of NIS 53.87 per share. IDBD did not take part in such transaction.

Additionally, on that date, IDBD sold 200,000 Clal shares at a price of NIS 53.95 per share, representing 0.3% of the new capital stock.

On December 18, 2019, IDBD sold 617,017 Clal shares at an average price of NIS 53.77 per share, representing 0.9% of the issued capital stock.

Furthermore, a swap transaction carried out by IDBD involving 2,771,309 shares expired in December 2019. The closing price was NIS 52.25 per share.

A swap transaction involving 751,000 shares expired within the January-March 2020 period. The closing price was NIS 45.09 per share.

On May 2, 2019, continuing with the instructions given by the Israel Capital Market, Insurance and Savings Commission, IDBD entered into sales agreements with two unrelated parties (the “Buyers”), according to which each of the Buyers will acquire Clal shares representing 4.99% of its share capital at a cash price of NIS 47.7 per share (approximately ARS 602 per share). In addition, they were granted an option to acquire additional Clal shares for approximately 3% of the issued capital, for a period of 120 days (subject to obtaining a holding permit) at a price of NIS 50 per share.

Additionally on the same day, IDBD also entered into an agreement with a third unrelated buyer (the “Additional Buyer”), according to which the Additional Buyer will receive an option from IDBD, valid for a period of 50 days, to acquire approximately 4.99% of Clal shares (and not less than 3%), at a price of NIS 47.7 per share (approximately ARS 602 per share). Subject to the exercise of the option by the Additional Buyer, the price will be paid 10% in cash and the rest through a loan that will be provided to the Additional Buyer by IDBD and/or by a related entity and/or by a banking corporation and/or financial institution, under the agreed conditions.

The aforementioned agreements include, among others, a commitment by the Buyers and the Additional Buyer to not sell the shares acquired during an agreed period of 24 months. It is clarified that each of the Buyers and the Additional Buyer have declared and committed to IDBD that there are no agreements or understandings between them regarding the joint ownership of Clal shares that are subject to the aforementioned agreements.

The total amount of Clal shares that can be acquired by the three buyers mentioned above, to the extent that the three agreements are completed and the options are exercised, represents approximately 18% of Clal’s share capital.

As of June 30, 2020, all previously agreed sales transactions have been consummated.

73

On June 28 and July 6, 2020, IDBD sold 4,791,618 Clal shares held by it through swap transactions, at an average price of approximately NIS 30 per share, representing 7.1% of the capital stock.

Additionally, on September 3, 2020, IDBD sold 2,376,527 Clal shares at an average price of NIS 32.475 per share, for a total amount of NIS 77.2 million, representing 3.5% of Clal’s capital stock.

As a result of the aforementioned transactions, as of September 3, 2020ç, IDBDheld 4.99% of Clal’s issued share capital (which are were pledged in favor of the debenture holders (Series 15)). It no longer has swap transactions and, accordingly, it is no longer considered a Clal interested party within the context of Israel’s Securities Regulations.

On February 4, 2020, Dolphin furnished to the financial entities through which IDB carried out the swap transactions of Clal shares in August and November 2018, guarantees of approximately NIS 11 million, which shall be part of the committed deposits that IDB undertook as part of the terms of such transactions. Furthermore, on February 18, it deposited further guarantees in the amount of NIS 9 million. Following the last sale described above, the guarantees were released.

Distribution of dividends in kind by PBC. Purchase of Mehadrin shares and acquisition of control

On December 10, 2019, PBC distributed its entire holding in Mehadrin as a dividend in kind and, as a result, DIC holds, directly, a 31.4% interest in Mehadrin. As a consequence of such transaction, Mehadrin became an associate.

In January and February 2020, DIC purchased approximately 8.8% of Mehadrin’s capital stock, for a total cost of NIS 39 million (approximately ARS 712 million); therefore, the interest in Mehadrin has increased from 31.4% to approximately 40.2%. Such acquisitions resulted in DIC obtaining control over Mehadrin, by the end of February, as it has the majority votes while the remaining equity interests are distributed among several shareholders.

Additionally, from April to June 2020, DIC purchased an additional 3.5% interest in Mehadrin for NIS 14 million (approximately ARS 277 million), increasing its interest to 43.7%.

Following the taking of control, as mentioned above, since March 9, 2020, the Group has consolidated the operations of this company.

Below is a detail of incorporated net assets and income from such transaction. The process for the determining of the fair value of incorporated net assets has been significantly completed as of June 30, 2020 and it is expected to conclude in the first months of the fiscal year ending June 30, 2021. However, Management does not foresee any material adjustments to the incorporated net assets detailed below:

	03.31.2020
Million of ARS
Fair value of identifiable assets and liabilities assumed
Investment properties	244
Property, plant and equipment	6,108
Intangible assets	57
Investments in associates and joint ventures	1,879
Restricted assets	164
Income tax receivables	146
Trade and other receivables	10,211
Rights of use	4,019
Derivative financial instruments	37
Inventories	2,503
Borrowings	(7,363)
Deferred income tax liabilities	(945)
Trade and other payables	(4,711)
Lease liabilities	(2,119)
Provisions	(56)
Employee benefits	(128)
Salaries and social security liabilities	(201)
Income Tax	(18)
Cash and cash equivalents	2,612
TOTAL IDENTIFIABLE NET ASSETS	12,439
Non-controlling interest	(7,443)
Negative goodwill (*)	(376)
Decrease Investments in associates	3,908
Cash and cash equivalents	712
TOTAL CONSIDERATION	4,620

(*) Included in “Other operating income, net”

74

Partial sale of equity interests in Gav-Yam

On July 1, 2019, PBC sold approximately 11.7% of Gav-Yam’s capital stock by private agreements. Following this transaction, PBC’s interest in Gav-Yam decreased from 51.7% to 40%. The consideration received for such sale was NIS 46 million (approximately ARS 6,949 million, restated as of the date of these financial statements).

Furthermore, on September 1, 2019, PBC sold an additional 5.14%, approximately, of Gav-Yam shares and, as a result, PBC’s interest in Gav-Yam decreased from 40% to 34.9%. As a consequence of such sales, PBC forfeited its right to nominate the majority members to the Board of Directors and to appoint or remove key management members. Accordingly, PBC has lost its control over Gav-Yam and has de-consolidated such investment since such date.

Below are the details of the sale:

	09.30.2019
Million of ARS
Cash received	14,261
Remesuarement of the fair value of the remaining interest	32,165
Total	46,426
Net assets disposed including goodwill	(28,128)
Gain from the sale of a subsidiary, net of taxes (*)	18,298

(*) Said results are disclosed within discontinued operations, under the caption "other operating results, net"

The following table details the net assets disposed:

	09.30.2019
Million of ARS
Investment properties	155,846
Property, plant and equipment	1,061
Intangible assets	3,281
Right-of-use assets	42
Investments in associates and joint ventures	4,396
Restricted assets	378
Trade and other receivables	1,157
Investments in financial assets	13,544
Trading properties	155
Income tax credit	190
Cash and cash equivalents	10,623
TOTAL ASSETS	190,673
Borrowings	95,443
Lease liabilities	42
Deferred income tax liabilities	21,151
Trade and other payables	2,398
Employee benefits	21
Salaries and social security liabilities	63
Income tax and MPIT liabilities	125
TOTAL LIABILITIES	119,243
Non-controlling interest	43,302
Net assets written off including Goodwill	28,128

On January 12, 2020, PBC received a communication from the Ministry of Justice of Israel questioning the loss of control of Gav-Yam in September 2019 and, accordingly, raising its objections to observance by PBC of the concentration law in Israel.

In May 2020, PBC agreed to sell approximately 4.96% of Gav-Yam’s capital stock to an unrelated third party. Therefore, its interest in Gav-Yam decreased from 34.9% to 29.9% after the consummation of the sale transaction and it was thus able to overcome the questioning from the Ministry of Justice of Israel.

Changes in equity interest in Shufersal and loss of control

On December 24, 2017, DIC sold Shufersal shares, decreasing its stake from 53.30% to 50.12%. The consideration with respect to the sale of the shares amounted to NIS 169.5 million (equivalent to ARS 2,148 million). Both transactions were accounted for as an equity transaction generating an increase in equity attributable to the controlling company for ARS 727 million and ARS 976 million, respectively.

75

On June 16, 2018, DIC announced the sale of a percentage of its stake in Shufersal to institutional investors which was completed on June 21, 2018. The percentage sold amounted to 16.56% and the net amount of the consideration was approximately NIS 848 million (equivalent to ARS 13,845 million), consequently DIC lost control of Shufersal, so the Group deconsolidated the subsidiary at that date.

Below are the details of the sale:

	06.30.2018
Million of ARS
Cash received	14,275
Remesuarement of the fair value of the remaining interest	29,271
Total	43,546
Net assets disposed including goodwill	(18,902)
Gain from the sale of a subsidiary, net of taxes (*)	24,644

 (*) Includes ARS 5,856 million as a result of the sale and ARS 18,789 million as a result of the re-measurement at the fair value of the new stake, both included in discontinued operations.

The following table details the net assets disposed:

	06.30.2018
Million of ARS
Investment properties	10,332
Property, plant and equipment	64,484
Intangible assets	16,203
Investments in associates and joint ventures	892
Restricted assets	203
Trade and other receivables	32,516
Investments in financial assets	280
Derivative financial instruments	51
Inventories	13,955
Cash and cash equivalents	12,404
TOTAL ASSETS	151,320
Borrowings	47,383
Deferred income tax liabilities	6,244
Trade and other payables	53,306
Provisions	1,025
Employee benefits	2,812
Salaries and social security liabilities	5,322
Income tax and MPIT liabilities	17
TOTAL LIABILITIES	116,109
Non-controlling interest	16,309
Net assets disposed including goodwill	18,902

Additionally, on November 27, 2018, DIC sold 7.5% of the total shares of Shufersal to institutional investors for a consideration of NIS 416 million (approximately ARS 7,266 million). After this transaction, the group holding went down to 26.02% approximately. The profit for this sale was NIS 27 million (approximately ARS 430 million). See Note 35to our Audited Consolidated Financial Statements regarding the sale of the entire equity interest.

Interest increase in Cellcom

On June 27, 2018, Cellcom increased its capital stock in consideration for a gross amount of NIS 280 million (approximately ARS 4,918 million). DIC participated in such increase and disbursed NIS 145.9 million (approximately ARS 2,561 million) for 6,314,200 shares.

Furthermore, in December 2018, DIC exercised 1.5 million options (Series 1) held by it in Cellcom, for an amount of NIS 31 million (approximately ARS 527 million). In December 2019 and February 2020, DIC purchased Cellcom shares for NIS 19 million (approximately ARS 357 million). As a consequence of the exercise of the options and the acquisition, DIC interest in Cellcom increased by 0.9%. These transactions were accounted for as equity transactions generating a decrease in the net equity attributable to the controlling company by ARS 226 million, restated as of the date of these financial statements.

76

Additionally, on December 5, 2019, Cellcom increased its capital stock with the participation of DIC that purchased almost 50% of the shares issued. The consideration paid amounted to NIS 307 million (approximately ARS 6,011 million as of such date). Cellcom issued an aggregate number of 30,600,000 common shares, 7,038,000 Serie ms 3 Options and 6,426,000 Series 4 Options at a price of NIS 1.021 per unit (each unit will represent 100 common shares, 23 Series 3 Options and 21 Series 4 Options).

Following the participation of DIC in such issue, the interest percentage was 46.2% of the issued capital stock and approximately 48.5% of the Company’s voting rights (directly and by means of agreements executed with other shareholders of the Company).

Sale of IDBT subsidiary

On August 14, 2018, IDBT’s Board of Directors approved an agreement to sell 50% of a subsidiary of IDBT, entrusted with tourism operations for Israir, for a total price of NIS 26 million (approximately ARS 506 million), which was consummated on December 31, 2018. Such transaction does not affect the intention to sell IDBT in its entirety. The Group evaluated maintaining the criteria to classify the investment as a discontinued operation pursuant to IFRS 5.

Agreement to sell plot of land in USA

In July 2019, a subsidiary of IDBG signed an agreement to sell a plot of land next to the Tivoli project in Las Vegas for a consideration of USD 18 million. At this stage, no assurances may be given that the sales transaction will be completed.

Sale of Real Estate

In October 2018, a subsidiary of Ispro signed an agreement for the sale of all of its rights in a real estate area of approximately 29 dunams (equivalent to 1 hectare), in which there are 12,700 square meters in the northern industrial zone in Yavneh for NIS 86 million, (equivalent to ARS 6,439 million). Such agreement has already been executed.

Interest increase in PBC

In December 2018 and February 2019, DIC acquired an additional 4.40% of PBC in the market for NIS 81 million (equivalent to ARS 1,435 million). The present transactions were accounted for as equity transactions, generating an increase in net equity attributable to the controlling company for ARS 101 million, restated as of June 30, 2020. See Note 38 to the Audited Consolidated Financial Statements.

Repurchase of own shares by DIC

In December 2018, DIC’s Board of Directors approved a plan to buy back DIC shares, for a period of one year, until December 2020 amounting up to NIS 120 million (approximately ARS 2,498 million). Acquisition of securities shall be carried out in accordance with market opportunities, dates, prices and quantities, as determined by the management of DIC, in such a way that in any event, the public holdings shall be, at any time, at least 10.1% of the total issued share capital of DIC.

Since December 2018 as of the fiscal year-end date, DIC acquired 12.2 million shares for a total amount of NIS 119 million (approximately ARS 2,040 million). Additionally, in December 2018, minority shareholders of DIC exercised DIC Series 6 options for an amount of NIS 9 million (approximately ARS 174 million).

As a result of the operations described above, the participation of Dolphin IL in DIC increased approximately by 5.4%. The present transactions were accounted for as equity transactions generating a decrease in the equity attributable to the controlling company for ARS 133 million, restated as of the date of these financial statements.

Repurchase of own debenures by DIC

In August 2020, DIC’s Board of Directors approved a self-purchase plan of its debentures (Series 6 and Series 10), until December 31, 2021, at a total cost of up to NIS 300 million. The purchase of the debentures will be made in accordance with market opportunities, dates, prices and volumes, as determined by the management of DIC.

77

Interest increase in Elron

In November and December 2018, DIC acquired an additional 9.2% of Elron in the market for NIS 31 million (equivalent to ARS 557 million). Additionally, in June 2020, Elron issued shares to the market and third parties unrelated to the Group acquired an interest in the Company in consideration for NIS 26 million. These transactions were accounted for as an equity transaction generating a decrease in the equity attributable to the controlling company for ARS 64 million.

Interest increase in DIC

On July 5, 2018, Tyrus acquired 2,062,000 of DIC’s shares in the market for a total amount of NIS 20 million (equivalent to ARS 490 million), which represent 1.35% of the Company’s outstanding shares at such date. As a result of this transaction, the Group’s equity interest has increased from 76.57% to 77.92%. This transaction was accounted for as an equity transaction generating an increase in the net equity attributable to the controlling company by ARS 46 million, restated as of the date of these financial statements.

The stake of the Group in DIC is approximately 83.77% considering the repurchase of treasury shares.

Early payment of Ispro bonds

In August 2019, the Audit Committee and the Board of Directors of Ispro approved the full advance payment of (Tranche B) corporate bonds, traded on the TASE. The aggregate amount was NIS 131 million (approximately ARS 2,465 million restated as of the date of these financial statements). The prepayment of these corporate bonds caused Ispro to become a reporting company for TASE and not a listed company.

Agreement for the sale of Ispro

On January 26, 2020, PBC executed an agreement for the sale of all Ispro shares and the rights over the loans granted by the shareholders to ISPRO in consideration for NIS 885 million. The consummation of the transaction was subject to approval by the Commissioner of Competition pursuant to the Law on Economic Competition, which should have been given within a term of 150 days following the execution of the agreement. For this reason, the Group eclassified the assets and liabilities as available for sale.

At the time of the execution of the agreement, the buyer made a deposit of NIS 15 million into an account and undertook to deposit an additional amount of NIS 40 million, following completion of the due diligence process.

On March 23, 2020, the buyer contacted PBC and requested a postponement of the dates specified in the sales agreement. PBC informed the buyer that its request would be considered without detrimentally affecting PBC’s rights and obligations pursuant to the agreement. On March 26, 2020, that is, the date of completion of the due diligence process, the buyer defaulted on its obligation to deposit the second payment installment in an amount of NIS 40 million, into a trust account.

PBC demanded the buyer to cure its default and immediately deposit the second payment installment and proceed with the closing of the transaction in accordance with its terms, without this entailing a limitation on its rights and obligations and any consideration available for the buyer pursuant to the agreement and under the law, until April 20, 2020. Since the buyer did not comply until April 20, 2020, the agreement was terminated.

In April 2020, PBC executed an agreement with another buyer for NIS 800 million involving all ISPRO shares and the rights over the loans granted by PBC to ISPRO. As a consequence of this new agreement for the sale of ISPRO’s shares, the Group has reclassified net assets totaling ARS 15,473 million as “Group of Assets available for Sale”. The profit to be recognized at the time of the consummation of the transaction shall be NIS 47 million (equivalent of ARS 842 million as of the current fiscal year-end).

Cellcom- Golan Telecom Agreement

In February 2020, Cellcom, the shareholders of Golan Telecom and Golan Telecom executed a binding memorandum of understanding for the acquisition of Golan Telecom entire capital stock, for a total amount of NIS 590 million, payable in 2 installments (NIS 413 million at the closing date of the transaction and NIS 177 million within a term of 3 years following such closing date). Cellcom shall issue and deposit the Company’s shares for 8.2 million, with a trustee into a trust account (“Shares held in Trust”), as collateral.

78

The transaction provides for standard conditions and representations and is subject to a due diligence process to be performed by Cellcom and the relevant regulatory authorizations and approvals from material third parties. The parties shall carry out negotiations regarding a detailed agreement; however, they are bound to the memorandum of understanding, regardless of whether the agreement may be executed or not. In the event the conditions for the closing of the transaction were not satisfied before December 31, 2020, the memorandum of understanding or the detailed agreement, as applicable, shall be terminated.

For more information on the conclusion of the agreement and its respective approvals, see note 38 of the financial statements as of June 30, 2020.

Capital Expenditures

Our capital expenditures were ARS 12,280 million, ARS 20,642 and ARS 22,742 million for the fiscal year ended June 30, 2020, 2019 and 2018, respectively, including other goods and equipment acquired in business combinations.

Our capital expenditures consisted of the purchase of real estate and farms, acquisition and improvement of productive agricultural assets, communication networks, completion of the construction of a shopping center, construction of real estate and acquisition of land reserves.

Fiscal year ended June 30, 2020

During the fiscal year ended June 30, 2020, in our Urban Properties and Investments Business we incurred capital expenditures of ARS 11,050 million as follows: (a) acquisition and improvements of property, plant and equipment for ARS 5,672 million, mainly related to: i) ARS 332 million in buildings and facilities, ii) ARS 3,417 million in communication networks, iii) ARS 1,749 million in machinery, equipment and others, and iv) improvements in our Sheraton Libertador, Llao Llao and Intercontinental hotels (ARS 14 million, ARS 61 million and ARS 44 million, respectively); (b) improvements in our rental properties for ARS 2,700 million, of which ARS 1,906 million correspond to our Argentina Operations Center and ARS 794 to the Israel Operations Center; (c) the development of properties for ARS 2,678 million.

During the fiscal year ended June 30, 2020, we invested in the Agricultural Business ARS 1,230 million mainly as follows (a) acquisition and development of owner occupied farmland for ARS 725 million (ARS 593 million of subsidiary Brasilagro); (b) ARS 312 million in bearer plant; (c) ARS 56 million in other building and facilities; (d) ARS 58 million machinery and equipment; (e) ARS 27 million in vehicles; (f) ARS 5 million in furniture and supplies; and (g) ARS 47 million destined to suppliers advances for proprieties acquisitions.

Fiscal year ended June 30, 2019

During the fiscal year ended June 30, 2019, in our Urban Properties and Investments Business we incurred capital expenditures of ARS 18,755 million as follows: (a) acquisition and improvements of property, plant and equipment for ARS 7,144 million, mainly related to: i) ARS 110 million in buildings and facilities, ii) ARS 4,599 million in communication networks, iii) ARS 2,371 million in machinery, equipment and others, and iv) improvements in our Sheraton Libertador, Llao Llao and Intercontinental hotels (ARS 29 million, ARS 14 million and ARS 21 million, respectively); (b) improvements in our rental properties for ARS 1,954 million, mainly in our Israel Operations Center; (c) the development of properties for ARS 9,065 million, mainly in our Israel Operations Center; (d) Land reserves for ARS 592 million.

During the fiscal year ended June 30, 2019, we invested ARS 1,887 million in our Agriculture Business as follows due (a) acquisition and development of owner occupied farmland for ARS 793 million (ARS 596 million of subsidiary Brasilagro); (b) ARS 582 million in bearer plant; (c) ARS 80 million machinery and equipment; (d) ARS 40 million in vehicles; (e) ARS 9 million in furniture and supplies; (f) ARS 374 million in other building and facilities and (g) ARS 9 million destined to suppliers advances for proprieties acquisitions.

79

Fiscal year ended June 30, 2018

During the fiscal year ended June 30, 2018, in our Urban Properties and Investments Business we incurred capital expenditures of ARS 19,064 million (including ARS 4,729 million from Shufersal, whose assets were deconsolidated due to the loss of control and ARS 748 million from business combination), as follows: (a) acquisitions and improvements of property, plant and equipment of ARS 10,562 million, primarily i) ARS 2,957 million in buildings and facilities, mainly in supermarkets in Israel through Shufersal, ii) ARS 2,500 million in communication networks, iii) ARS 5,065 million in machinery and equipment and others, iv) improvements in our hotels Sheraton Libertador, Llao Llao and Intercontinental (ARS 10 million, ARS 19 million and ARS 11 million, respectively), and v) ARS 484 million related with business combinations (mainly from the acquisition of New Pharm); (b) improvements inour rental properties of ARS 1,917 million, primarily in our Operations Center in Israel; (c) the development of properties for ARS 3,489 million, mainly in our Operations Center in Israel; (d) ARS 2,834 million related to the acquisition of land reserves, and (e) ARS 264 million related to business combination.

During the fiscal year ended June 30, 2018, we invested ARS 3,678 million in our Agricultural Business mainly as follows (a) acquisition and development of owner occupied farmland for ARS 2,931 million (ARS 2,662 million of subsidiary Brasilagro); (b) ARS 583 million in bearer plant; (c) ARS 113 million in other building and facilities; (d) ARS 31 million in vehicles; (e) ARS 9 million in furniture and supplies; and (f) ARS 11 million destined to suppliers advances for proprieties acquisitions.

Recent Developments

Operations Center in Argentina

Cresud’s Recent Developments

Shareholders’ Meeting

On October 26, 2020, the Company informs that the Shareholders’ Meeting has resolved the following:

1) Appointment of two shareholders to sign the meetings’ minutes.The meeting approved by majority the appointment of the representative of shareholder Bank of New York Mellon (BONY) and the representative of ANSES FGS Law 26425 (ANSES) to approve and sign the minutes of the Shareholders’ Meeting, jointly with the Chairman.

2) Consideration of documents contemplated in paragraph 1, Section 234, Law No. 19,550 for the fiscal year ended June 30, 2020. The documentation was approved by a majority of votes.

3) Allocation of net gain for the fiscal year ended June 30, 2020 for ARS 1,900,624,275. Distribution of dividends in kind. The meeting approved by majority of votes:

1.- to allocate the net income for the fiscal year for ARS 1,900,624,275.32 to (i) the legal reserve for ARS 95,031,214 and (ii) the remaining balance amounting to ARS 1,805,593,061.32 to the absorption of unappropriated retained earnings, comprised by (a) the aggregate of prior fiscal year adjustments amounting to ARS 814,138,722.68, (b) the aggregate of the negative effect from other changes in the subsidiaries shareholders’ equity amounting to ARS 60,919,391.76; and (c) partially, the effect of the distribution of shares approved by the meeting held on October 30, 2019 of ARS 1,511,974,676.17 on the unappropriated retained earnings;

2. not to distribute dividends as a result of the absorption of losses.

4) Consideration of Board of Directors’ performance for the Fiscal Year ended June 30, 2020.The management of the Board was approved by a majority of votes.

5) Consideration of Supervisory Committee’s performance for the Fiscal Year ended June 30, 2020.The management of the Supervisory Committee was approved by a majority of votes.

6) Consideration of compensation payable to the Board of Directors (ARS 93,792,715, allocated sum) for the Fiscal Year ended June 30, 2020.Finally, The meeting approved by majority of votes the sum of ARS 62,180,000 as total compensation payable to the Board of Directors for the fiscal year ended June 30, 2020 and (i) to allocate and distribute such compensation in due course in accordance with the specific duties discharged by its members; (ii) to make monthly advance payments of fees contingent upon the resolution to be adopted at the next ordinary shareholders’ meeting.

80

7) Consideration of compensation payable to the Supervisory Committee (ARS 1,575,000, allocated sum) for the Fiscal Year ended June 30, 2020. It was approved by a majority of votes

8) Determination of number and appointment of regular directors and alternate directors for a term of three fiscal years. It was approved by a majority of votes: i) to determine in 12 (twelve) the number of regular directors and maintain in 5 (five) the number of alternate directors (ii) to renew the appointment of Messrs. Eduardo Sergio Elsztain, Saúl Zang and Alejandro Gustavo Casaretto as non-independent Regular Directors; (iii)to appoint Mrs. Mariana Renata Carmona as non-independent Regular Director; (iv) to renew the appointment of Mr. Gastón Armando Lernoud as non-independent Alternate Director.

9) Appointment of regular and alternate members of the Supervisory Committee for a term of one fiscal year.The meeting approved by majority of votes to appoint Messrs. José Daniel Abelovich, Marcelo Héctor Fuxman and Noemí Ivonne Cohn as Regular Statutory Auditors and Messrs. Roberto Daniel Murmis, Cynthia Deokmelian and Paula Sotelo as Alternate Statutory Auditors for a term of one fiscal year.

10) Appointment of certifying accountant for the next fiscal year.The meeting approved by majority of votes to appoint as certifying accountants for the 2020/2021 fiscal year, the firm Price Waterhouse & Co. S.R.L. member of PriceWaterhouseCoopers, with Walter Rafael Zablocky acting as Regular Independent Auditor, and Javier Brondo as Alternate Independent Auditor.

11) Consideration of the approval of compensation for ARS 15,300,333 payable to certifying accountant for the fiscal year ended June 30, 2020. The meeting approved by majority of votes a compensation of ARS 15,300,333 for the tasks developed by the certifying accountant for the fiscal year ended June 30, 2020.

12) Consideration of annual budget for implementation of the audit committee’s annual plan.The meeting approved by majority of votes a budget of ARS 503,000, taking into account the effect of inflation considering the eventual hiring of advisors / consultants and trainings.

13) Consideration of incentive plan for employees, management, and directors, approved on the Shareholders Meeting held on October 30, 2019. Guidelines for the implementation of the plan that will be bonused to its beneficiaries, paying up the corresponding capital increase with reserves of the company according to Art. 68 of Law 26,831 of Capital Market. The meeting approved by majority of votes to ratify the resolutions adopted by the meeting held on October 30, 2019 as regards the implementation of the incentive plan for employees, management and directors of the Company and to provide that 1% (one per cent) allocated to such plan to be calculated based on the capital outstanding as of the time of implementation and/or execution of the plan, be paid in with reserves – thus allocating such shares as bonus to the beneficiaries of the plan- and/or paid in with contributions made by the beneficiaries, all in accordance with the provisions set forth in Section 68 of the Capital Market Law No. 26,831.

14) Authorization to carry out registration proceedings relating to this shareholders’ meeting before the argentine securities commission and the general superintendence of corporations.The meeting approved by majority of votes to authorize attorneys-at-law María Laura Barbosa, Lucila Huidobro, Paula Pereyra Iraola, María Florencia Vega and/or María Inés Higa and Mrs. Andrea Muñoz to carry out all the relevant registrations of the preceding resolutions.

Exchange Offer -Issuance of Series XXXI and XXXII Notes

As a consequence of the new restrictions on access to the Foreign Exchange Market, we launched an exchange offer on our Series XXIV Notes due on November 14, 2020 (the “Existing Notes”). The abovementioned restrictions to obtain United States dollars established under Communication “A” 7,106 apply for the purchase of foreign currency intended for repayment of principal maturing between October 15, 2020 and March 31, 2021 in respect of the issuance of foreign currency-denominated debt securities registered with official registries in Argentina by private sector clients or the entities themselves. For such purposes, all Eligible Holders (the “Eligible Holders”) were invited by us to Exchange the Existing Notes, Series XXIV Notes.

On October 23, 2020, we announced Notes to be issued in exchange for the Existing Notes, Series XXIV Notes, as applicable, pursuant to the terms and methods for the exchange of the Existing Notes. The exchange offer consisted on the following two options for the bondholders terms:

(i)

A repayment of principal amount of Existing Notes tendered for Exchange, in cash in United States Dollars, in an amount resulting from dividing USD 29,442,160,00 by the total number of Existing Notes tendered in Exchange for the Series XXXI, always provided such quotient is less than or equal to USD 1 whereas if such quotient is higher than USD 1 the consideration shall be equal to USD 1 (“Principal Repayment”); which would represent at least 40% of the amount of the Existing Notes tendered and the remaining amount until reaching USD 1 of each USD 1 of the Existing Notes tendered for Exchange, in Series XXXI Notes. Series XXXI Notes to be issued at a fixed nominal interest rate of 9.00% per annum and maturing 3 (three) years after the Date of Issue and Settlement, with annual repayments, denominated and payable in United States Dollars, in a principal amount up to USD 44,163,240 to be paid in kind by tendering for exchange of the Existing Notes. In all cases, the sum of (i) and (ii) shall be the equivalent to USD 1 per each USD 1 of Existing Notes tendered for Exchange.; and

(ii)

A par for par exchange of notes Series XXXII for each Existing Notes presented to the Exchange. Series XXXII Notes to be issued at a nominal fixed interest rate of 9% per annum, maturing 24 (twenty-four) months after the Date of Issue and Settlement, denominated and payable in a principal amount up to USD 44,163,240, to be paid in kind by tendering for exchange the Existing Notes.

For both options interest accrued on the Existing Notes until the Date of Settlement of the Exchange Offer will be paid in cash:

Moreover, the Company offers an early exchange consideration equivalent to USD 0.02 per each USD 1 of Existing Notes tendered and accepted in exchange for Series XXXII Notes prior to the deadline to receive the consideration for early acceptance (the “Early Exchange Consideration”). Such consideration shall be paid in Pesos on the Date of Issue and Settlement as per the exchange rate reported by Communication “A” 3,500 of the Central Bank of Argentina on the business day next preceding the Exchange Expiration Date. For the purposes of receiving the Early Exchange Consideration, the Eligible Holders shall tender the Existing Notes in their possession on or before the Deadline to Receive the Early Exchange Consideration.

On November 2, 2020, the Company announced the results of the Early Bird of Series XXXII Notes. As of October 30, 2020, deadline for accessing the Early Bird, exchange orders have been submitted for a total amount equivalent to USD 31,820,655 for Series XXXII Notes.

All existing notes presented on or before the above mentioned deadline have been accepted by the Company and will be eligible to receive the consideration on the Issue and Settlement Date.

As timely announced, the Exchange Offer would expire on November 5, 2020, unless it is extended by the Company. Finally, on November 6, 2020, the Company decided to extend the Exchange Offer, to November 10, 2020. This extension does not imply a modification to the economic terms of the Exchange Offer.

On November 11, 2020, the Company reported the results of the Exchange Offer. Eligible holders have been presented for a total amount equivalent (for both Classes) to USD 65.075.746, representing 88.41% of the face value of the Existing Notes in Circulation, through the participation of 1,098 orders.

81

SERIES XXXI Notes issuance:

The Face Value of Existing Notes presented and accepted for the Exchange totaled USD 30,751,640 and the Nominal Value of Series XXXI Notes to be issued was USD 1,309,480. The maturity date will be November 12, 2023.

According to the terms and subject to the conditions established in the Prospectus Supplement, Eligible Holders whose Existing Notes have been accepted for the Exchange by the Company, will receive for every USD 1 of Existing Notes submitted to the Exchange, the accrued interest of the Existing Notes until the settlement and issue date and the following:

a. USD 0.95741755 in cash for each USD 1 of Existing Notes presented to the Exchange; and

b. The remaining amount until completing USD 1 for each USD 1 of Existing Notes presented to the Exchange, in Series XXXI Notes.

SERIES XXXII Notes Issuance:

Face Value of Existing Notes presented and accepted for the Exchange totaled USD 34,324,106 and the Nominal Value of Series XXXII Notes to be issued is USD 34,324,106. The maturity date will be November 12, 2022.

Series XXIV Cancellation:

In relation to the Exchange Offer ended on November 10, 2020, and as a result of the settlement of said Exchange, on November 16, 2020, the Company made a partial cancelation for a Nominal Value of USD 65,075,746 of Series XXIV Notes, after the cancellation the Nominal Value under circulation was USD 8,529,654, which was fully cancelled on November 16, 2020.

 

82

Payment of dividends by Brasilagro

At Brasilagro’s shareholders’ meeting held on October 16, 2020, the shareholders of Brasilagro approved dividends in the amount of BRL 42.0 million, or BRL 0.71 per share. Such dividends shall be paid to shareholders on November 12, 2020, to holders of record of Brasilagro’s shares as of October 19, 2020.Notes Series XXX

On August 27, 2020, we issued USD 25.0 million aggregate principal amount of Series XXX Notes, bearing a fixed interest rate of 2.0% payable semiannually, and maturing on August 31, 2023.

Communication “A” 7106 from the Central Bank of the Argentine Republic.

On September 17, 2020, CRESUD reported that under Communication "A" 7,106, issued by the Central Bank, which established, among other issues, the requirement, for those who register scheduled capital maturities between October 15, 2020 and March 31, 2021 with creditors that are not related counterparties, to submit to the Central Bank a detail of a refinancing plan complying with certain criteria established in the said Communication. Specifically, the Central Bank will grant access to companies for an amount up to 40% of maturities and companies must refinance the rest for a term of at least 2 years. The Company is analyzing the impact of this provision in order to meet in a timely and in-time compliance with the requirements of the Central Bank, if applicable. Likewise, as reported in a timely manner, on November 14, 2020, the maturity of the Notes Series XXIV for a face value of USD 73,605,400, as well as another bank debt, operates.

Jatobá sale

On July 15, 2020, the Company, through its subsidiary Brasilagro, entered into an agreement for the sale of of 1,875 hectares (1,500 of which are production hectares) of the Jatobá Establishment, a rural property located in the Municipality of Jaborandi, for a purchase price of 300 bags of soybeans, equivalent to BRL 45 million. At the time of sale, the buyer made an initial payment, equivalent to BRL 5 million. In August 2020, the buyer made a second payment, equivalent to an additional BRL 3.5 million. The remaining balance of the purchase price will be paid by the purchaser in six annual installments

IRSA’s Recent Developments

Shareholders’Meeting

On October 26, 2020, the Company informs that the Shareholders’ Meeting has resolved the following:

1) Appointment of two shareholders to sign the meetings’ minutes. The meeting approved by majority of votes the appointment of the representatives of shareholders ANSES FGS and Cresud SACIF y A to approve and sign the minutes of the Shareholders’ Meeting, jointly with the Chairman.

2) Consideration of documents contemplated in paragraph 1, Section 234, Law No. 19,550 for the fiscal year ended June 30, 2020. It was approved by the majority of the votes.

3) Allocation of net gain for the fiscal year ended June 30, 2020 for ARS 11,649,829,387.15. Distribution of dividends in kind. It was approved by a majority of votes (i) to allocate 5% of the income for the fiscal year, amounting to ARS 582,491,469.36, to the legal reserve; (ii) to distribute the amount of ARS 484,000,000, (four hundred and eighty four million Argentine pesos), as dividends payable in shares of IRSA Propiedades Comerciales S.A., a Company’s subsidiary, to the shareholders ratably according to their shareholding interests; (iii) to allocate the balance to the special reserve, which may be used to pay future dividends, to carry out new projects or for any other purpose in the interests of the Company within the next fiscal years; and (iv) to delegate to the Board of Directors the power to implement the payment to the shareholders within the terms set forth in the applicable laws, and to apply for and implement the payment of such dividends to the ADR holders.

83

4) Consideration of Board of Directors’ performance for the Fiscal Year ended June 30, 2020. It was approved by the majority of the votes.

5) Consideration of Supervisory Committee’s performance for the Fiscal Year ended June 30, 2020. It was approved by the majority of the votes.

6) Consideration of compensation payable to the Board of Directors (ARS 71,450,320, allocated sum) for the Fiscal Year ended June 30, 2020. The meeting approved by majority of votes the sum of ARS 71,450,320 as total compensation payable to the Board of Directors for the fiscal year ended June 30, 2020 and (i) to allocate and distribute such compensation in due course in accordance with the specific duties discharged by its members; (ii) to make monthly advance payments of fees contingent upon the resolution to be adopted at the next ordinary shareholders’ meeting.

7) Consideration of compensation payable to the Supervisory Committee (ARS 1,575,000, allocated sum) for the Fiscal Year ended June 30, 2020. The meeting approved by majority of votes to pay ARS 1,575,000 to the Supervisory Committee as aggregate fees for the tasks discharged during the fiscal year ended June 30, 2020.

8) Determination of number and appointment of regular directors and alternate directors for a term of three fiscal years. It was approved by a majority of votes: i) to determine in 12 (twelve) the number of regular directors and maintain in 6 (six) the number of alternate directors; ii) to renew the appointment of Messrs. Fernando Adrián Elsztain and Daniel Ricardo Elsztain as non-independent Regular Directors; iii) to renew the appointment of Mr. Gastón Armando Lernoud as non-independent Alternate Director; and iv) 4)to appoint Messrs. Ben Iosef Elsztain and Iair Elsztain as non-independent Alternate Directors.

9) Appointment of regular and alternate members of the Supervisory Committee for a term of one fiscal year. The meeting approved by majority of votes to appoint José Daniel Abelovich, Marcelo Héctor Fuxman and Noemí Ivonne Cohn as Regular Statutory Auditors and Messrs. Roberto Daniel Murmis, Ariela Levy and Paula Sotelo as Alternate Statutory Auditors for a term of one fiscal year.

10) Appointment of certifying accountant for the next fiscal year. The meeting approved by majority of votes to appoint the following firms as certifying accountants for the 2020/2021 fiscal year: (a) Price Waterhouse & Co. S.R.L. member of PriceWaterhouseCoopers, with Walter Rafael Zablocky acting as Regular Independent Auditor, and Javier Brondo as Alternate Independent Auditor; and (b) Abelovich Polano & Asociados, with José Daniel Abelovich acting as Regular Independent Auditor and Roberto Daniel Murmis and Noemi Ivonne Cohn as Alternate Independent Auditors.

11) Consideration of the approval of compensation for ARS 23,498,908 payable to certifying accountant for the fiscal year ended June 30, 2020. It was approved by the majority of the votes.

12) Consideration of annual budget for implementation of the audit committee’s annual plan. The meeting approved by majority of votes a budget of ARS 549,000 for the eventual hiring of advisors / consultants and trainings.

13) Consideration of incentive plan for employees, management, and directors, approved on the Shareholders Meeting held on October 30, 2019. Guidelines for the implementation of the plan that will be bonused to its beneficiaries, paying up the corresponding capital increase with reserves of the company according to Art. 68 of Law 26,831 of Capital Market. The meeting approved by majority of votes to ratify the resolutions adopted by the meeting held on October 30, 2019 as regards the implementation of the incentive plan for employees, management and directors of the Company and to provide that 1% (one per cent) allocated to such plan to be calculated based on the capital outstanding as of the time of implementation and/or execution of the plan, be paid in with reserves – thus allocating such shares as bonus to the beneficiaries of the plan- and/or paid in with contributions made by the beneficiaries, all in accordance with the provisions set forth in Section 68 of the Capital Market Law No. 26,831.

14) Authorization to carry out registration proceedings relating to this shareholders’ meeting before the argentine securities commission and the general superintendence of corporations. The meeting approved by majority of votes to authorize attorneys-at-law María Laura Barbosa, Lucila Huidobro, Paula Pereyra Iraola, María Florencia Vega and/or María Inés Higa and Mrs. Andrea Muñoz to carry out all the relevant registrations of the preceding resolutions.

84

Exchange Offer- Issuance of Series VIII and IX Notes

As a consequence of the new restrictions on access to the Foreign Exchange Market, IRSA launched an exchange offer on its Series I Notes due on November 15, 2020 (the “Existing Notes”). The abovementioned restrictions to obtain United States dollars established under Communication “A” 7,106 apply for the purchase of foreign currency intended for repayment of principal maturing between October 15, 2020 and March 31, 2021 in respect of the issuance of foreign currency-denominated debt securities registered with official registries in Argentina by private sector clients or the entities themselves. For such purposes, all Eligible Holders (the “Eligible Holders”) were invited by IRSA to Exchange the Existing Notes, Series I Notes.

On October 22, 2020, IRSA announced Notes to be issued in exchange for the Existing Notes, Series I Notes, or through the Cash Subscription (the “Cash Subscription”), as applicable, pursuant to the terms and methods for the exchange of the Existing Notes. The exchange offer consisted on the following two options for the bondholders terms:

(i)

A repayment of principal amount of Existing Notes tendered for Exchange, in cash in United States Dollars, in an amount resulting from dividing USD 72,607,482.80 by the total number of Existing Notes tendered in Exchange for the Series VIII, always provided such quotient is less than or equal to USD 1 whereas if such quotient is higher than USD 1 the consideration shall be equal to USD 1 (“Principal Repayment”); which would represent at least 40% of the amount of the Existing Notes tendered and the remaining amount until reaching USD 1 of each USD1 of the Existing Notes tendered for Exchange, in Series VIII Notes. Series VIII Notes to be issued at a fixed nominal interest rate of 10.00% per annum and maturing 3 (three) years after the Date of Issue and Settlement, with annual repayments, denominated and payable in United States Dollars, in a principal amount up to USD 108,911224 to be paid in kind by tendering for exchange of the Existing Notes . In all cases, the sum of (i) and (ii) shall be the equivalent to USD1 per each USD1 of Existing Notes tendered for Exchange.; and

(ii)

A par for par exchange of notes Series IX for each Existing Notes presented to the Exchange. Series IX Notes to be issued at a nominal fixed interest rate of 10% per annum, maturing on March 1, 2023, denominated and payable in a principal amount up to USD 108,911,224, that may be increased up to the Maximum Aggregate Principal Amount (the “Maximum Aggregate Principal Amount”), to be paid in kind by tendering for exchange the Existing Notes, or by Subscription in Cash.

For both options interest accrued on the Existing Notes until the Date of Settlement of the Exchange Offer will be paid in cash:

Moreover, the Company offers an early exchange consideration equivalent to USD 0.02 per each USD 1 of Existing Notes tendered and accepted in exchange for Series IX Notes prior to the deadline to receive the consideration for early acceptance (the “Early Exchange Consideration”). Such consideration shall be paid in Pesos on the Date of Issue and Settlement as per the exchange rate reported by Communication “A” 3500 of the Central Bank of Argentina on the business day next preceding the Exchange Expiration Date. For the purposes of receiving the Early Exchange Consideration, the Eligible Holders shall tender the Existing Notes in their possession on or before the Deadline to Receive the Early Exchange Consideration.

On November 2, 2020, the Company, announced the results of the Early Bird of Series IX Notes. As of October 30, 2020, deadline for accessing the Early Bird, exchange orders have been submitted for a total amount equivalent to USD 70,971,181 for Series IX Notes.

All existing notes presented on or before the above mentioned deadline have been accepted by the Company and will be eligible to receive the consideration on the Issue and Settlement Date.

As timely announced, the Exchange Offer would expire on November 5, 2020, unless it is extended by the Company. Finally, on November 6, 2020, the Company decided to extend the Exchange Offer, to November 10, 2020. This extension does not imply a modification to the economic terms of the Exchange Offer.

On November 11, 2020, IRSA reported the results of the Exchange Offer. Eligible holders have been presented for a total amount equivalent (for both Classes) to USD 178,458,188, representing 98.31% of the face value of the Existing Notes in Circulation, through the participation of 6,571 orders.

SERIES VIII Notes issuance:

The Face Value of Existing Notes presented and accepted for the Exchange totaled USD 104,287,243 and the Nominal Value of Series VIII Notes to be issued was USD 31,679,760. The maturity date will be November 12, 2023.

According to the terms and subject to the conditions established in the Prospectus Supplement, Eligible Holders whose existing notes have been accepted for the Exchange by the Company, will receive for every USD 1 of Existing Notes submitted to the Exchange, the accrued interest of the existing notes until the settlement and issue date and the following:

a. USD 0.69622593 in cash for each USD 1 of Existing Notes presented to the Exchange; and

b. The remaining amount until completing 1 USD for each 1 USD of Existing Notes presented to the Exchange, in Notes Series VIII.

SERIES IX Notes Issuance:

Face Value of Existing Notes presented and accepted for the Exchange totaled USD 74,170,945 and the Nominal Value of Series IX Notes to be issued (together with the Face Value to be issued as a result of the cash subscription) is USD 80,676,505. The maturity date will be March 1, 2023.

Modifications to the Terms of the Existing Notes:

Pursuant to the terms and conditions specified on the pricing supplement of the Existing Notes, and considering that consent has been obtained for an amount greater than 90% of the principal of the Existing Notes, the Company made the Non-Essential Proposed Modifications and / or the Essential Proposed Modifications, by means of which the terms and conditions of the existing notes will be modified and replaced.

Consequently, by virtue of the implementation of the Proposed Non-Essential Modifications, the entire section of "Certain Commitments" and "Events of Default" was eliminated from the terms and conditions set forth in the prospectus supplements dated May 2, 2019 and dated July 25, 2019 corresponding to the Existing Notes.

Additionally, pursuant to the implementation of the Proposed Essential Modifications, the following terms and conditions of the Existing Notes were modified and replaced:

- Expiration Date: It will be March 1, 2023.

- Interest Payment Dates: will be the same dates reported for Class IX in the Notice of Results.

The terms and conditions of the Series I Notes are not modified by the Proposed Essential Modifications and the Proposed Non-Essential Modifications will maintain their full validity.

The implementation of the Proposed Essential Modifications and the Proposed Non-Essential Modifications have been approved by the Company's Board of Directors, dated November 11, 2020.

For more information, see "Proposed Modifications to Existing Notes" of the Prospectus and Exchange Supplement.

Series I Cancellation:

In relation to the Exchange Offer ended on November 10, 2020, and as a result of the settlement of said Exchange, on November 12, 2020, the Company made a partial cancelation for a Nominal Value of USD 178,458,188 of Series I Notes, after the cancellation the Nominal Value under circulation will be USD 3,060,519.

85

Corporate Information: IDBD

IDBD has been maintaining negotiations with creditors in order to restructure its financial debt in favorable terms. As of June 30, 2020, the total balance of (i) IDBD’s Series 9 Bonds was NIS 901 million (the "Series 9"), (ii) IDBD's Series 14 Bonds were NIS 889 million guaranteed by IDBD’s 70% of DIC's shares (the “Series 14”), (iii) IDBD’s Series 15 Bonds were NIS 238 million guaranteed by 5% of Clal’s shares (the "Series 15"). Due to lack of agreement, on September 17, 2020, a petition was submitted in the District Court in Tel-Aviv-Jaffa (“The Court”) on the subject of granting of an order for the opening of proceedings by the Trustee for the holders of the Company's Bonds (Series 9) (“The petition”). Within the framework of the petition, the Court was requested to grant an order for the opening of proceedings for the Company pursuant to Section 18 of the Insolvency and Economic Rehabilitation Law, 5778 – 2018 (“The Law”); to instruct the appointment of a trustee for the Company according to law. On September 21, 2020, the holders of the bonds (Series 14) of IDB Development approved making the entire uncleared balance of IDB Development's bonds (Series 14) repayable immediately. On September 22, 2020, the Company submitted its initial response to the Petition in the Court, in which it argues that it is in the best interest of the company and all its creditors to exhaust the negotiations with the controlling shareholder and its creditors during a short period in order to try and maximize the value of its assets, for the benefit of the creditors and the company, and avoid costs and additional harmful consequences. In addition, the response of Dolphin Netherlands B.V. (the controlling shareholder of the Company) was also submitted, as were responses by the Trustees for the bondholders (Series 15 and Series 14) of the Company to the Petition. It should be mentioned that in tandem to his response, the Trustee of bondholders (Series 14) of the company submitted petitions for the enforcement of a lien and for the appointment of a receiver as well as an urgent petition for the setting of a hearing on the said petitions for a receivership, together with the hearing on the petition, which was set for September 24, 2020. On September 25, 2020, declared the insolvency and liquidation of IDBD and initiated liquidation proceedings. The Court appointed a trustee for the shares of IDBD and a custodian for the shares of DIC and Clal. We are analyzing together with our local and international advisors the decision, including alternatives and courses of action.

86

Corporate Information-

OnSeptember 23, 2020, it was reported that Mr. Jorge Cruces by majority vote of the board members of IRSA was appointed as the new Investment Manager and Mr. Arnaldo Jawerbaum as the new Operations Manager of Shopping Malls and Offices. Mr. Daniel Ricardo Elsztain's position was changed to General Manager of Real Estate Operations and Investments.

Communication “A” 7,106 from the Central Bank of the Argentine Republic.

On September 15, 2020, the Central Bank issued Communication “A” 7,106, further restricting access to U.S. dollars by imposing new conditions for the purchase of foreign currency in the FX Market. The Central Bank tightened controls on buying U.S. dollars in the FX Market, transactions involving U.S. dollar- denominated securities and credit card purchases made in foreign currency. The Central Bank also required Argentine companies facing maturities of principal exceeding USD 1 million in U.S. dollar-denominated debt per month from October 15, 2020 through March 31, 2021 to submit a restructuring plan to the Central Bank. Such restructuring plan must meet the following criteria: (i) the net amount for which companies may access the FX Market may not exceed 40% of the principal amount subject to maturity and (ii) the remaining principal amount of U.S. dollar-denominated debt shall be replaced with newly-issued obligations with an average duration of no less than two years. We are currently analyzing the impact of these regulations on our ability to timely repay our Notes Series I for an aggregate amount of USD 181,518,707, which mature on November 15, 2020, as well as certain other financial indebtedness. Finally, On November 11, 2020, IRSA reported the results of the Exchange Offer. Eligible holders have been presented for a total amount equivalent (for both Classes) to USD 178,458,188, representing 98.31% of the face value of the Existing Notes in Circulation, through the participation of 6,571 orders.

Capital contribution in IDBD and Clal Sale.

On September 7, 2020, IRSA reported that with respect to the commitment to make capital contributions in the sum of NIS 70,000,000 (seventy million Israeli shekels) on September 2, 2020 and other NIS 7 000,000 (seventy million Israeli shekels) on 2 September 2021 the Company has considered that there are doubts as to the fulfilment of the preconditions established for making such contributions and has therefore resolved not to make the contribution for this year. In this regard, it is clarified that Dolphin continues to hold talks with IDBD creditors in order to dispel the doubts that have arisen. In addition, IRSA reported that IDBD reported the sale of 2,376,527 Clal shares at an average NIS/Share price of 32.48 representatives of 3.5% of the share capital issued. For more information see “Recent Events – Recent IRSA Events - Corporate Information: IDBD”.

As a result of this transaction, as of the date, IDBD's holding in Clal amounts to 5.0% of its share capital.

Lipstick Building

On August 7, 2020, IRSA reported that it has decided to stop facing the cost of renting land (Ground Lease) where the Lipstick Building is located in New York City, handing over the management of the property. This will generate an accounting gain of approximately ARS 2.5 billion following the reversal of net liabilities recorded in connection with this investment.

Investment in DIC: sale of stake in Shufersal

On July 27, 2020, IRSA reported that as of July 22, 2020, DIC has accepted the purchase offer by private investors of its total stake in Shufersal representative of 26% of its share capital for total consideration of NIS 1,456 million (NIS/share 23.5). In this way, DIC completes the process of selling this company. As a result of this transaction, DIC does not hold anymore a stake in Shufersal and participation in the supermarkets industry.

The accounting result transaction totaling ARS 1.480 million, will be recognized in the Company’s financial statements in the first quarter of fiscal year 2021.

87

Issuance of Series VI and VII Notes

On July 16, 2020, IRSA reported the placement of Series VI and VII Notes. Series VI Notes are denominated and payable in Pesos, at variable interest rate equivalent to the reference rate plus the Cutting Margin of 4.00% (four per cent), due July 21, 2021 by a face value of ARS 335,200,431 equivalent to USD 4,697,645 calculated at an exchange rate of ARS 71,355/USD1.00, with an issuance price of 100% of face value; and Series VII Notes are denominated in U.S. Dollars and payable in Pesos at theofficial exchange rate, at a fixed interest rate equivalent to the 4.00% nominal annually, due January 21, 2022 at a face value of USD 33,717,500, with an issuance price of 100.00% of face value. The total amount awarded by the two series of Notes reached the sum of USD 38,415,145, implying an oversubscription of 2.6 times the total amount initially offered. The Issuance and Settlement Date was July 21, 2020.

IDBD investment in CLAL

In the period January-July 2020, IDBD closed all the open swap transactions that it performed on Clal shares, with a cumulative rate of 8.2% of Clal shares, as detailed below: in January 2020 in relation to shares representing to 1.1% of Clal shares; in June 2020 in relation to sharesrepresenting 4.99% of Clal shares and in July 2020 in relation to shares representing 2.1% of Clal shares.

Additionally, on September 3, 2020, IDBD sold 2,376,527 Clal shares at an average price of NIS 32.475 per share, for a total amount of NIS 77.2 million, representing 3.5% of Clal’s capital share.

As a result of the aforementioned transactions, as of September 3, 2020, IDBD held 4.99% of Clal’s issued share capital, while these shares were pledged in favor of the debenture holders (Series 15); The outline for the sale of Clal shares was completed, IDBD no longer has swap transactions and accordingly, it is no longer considered a Clal interested party within the context of Israel’s Securities Regulations.ate

IRSA CP Dividend announcement

On November 13, 2020, IRSA CP informed that in accordance with the resolution of the Ordinary and Extraordinary General Shareholders Meeting dated October 26, 2020 and the Board of Directors meeting dated November 13, 2020, a cash dividend of ARS 9,700,000,000 charged to the year ended on June 30, 2020 equivalent to 7697.55436001% of the stock capital will be made available to the shareholders on November 25, 2020 (“Date of Provision”). It is clarified that based on the powers delegated to the Company's Board of Directors, the dividend will be paid in a single installment, leaving the payment schedule without effect.

The amount per share will be (V$N 1) ARS 76.9755436001 and the amount per ADR's (Arg. Pesos per ADR) of ARS 307.9021744004, payable to all shareholders that have such quality as of November 24, 2020 according to the registry led by Caja de Valores S.A.

In accordance with the resolutions of the aforementioned Shareholders Meeting and the Board of Directors, the shareholders will receive payment in United States dollars in the Argentine Republic (CVSA Code 10,000) at a conversion rate to that currency that will be set according to the selling currency exchange rate reported by the National Bank of Argentina at the close of the business day immediately prior to the day of payment. Likewise, shareholders may choose to receive payment in US dollars New York Plaza (CVSA Code 7000), complying with the requirements and presentations established for this purpose by Caja de Valores SA, until 5:00 p.m. on November 20, 2020 inclusive.

Shareholders who wish to exercise the option should contact their depositary or Caja de Valores SA, as the case may be, to obtain advice on the mechanisms enabled by the following means: Telephone: 0810-888-7323 and email: reclamosysugerencias@cajadevalores.com.ar.

It is reported that in the case that the beneficiary of the dividend is a human person and / or an undivided succession and / or a beneficiary from abroad, on the amounts to be paid, a withholding of 7% will be made in accordance with the provisions of the Income Tax Law, since these are results originated in years beginning after January 1, 2018.

Board Meeting– IRSA CP

On October 26, 2020, IRSA CP’s informs that the Shareholders’ Meeting has resolved the following:

1) Appointment of two shareholders to sign the meetings’ minutes. The meeting approved by majority of votes the appointment of the representatives of shareholders ANSES FGS and IRSA to approve and sign the minutes of the Shareholders’ Meeting.

2) Consideration of documents contemplated in paragraph 1, Section 234, Law No. 19,550 for the fiscal year ended June 30, 2020. The meeting approved by majority of votes the documents required under Section 234, paragraph 1, of General Companies Law No. 19,550 for the fiscal year ended June 30, 2020

3) Consideration of the capital increase from the sum of ARS 126,014,050 to the sum of ARS 54,123,001,970 through the capitalization of reserves and the consequential issue of shares for the amount of ARS 53,996,987,920 to distribute among the shareholders in proportion of their ownership. The meeting unanimously approved to increase the Company’s capital from ARS 126,014,050 to ARS 54,123,001,970 (Argentine pesos fifty-four thousand one hundred twenty-three million one thousand nine hundred seventy), through the capitalization of the following reserves (i) comprehensive capital stock adjustment amounting to ARS 3,390,555,113 (Argentine pesos three thousand three hundred and ninety million five hundred fifty five thousand one hundred and thirteen); (ii) share premium amounting to de ARS 9,660,048,796 (Argentine pesos nine thousand six hundred sixty million forty eight thousand seven hundred and ninety six); (iii) special reserve in accordance with General Resolution CNV 609/2012 amounting to ARS 9,164,223,299 (Argentine pesos nine thousand one hundred sixty four million two hundred twenty three thousand two hundred ninety nine), (iv) reserve for future dividends amounting to ARS 31,631,809,393 (Argentine pesos thirty one thousand six hundred and thirty one million eight hundred and nine thousand three hundred and ninety three), and Special Reserve amounting to ARS 150,351,319 (Argentine pesos one hundred and fifty million three hundred and fifty one thousand three hundred nineteen), thereby issuing 53,996,987,920 fully paid-up shares in favor of the shareholders in proportion to their shareholding interests.

4) Allocation of net gain for the fiscal year ended June 30, 2020 for ARS 17,089,535,712. Distribution of cash dividends in periodical fees for up to ARS 9,700,000,000. The meeting approved by majority of votes:

88

i) to allocate 5% of the income for the fiscal year, amounting to ARS 854476,785.59, to the legal reserve; ii) to distribute cash dividends for the amount of ARS 9,700,000,000, in proportion to the shareholding interests of the shareholders, to be paid in cash, in period installments in accordance with the following payment schedule: the first installment amounting to ARS 2,425,000,000 shall be paid within 30 calendar days as from the meeting approval, the second installment amounting to ARS 2,425,000,000 shall be paid on January 25, 2021, the third installment amounting to ARS 2,425,000,000 shall be paid on March 25, 2021, and the fourth and last installment amounting to ARS 2,425,000,000 shall be paid on May 24, 2021; and iii) to allocate the balance, i.e. the amount of ARS 6,535,058,926, to the special reserve, which may be used to pay future dividends, to carry out new projects or for any other purpose in the interests of the Company; and iv) to delegate to the Board of Directors the power to implement the payment of dividends to the shareholders within the terms set forth in the payment schedule and/or any amendment thereto, and to apply for and implement the payment of such dividends to the ADR holders.

5) Consideration of Board of Directors’ performance for the Fiscal Year ended June 30, 2020. It was approved by the majority of the votes.

6) Consideration of Supervisory Committee’s performance for the Fiscal Year ended June 30, 2020. It was approved by the majority of the votes.

7) Consideration of compensation payable to the Board of Directors (ARS 320,769,717, allocated sum) for the Fiscal Year ended June 30, 2020. The meeting approved by majority of votes the sum of ARS 320,769,717 as total compensation payable to the Board of Directors for the fiscal year ended June 30, 2020, without exceeding the limits set forth in section 261 of General Companies Law No. 19,550, taking into account the directors duties, the time allocated to professional roles, the income/loss recorded during their management, the special technical works carried out for subsidiary companies as well as the professional experience in addition to the market value of the services rendered; and to empower the Board of Directors to (i) allocate and distribute such compensation sum in due course in accordance with the specific duties discharged by its members; (ii) to make monthly advance payments of fees contingent upon the resolution to be adopted at the next ordinary shareholders’ meeting.

8) Consideration of compensation payable to the Supervisory Committee (ARS 1,575,000, allocated sum) for the Fiscal Year ended June 30, 2020. It was approved by the majority of the votes.

9) Determination of number and appointment of regular directors and alternate directors for a term of three fiscal years. The meeting approved by majority of votes: i) to maintain in 9 (nine) the number of regular directors and to determine in 9 (nine) the number of alternate directors; ii) to renew the appointment of Mr. Eduardo Sergio Elsztain as non-independent Regular Director, Mr. Marcos Barylka as independent Regular Director and appoint Mrs. Mariana Renata Carmona as non-independent Regular Director; iii) to renew the appointment of Messrs. Gastón Armando Lernoud and Juan Manuel Quintana as non-independent Alternate Directors; and iv) to appoint Messrs. Ilan Ariel Elsztain and Ben Iosef Elsztain as non-independent Alternate Directors.

10) Appointment of regular and alternate members of the Supervisory Committee for a term of one fiscal year. The meeting approved by majority of votes to appoint José Daniel Abelovich, Marcelo Héctor Fuxman and Noemí Ivonne Cohn as Regular Statutory Auditors and Messrs. Roberto Daniel Murmis, Ariela Levy and Paula Sotelo as Alternate Statutory Auditors for a term of one fiscal year.

11) Appointment of certifying accountant for the next fiscal year. The meeting approved by majority of votes i) to appoint the following firms as certifying accountants for the 2020/2021 fiscal year (a)Price Waterhouse & Co. S.R.L. member of PriceWaterhouseCoopers with Walter Rafael Zablocky acting as Regular Independent Auditor; and (b) Abelovich Polano & Asociados with José Daniel Abelovich acting as Regular Independent Auditor, and ii) not to appoint alternate members this time.

12) Approval of compensation for ARS 28,770,129 payable to certifying accountant for the fiscal year ended June 30, 2020. It was approved by the majority of the votes.

13) Consideration of annual budget for implementation of the audit committee’s annual plan and compliance and corporate governance program. The meeting approved by majority of votes a budget of ARS 605,000, for the eventual hiring of advisors / consultants and trainings.

89

14) Implementation of incentive plan for employees, management and directors, approved on the Shareholders Meeting held on October 30, 2019, for up to 1% of the stock capital for released shares provided in Item 3 of this Agenda for the incentive plan according to Art. 68 of Law 26,831 of Capital Market. The meeting approved by majority of votes to ratify the resolutions adopted by the meeting held on October 30, 2019, as regards the implementation of the incentive plan for employees, management and directors of the Company and to provide the allocation of up to 1% of the capital derived from the capital increase approved in item three of this agenda, i.e., upon the sum of ARS 54,123,001,970 (fifty four thousand one hundred and twenty three million one thousand nine hundred and seventy), to the integration and implementation of such plan, thus allocating such shares as bonus to the beneficiaries of the plan, all in accordance with the provisions set forth in Section 68 of the Capital Market Law No. 26.831.

15) Consideration of the amendment of Article 6 of the bylaws due to a change in the nominal value of the shares from the sum of ARS 1 to the sum of ARS 100. The meeting approved by majority of votes to amend article six of the corporate by-laws, which shall read as follows: Section six: The movements in the capital stock shall be reflected in the company’s balance sheets, indicating the authorized amount, class and category of shares, par value and number of votes per share. The Company’s shares are designated as common, book-entry shares of pesos one hundred (ARS 100) par value each, entitled to one vote per share. The Company may issue preferred shares, either with or without voting rights, which shall be issued in book-entry form. Preferred shares shall be entitled to a preferred dividend, either cumulative or not, pursuant to their terms of issue. Preferred shares may also be entitled to an additional share in the net income.

16) Authorization to carry out registration proceedings relating to this shareholders’ meeting before the argentine securities commission and the general superintendence of corporations. The meeting approved by majority of votes to authorize attorneys-at-law María Laura Barbosa, Lucila Huidobro, Paula Pereyra Iraola, María Florencia Vega and/or María Inés Higa and Mrs. Andrea Muñoz to carry out all the relevant registrations of the preceding resolutions.

Reopening Shopping malls- IRSA CP

On October 14, 2020, IRSA CP announced the opening of Alto Palermo, Paseo Alcorta, Patio Bullrich, Abasto Shopping and DOT Baires shopping malls, located in the City of Buenos Aires since today which are added to the Distrito Arcos open space Premium Outlet which has already been operational since August.

The shopping malls mentioned above are restarting their operations under a strict safety and hygiene protocol that includes social distancing, reduced hours and access controls, among other measures. Activity in food courts is limited to the commercialization of products through home delivery or take-away and entertainment businesses remains closed.

As of the date of this Annual Report, IRSA CP is operating all its shopping malls.

IRSA CP keeps its commitment to safeguard the health and well-being of its clients, employees, tenants, and the entire population, constantly reassessing its decisions according to the evolving events, issued rules and guidelines of the competent authorities.

Corporate Information- IRSA CP

OnSeptember 22, 2020, it was reported that Mr. Jorge Cruces by majority vote of the board members of IRSA CP was appointed as the new Investment Manager and Mr. Arnaldo Jawerbaum as the new Operations Manager of Shopping Malls and Offices. Mr. Daniel Ricardo Elsztain's position was changed to General Manager of Real Estate Operations and Investments.

90

Boston Tower floor’s sale by IRSA CP

On August 26, 2020, IRSA CP reported that on that date it has sold and transferred 5 floors of the Boston tower located at 265 Della Paolera Street, in the Catalinas district of the Autonomous City of Buenos Aires for a gross leasable area of approximately 6,235 sqm and 25 garage units located in the building. The transaction price was approximately USD 34.7 million (USD/sqm 5,570), which was paid in full. After this transaction, IRSA CP owns 7 floors with an approximate leasablearea of 7,383 sqmin addition to garage units and other complementary spaces.

On November 5, 2020, IRSA CP reported that on that date it has sold and transferred 4 floors of the Boston tower located at 265 Della Paolera Street, in the Catalinas district of the Autonomous City of Buenos Aires for a gross leasable area of approximately 3,892 sqm and 15 garage units located in the building. The transaction price was approximately USD 22.9 million (USD/sqm 5,570), which was paid in full. After this transaction, IRSA CP owns 3 floors with an approximate leasable area of 3,266 sqmin addition to garage units and other complementary spaces.

On November 12, 2020, IRSA CP reported that on that date it has sold and transferred three floors of the Boston tower located at 265 Della Paolera Street, in the Catalinas district of the Autonomous City of Buenos Aires for a gross leasable area of approximately 3,266 sqm, a retail store of approximately 225 sqm and 15 garage units located in the building. The transaction price was approximately USD 19.1 million (USD/sqm 5,490), which was paid in full. After this transaction, IRSA CP has no remaining leasable area in the building, only keeping a space of the first basement.

Impact of COVID-19 to IRSA CP’s Shopping Malls.

On August 4, 2020, IRSA CP informed its shareholders and the market in general that in compliance with the provisions of Articles 2 and 10 of Decree 641/2020 promulgated by the National Executive Branch, whose objective is to continue mitigating the risk of spread of the virus and protecting public health, the shopping centers located in the Autonomous City of Buenos Aires and Greater Buenos Aires will continue to operate only in the areas considered essential as pharmacies, supermarkets and banks until August 16, 2020 with the exception of Distrito Arcos, commercial center of the Company that, for its open-air characteristics, reopened its doors on August 3, 2020 as did the commercial premises of large avenues and main commercial corridors of the city. In the interior of the country, most provinces move forward with the easing and opening of their commercial and recreational activities. Distrito Arcos joins the already operational Alto Noa, Mendoza Plaza, Córdoba Shopping, Alto Rosario, La Ribera Shopping and Alto Comahue that IRSA CP owns in the interior of the country. The total of the shopping in operation reaches approximately 148,000 m2, representative of 44% of the gross leasable area of its portfolio, except for the food and entertainment venues of the shopping centers in Neuquén, Córdoba and Santa Fe that have not yet resumed operations. IRSA CP remains committed to preserving the health and well-being of its customers, employees, localities and the entire population, constantly re-evaluating its decisions according to the evolution of events, the rules that are dictated and the guidelines of the competent authorities.

91

Bouchard 710 Building Sale

On July 30, 2020, IRSA CP reported that on that date it has sold to an unrelated third party the entire building "Bouchard 710", located in the Plaza Roma district of the Autonomous City of Buenos Aires. The tower consists of 15,014 m2 of gross leasable area in 12 floors of offices and 116 units of garages.

The transaction price was approximately USD 87.2 (USD / sqm 5,800) and has been paid in full. Bouchard 710 is a AAA category office building, with LEED Gold rating, located in one of the premium corporate areas of the Autonomous City from Buenos Aires.

Signature of a Purchase ticket regarding Boston Tower floor with possession

On July 15, 2020 IRSA CP reported that on that date it has signed with an unrelated third party a purchase ticket with possession of a medium-height Boston Tower floor located at 265 Della Paolera Street, in the Catalinas district of Buenos Aires for a total area of approximately 1,063 sqm and 5 garage units located in the building. The transaction price was approximately USD 6.7 million (USD/sqm 6,300), which was paid in full. After this operation, IRSA CP has 12 floors with an approximate location area of 13,800 sqm. In addition to garage units and other complementary spaces. The Boston Tower is a modern office building located in one of the most premium corporate areas of the Autonomous City of Buenos Aires. It was designed by renowned architect Cesar Pelli and has 27 floors and 60 garages in 31,670 square meters of gross leasable area.

B. BUSINESS OVERVIEW

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, as well as in other Latin American countries. We are currently involved in several farming activities including grains and sugarcane production and cattle raising. 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 land to third parties and perform agency and agro-industrial services, including a meat packing plant. Our shares are listed on ByMA and the NASDAQ.

We are also directly and indirectly engaged in the real estate business through our subsidiary IRSA and its subsidiaries and joint ventures, one of Argentina’s leading real estate companies. IRSA is engaged in the development, acquisition and operation of shopping malls, premium offices, and luxury hotels in Argentina, and owns selective investments outside Argentina, mainly through IDBD and DIC, two of the largest and most diversified investment groups of Israel. IRSA’s shares are listed on the ByMA and the NYSE. We own 62.35% of the outstanding common shares of IRSA.

During the fiscal year ended June 30, 2020 and 2019, we had consolidated revenues of ARS 121,256 million, and ARS 110,741 million, and consolidated gain / (loss) from operation, before financing and taxation, of ARS 52,735 million and ARS (31,817) million, respectively. During the fiscal year ended June 30, 2020 and 2019, our total consolidated assets decreased 5.69% from ARS 726,034 million to ARS 686,940 million, and our consolidated shareholders’ equity decreased 4.13% from ARS 127,201 million to ARS 122,153 million.

Segment information is analyzed based on products and services: (i) agricultural business and (ii) urban properties and investment business. In addition, within this last segment, operating segments are analyzed by geography: Operations Center Argentina and Operations Center Israel. Within each operations center, the Group considers separately the variousactivities being developed, which represent reporting operating segments given the nature of its products, services, operations and risks. Management believes the operating segment clustering in each operations center reflects similar economic characteristics in each region, as well as similar products and services offered, types of clients and regulatory environments.

As from fiscal year 2018 the Chief Operating Decision Maker (“CODM”) reviews the operating income/loss of each operating segment excluding the amounts related to management fees, being such amount reviewed at an aggregate level outside each business. Additionally, the CODM reviews certain corporate expenses associated with each business in an aggregate manner and separately from each of the segments, such expenses have been disclosed in the "Corporate" segment of each operation center.

92

Agricultural Business

Our Agricultural business is further comprised of four reportable segments:

● The “Agricultural production” segment consists of planting, harvesting and sale of crops as wheat, corn, soybeans, cotton and sunflowers; breeding, purchasing and/or fattening of free-range cattle for sale to slaughterhouses and local livestock auction markets; leasing of the Company’s farms to third parties; and planting, harvesting and sale of sugarcane. Our Agricultural production segment had assets of ARS 37,070 million and ARS 34,597 million as of June 30, 2020 and 2019, respectively, representing 88.26% and 91.67% respectively of our agricultural business assets at both dates. Our Agricultural production segment generated income from operations of ARS 3,521 million and ARS 2,120 million for fiscal years ended June 30, 2020, and 2019, respectively, representing 53.08% and 67.49%, of our consolidated profit from operations, from Agricultural Business for such years, respectively.

The segment “agricultural production” aggregate the crops, cattle, sugarcane and agricultural rental and services activities:

●

Our “Crops” activity consists of planting, harvesting and sale of crops as wheat, corn, soybeans, cotton, and sunflowers. The Company is focused on the long-term performance of the land and seeks to maximize the use of the land through crop rotation, the use of technology and techniques. In this way, the type and quantity of harvested crops change in each agricultural campaign. Our Crops activity had assets of ARS 15,825 million and ARS 14,778 million as of June 30, 2020 and 2019, respectively, representing 42.69% and 42.71% of our Agricultural Business assets at such dates, respectively. Our Crops activity generated profit from operations of ARS 1,908 million and ARS 1,434 million for fiscal years ended June 30, 2020 and 2019, respectively, representing 28.76% and 45.65%, of our consolidated profit from operations from Agricultural Business for such years, respectively.

●

Our “Cattle” activity consists of breeding, purchasing and/or fattening of free-range cattle for sale to meat processors and local livestock auction markets. Our Cattle activity had assets of ARS 5,071 million and ARS 5,341 million as of June 30, 2020 and 2019, respectively, representing 13.53% and 15.44% of our agricultural business assets at such dates, respectively. Our Cattle activity generated income from operations of ARS 233 million for fiscal year ended June 30, 2020 and losses from operations ARS 101 million for fiscal year ended June 30, 2019, representing 3.51% and (3.22%), of our consolidated profit from operations from Agricultural Business for such years, respectively.

●

Our “Sugarcane” activity consists of planting, harvesting and sale of sugarcane. Our Sugarcane activity had assets of ARS 7,487 million and ARS 8,704 million as of June 30, 2020 and 2019, respectively, representing 20.20% and 25.16% of our agricultural business assets at such dates, respectively. Our Sugarcane activity generated profit from operations of ARS 1,069 million and ARS 519 million for fiscal years ended June 30, 2020, and 2019, representing 16.11% and 16.52%, of our consolidated profit from operations from Agricultural Business for such years, respectively.

●

Our “Agricultural Rentals and Services” activity consists of agricultural services (for example: irrigation) and leasing of the Company’s farms to third parties. Our Agricultural Rentals and Services activity had assets of ARS 4,388 million and ARS 2,893 million as of June 30, 2020 and 2019, respectively, representing 11.84% and 8.36% of our agricultural business assets at such dates, respectively. Our Agricultural Rentals and Services activity generated profit from operations of ARS 311 million and ARS 268 million for fiscal years ended June 30, 2020, and 2019, respectively, representing 4.69% and 8.53% of our profit from operations from Agricultural Business for such years.

93

●

Our “Land Transformation and Sales” segment comprises gains from the disposal and development of farmlands activities. Our Land Transformation and Sales segment had assets of ARS 510 million and ARS 149 million as of June 30, 2020 and 2019, respectively, representing 1.38% and 0.43% of our agricultural business assets at such dates, respectively. Our Land Transformation and Sales segment generated profit from operations of ARS 2,551 million and ARS 881 million for fiscal years ended June 30, 2020, and 2019, respectively, representing 38.45% and 28.05% of our profit from operations from Agricultural Business for such years. 

●

Our “Other segments” includes, principally, feedlot farming, slaughtering and processing in the meat refrigeration plant, among others. Our Others segment had assets of ARS 3,843 million and ARS 2,732 million as of June 30, 2020 and 2019, respectively, representing 10.37% and 7.90% of our agricultural business assets at such dates, respectively. Our Others activity generated profit from operations of ARS 739 million and ARS 434 million for fiscal years ended June 30, 2020, and 2019, representing 11.14% and 13.18% of our consolidated operating income from Agricultural Business for such years, respectively. The segment “Other segments” aggregate the activities Agro-industrial and Others:

●

Our “Agro-industrial” activity consists of feedlot farming and the slaughtering and processing in the meat refrigerating plant. Feedlot farming is distinctive and requires specific care and diets which differ from those provided to free-range cattle. This activity represents a separate operating activity due to the distinctive characteristics of the cattle feedlot system and the industrialized meat processing in the packing plant. Our Agro-industrial activity had assets of ARS 1,807 million and ARS 1,058 million as of June 30, 2020 and 2019, respectively, representing 4.87% and 3.06% of our agricultural business assets at such dates, respectively. Our Agro-Industrial activity generated losses from operations of ARS 53 million and ARS 193 million for fiscal years ended June 30, 2020 and 2019, representing (0.80%) and (6.14%) of our consolidated operating income from Agricultural Business for such years respectively.

●

Our “Others” activity consists of the aggregation of the remaining operating segments, which do not meet the quantitative thresholds for disclosure. This activity includes the brokerage and sale of inputs activities. Our Others activity had assets of ARS 2,036 million and ARS 1,674 million as of June 30, 2020 and 2019, respectively, representing 5.49% and 4.84% of our agricultural business assets at such dates, respectively. Our Others activity generated profit from operations of ARS 792 million and ARS 607 million for fiscal years ended June 30, 2020, and 2019, representing 11.94% and 19.33% of our consolidated operating income from Agricultural Business for such years, respectively.

●

The “Corporate” segment includes, principally, the corporative expenses related to the agricultural business. Our Corporate segment and corporate activity generated operating losses of ARS (177) million and ARS (274) million for fiscal years ended June 30, 2020, and 2019, representing (2.67%) and (8.72%) of our consolidated profit from operations from Agricultural Business for such years, respectively.

Operation Center in Argentina

We operate our business in Argentina through seven reportable segments, namely “Shopping Malls,” “Offices,” “Sales and Developments,” “Hotels,” “International,” “Corporate” and “Others” as further described below:

●

Our “Shopping Malls” segment includes the operating results from our portfolio of shopping malls principally comprised of lease and service revenue from tenants. Our Shopping Malls segment had assets of ARS 49,445 million and ARS 50,477 million as of June 30, 2020 and 2019, respectively, representing 31.30% and 45.18% of our operating assets for the Operations Center in Argentina at such dates, respectively. Our Shopping Malls segment generated operating profit of ARS 1,687 for the fiscal year ended June 30, 2020 and operating loss of ARS 34,401 for the fiscal year ended June 30, 2019.

94

●

Our “Offices” segment includes the operating results from lease revenues of offices, other rental spaces and other service revenues related to the office activities. Our Offices segment had assets of ARS 62,536 million and ARS 31,691 million as of June 30, 2020 and 2019, respectively, representing 39.58% and 28.37% of our operating assets for the Operations Center in Argentina at such dates, respectively. Our Offices segment generated an operating income of ARS 24,635 million and operating income of ARS 2,488 million for the fiscal year ended June 30, 2020 and 2019, respectively.

●

Our “Sales and Developments” segment includes the operating results of the development, maintenance and sales of undeveloped parcels of land and/or trading properties. Real estate sales results are also included. Our Sales and Developments segment had assets of ARS 33,456 million and ARS 28,404 million as of June 30,2020 and 2019, respectively, representing 21.18% and 25.42% of our operating assets for the Operations Center in Argentina for both years. Our Sales and Developments segment generated an operating income of ARS 11,772 million and ARS 630 million for the fiscal years ended June 30, 2020 and 2019, 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 ARS 1,969 million and ARS 2,050 million as of June 30, 2020 and 2019, respectively, representing 1.25% and 1.83% of our operating assets for the Operations Center in Argentina, respectively. Our Hotels segment generated an operating income of ARS 162 million and ARS 671 million for the fiscal year ended June 30, 2020 and 2019, respectively,

●

Our “International” segment includes investments that mainly operate in the United States in relation to the lease of office buildings and hotels in that country. We intend to continue evaluating investment opportunities outside Argentina as long as they are attractive investment and development options. Our International segment had net liabilities of ARS 6,740 million and ARS 4,229 million as of March 31, 2020 and 2019, respectively. Our International segment generated operating losses of ARS 89 million and operating losses of ARS 85 million for the periods ended March 31, 2020 and 2019, respectively.

●

“Corporate”. Since fiscal year 2018, we have decided to disclose certain corporate expenses related to the holding structure in a separate “Corporate” segment. This segment generated a loss of ARS 282 million and ARS 519 million for the fiscal years ended June 30, 2020 and 2019, respectively.

●

Our “Others” primarily includes the entertainment activities through La Arena and La Rural S.A., and the financial activities carried out by Banco Hipotecario for both years. Our Others segment had assets of ARS 8,270 million and ARS 6,047 million as of June 30, 2020 and 2019, respectively, representing 5.23% and 5.41% of our operating assets for the Operations Center in Argentina, respectively. Our Others segment generated a profit of ARS 554 million for the fiscal year ended June 30, 2020 and an operating loss of ARS 783 million for the fiscal year ended June 30, 2019.

95

Operation Center in Israel 

On September 25, 2020, the Court resolved that IDBD is insolvent and therefore it resolved to grant all three orders requested and accordingly, issued an order for the initiation of proceedings and liquidation of IDBD, and has appointed a liquidator to IDBD and interim receivers over the Pledged DIC and Clal Shares.

As of the date of this Annual Report, we are analyzing together with our local and international advisors the judicial decision, alternatives and course of action. For more information see “IRSA’s Recent Developments - Corporate Information: IDBD”.

We operate our business in Israel through six reportable segments, namely “Real Estate,” “Supermarkets,” “Telecommunications,” “Insurances,” “Corporate” and “Others” as further described below: 

●

Our “Real Estate” segment mainly includes assets and operating income derived from business related to the subsidiary PBC. PBC is engaged, independently and through its subsidiaries and associate companies, some of which are public companies, in various areas of the real estate industry in Israeland abroad. The main operating segments of PBC include the revenue-generating properties segment - its core activity - and the residential construction segment. PBC is also engaged in the agriculture segment, through its investment in an associate (Mehadrim). Our Real Estate segment had net operating assets of ARS 152,941 million and ARS 303,425 million as of June 30, 2020 and 2019, representing 34% and 57% of our net operating assets for the Operations Center in Israel at such years, respectively. Our Real Estate segment generated operating loss of ARS 623 million for the fiscal year ended June 30, 2020 and operating income of ARS 5,259 million for the fiscal year ended June 30, 2019, representing 208% and 149% of our consolidated operating income for the Operations Center in Israel for such years, respectively.

●

Our “Supermarkets” segment includes assets and results derived from the business related to the former subsidiary (deconsolidated due to the loss of control in June 2018. See Note 4 to the consolidated financial statements) Shufersal, reclassified to discontinued operations in the prior year. Shufersal operates both directly and through its investee corporations, and owns the largest supermarket chain in Israel in terms of sales volume. Our Supermarkets segment had operating assets of ARS 28,090 million and ARS 23,013 million (corresponds to the value of the associate) for the fiscal period ended June 30, 2020 and 2019, representing 58.4% and 30.9% of our operating assets for the Operations Center in Israel at such years, respectively. On July 27, 2020, IRSA reported that on July 22, 2020, DIC has accepted the purchase offer by private investors of its total stake in Shufersal, representing 26% of its share capital. For more information see: “Recent developments - Investment in DIC: sale of stake in Shufersal”

●

Our “Telecommunications” segment includes assets and operating income derived from the business related to our subsidiary Cellcom. Cellcom is a provider of communication services, which offers to its customers primarily mobile communication services, landline telephone services, international telephone services, internet connectivity services and associated services, and beginning in December 2014, also television over internet services. Our Telecommunications segment had net operating assets of ARS 33,949 million and 24,580 million for the fiscal period ended June 30, 2020 and 2019, representing 70.6% and 33.0% % of our net operating assets for the Operations Center in Israel at such dates, respectively. Our Telecommunications segment generated operating income of ARS 702 million and of ARS 138 million for the fiscal period ended June 30, 2020 and 2019, respectively.

●

Our “Insurance” segment includes the investment in Clal. Clal is holding company which is primarily engaged in the insurance, pension and provident funds segments, and in the holding of assets and real and other related businesses (such as insurance agencies), and which constitutes one of the largest insurance groups in Israel. Our Insurance segment had operating assets of ARS 3,377 million and ARS 22,638 million for the fiscal period ended June 30, 2020 and 2019, representing 7.0% and 30.4% of our operating assets for the Operations Center in Israel at such years, respectively. The decrease is derived from the partial sale of our equity interest in Clal during fiscal year 2020, as required by the Israeli regulator and the decrease in the quoted market price of Clal’s shares.

●

Our “Corporate” segment includes the assets and operating results providing from the activities related to the holding companies of the Operating Center in Israel, IDBD and DIC. Our Corporate segment had net operating liabilities of Ps 93,738 million and 85,049 million as of June 30, 2020 and 2019, respectively. Our Corporate segment generated an operating loss of ARS 1,119 million and of ARS 1,058 million for the fiscal years ended June 30, 2020 and 2019, respectively. The increase is derived mainly from the revaluation of the NIS against the peso.

96

●

Our “Others” segment includes the assets and income derived from other diverse business activities, such as technological developments, oil and gas assets, electronics, and others. Our Others segment had net operating assets of ARS 69,795 million and ARS 21,496 million for the fiscal period ended June 30,2020 and 2019, respectively. Our Others segment generated operating income of ARS 741 million and operating losses of ARS 817 million for the fiscal period ended June 30, 2020 and 2019, respectively, without share of loss of associates and joint ventures.

97

Agricultural Business

As of June 30, 2020, we owned 26 farms with approximately 629,794 hectares distributed in Argentina, Brazil, Bolivia and Paraguay. During the fiscal year 2020 we used 91,575 hectares of the land we own for crop production, approximately 72,160 hectares are for cattle production, 85,000 hectares are for sheep production and approximately 23,205 hectares are leased to third parties for crop and cattle production. The remaining 359,965 hectares of land reserves 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 assigned 26,409 hectares for crop production and 2,993 hectares for cattle production. Also, during fiscal year 2020 ended on June 30, 2020, we leased 111,086 hectares to third parties for crop production and 12,365 hectares for cattle production. 

98

The following table sets forth, at the dates indicated, the amount of land used for each production activity (including owned and leased land, and land under concession):

	2020(1)	2019(1)	2018(1) (5)	2017(1)	2016(1)
Crops (2)	229,070	220,170	194,281	193,106	178,617
Cattle (3)	87,788	95,247	102,113	102,516	85,392
Milk/Dairy	-	-	-	1,036	2,231
Sheep	85,000	85,000	85,000	85,000	85,000
Land Reserves (4)	463,372	450,882	461,795	471,437	473,290
Own farmlands leased to third parties	23,655	16,100	9,603	7,733	2,435
Total	888,885	867,399	852,792	860,828	826,965

(1) Includes 35.72% of approximately 8,299 hectares owned by Agro-Uranga S.A., an affiliated Argentine company in which we own a non-controlling 35.72% 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) Includes farms owned by Brasilagro and Cresud sold in 2014, 2015 and 2018.

 

99

Our Principal Business Activities

During the fiscal year ended June 30, 2020, we conducted our operations on 26 owned farms and 88 leased farms.

The following charts show, for fiscal year 2020, the surface area in operation for each line of business, as well as the hectares held as land reserves:

100

  The following chart illustrates, for the fiscal year ended on June 30, 2020, the surface area in operation and the hectares held as land reserves, classified into own, under lease or under concession:

Agricultural Business

Land Transformation and Sales

Land Acquisitions

We seek to increase our lands portfolio, through the acquisition of large areas of land with high potential for appreciation. We also aim to increase the productivity of the land by applying state-of-the-art technology to improve agricultural yields.

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 large 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, 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 farms (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 capital appreciation potential. 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.

During fiscal year 2020, our subsidiary BrasilAgro acquired the Serra Grande field of 4,500 hectares (2,900 hectacres of productive potential) in Piauí, Brazil. The purchase price is BRL 25 million, of which BRL 11 million was paid at closing. The balance of the purchase price will be paid in three equal annual installments.

Land Sales

We periodically sell properties that have reached a considerable appraisal to reinvest in new farms 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.

101

Our subsidiary BrasilAgro sold 3 fractions of farms during fiscal year 2020 for an aggregate amount of BRL 84.2 million (approximately USD 20 million). In the first quarter it sold a fraction of 1,134 hectares of the “Jatobá” farm located in Jaborandi, State of Bahia, for an amount of BRL 22.7 million (BRL / ha 20,018). The farm was valued at BRL 1.7 million and the internal rate of return in dollars reached 7.0%. In the second quarter of the year, it completed the sale of a fraction of 85 hectares of the “Alto Taquarí” farm located in the state of Mato Grosso for BRL 5.5 million. The farm was valued in the books at BRL 1.2 million and the internal rate of return in dollars reached 13.0%. During the fourth quarter, BrasilAgro made an additional partial sale of 105 hectares of “Alto Taquarí” for the sum of BRL 11.0 million which had a book value of BRL 1.7 million and the internal rate of return in dollars reached 14.4% and another fraction of 1,875 hectarse of “Jatobá” farm was sold for BRL 45 million, which had a book value of BRL 3.5 million and the internal rate of return in dollars reached 5.0%. For more information see “Cresud’s Recent Developments - Jatobá sale”

Land productivity potential

We believe that our agricultural lands have significant productivity potential and, through the implementation of best agricultural practices and application of our accumualted knowledge and experience, we are able to enhance the value of our agricultural lands.

As of June 30, 2020, we owned land reserves in the region extending over more than 359,965 hectares of own farmlands that were purchased at very attractive prices. In addition, we have a concession 102,598 hectares reserved for future development. Of the total of this area, we maintain 286,388 hectares undeveloped. We believe that there are technological tools available to improve productivity in these farms 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.

During fiscal year 2020, we developed 12,705 hectares in the region: 5,774 hectares in Argentina; 2,354 hectares in Paraguay and 4,577 hectares in Brasil.

Newly Developed Area	2019/2020	2018/2019
(hectares)
Argentina	5,774	2,486
Brazil	4,577	6,190
Paraguay	2,354	2,008
Total	12,705(1)	10,684

(1) 

9,829 completed and 2,876 pending completion.

Results

The following table shows this segment’s results for fiscal year 2020, compared to the preceding fiscal year:

				YoY var
	FY2020	FY2019	FY2018	2020 vs. 2019
	(in millions of ARS)			%
Revenues	-	-	-	-
Costs	(25)	(24)	(36)	(4.2)
Gross Loss	(25)	(24)	(36)	(4.2)
Net result for changes in fair value of investment properties	780	-	216	100.0
Gain from disposition of farmlands	838	665	1,656	26.0
General and administrative expenses	(3)	(3)	(2)	(0.0)
Selling expenses	(1)	(1)	-	(0.0)
Other operating results, net	962	244		(294.3)
Profit from operations	2,551	881	1,457	(189.6)
Segment profit	2,551	881	3,291	(189.6)

102

Agricultural Production

Production

The following table shows, for the fiscal years indicated, our production volumes measured in tons:

Production Volume(1)	FY2020	FY2019	FY2018	FY2017
Corn	433,910	194,352	381,443	302,513
Soybean	359,055	355,670	225,916	203,526
Wheat	43,862	37,378	32,297	29,905
Sorghum	4,371	1,721	4,131	4,922
Sunflower	5,895	6,428	6,221	3,853
Cotton	2,573	1,586	-	-
Other	3,519	2,103	2,103	3,690
Total Crops (tons)	857,490	599,238	652,111	548,409
Sugarcane (tons)	2,360,965	1,999,335	924,776	1,062,860
Cattle herd	11,783	11,173	10,566	7,626
Milking cows	-	-	185	435
Cattle (tons)	11,783	11,173	10,751	8,061
Milk (liters)	-	-	3,891	13,968

(1) Includes Brasilagro, 50% of CRESCA, Acres del Sud, Ombú, Yatay and Yuchán. Agro-Uranga S.A. is not included.

The segment “agricultural production” aggregate the crops, cattle, dairy, sugarcane and agricultural rental and services activities.

Crops and Sugarcane

Our crop production is mainly based on crops and oilseeds and sugarcane. Our main crops include soybean, wheat, corn, and sunflower. Other crops, such as sorghum and peanut, are sown occasionally and represent only a small percentage of total sown land.

Below is the geographical distribution of our agricultural production for the last four fiscal years:

2020 Season	Argentina	Brazil	Bolivia	Paraguay	Total
(in tons)
Corn	334,821	89,900	4,264	4,925	433,910
Soybean	179,023	157,949	19,608	2,475	359,055
Wheat	43,862	-	-	-	43,862
Sorghum	-	4,371	-	-	4,371
Sunflower	5,895	-	-	-	5,895
Cotton	2,573	-	-	-	2,573
Other	-	3,519	-	-	3,519
Total Crops and Other	570,307	255,911	23,872	7,400	857,490
Sugarcane	-	2,217,714	143,251	-	2,360,965

2019 Season	Argentina	Brazil	Bolivia	Paraguay	Total
(in tons)
Corn	157,079	29,903	6,143	1,227	194,352
Soybean	177,503	138,506	21,174	18,486	355,670
Wheat	37,378	-	-	-	37,378
Sorghum	1,364	-	357	-	1,721
Sunflower	6,428	-	-	-	6,428
Cotton	-	1,586	-	-	1,586
Other	2,103	-	-	-	2,103
Total Crops and Other	381,855	169,995	27,675	19,713	599,238
Sugarcane	-	1,932,235	67,100	-	1,999,335

103

2018 Season	Argentina	Brazil	Bolivia	Paraguay	Total
	(in tons)
Corn	344,713	18,913	6,690	11,127	381,443
Soybean	99,840	94,031	14,953	17,092	225,916
Wheat	32,297	-	-	-	32,297
Sorghum	2,836	-	1,295	-	4,131
Sunflower	6,221	-	-	-	6,221
Other	2,103	-	-	-	2,103
Total Crops and Other	488,010	112,944	22,938	28,219	652,111
Sugarcane	-	901,274	23,502	-	924,776

2017 Season	Argentina	Brazil	Bolivia	Paraguay	Total
(in tons)
Corn	253,164	31,969	9,410	7,970	302,513
Soybean	127,532	53,837	13,178	8,979	203,526
Wheat	29,905	-	-	-	29,905
Sorghum	44	-	4,879	-	4,923
Sunflower	3,853	-	-	-	3,853
Other	3,690	-	-	-	3,690
Total Crops and Other	418,188	85,806	27,467	16,949	548,410
Sugarcane	-	1,015,303	47,557	-	1,062,860

Sales

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

	FY2020			FY2019			FY2018			FY2017
Volume of Sales(3)	D.M.(1)	F.M.(2)	Total	D.M.(1)	F.M.(2)	Total	D.M.(1)	F.M.(2)	Total	D.M.(1)	F.M.(2)	Total
Corn	325.4	64.1	389.5	191.4	0.2	191.6	290.7	6.0	296.7	266.5	-	266.5
Soybean	308.8	110.2	419.0	166.4	101.9	268.3	172.0	23.4	195.4	137.8	28.8	166.6
Wheat	43.8	-	43.8	40.5	-	40.5	44.6	-	44.6	11.9	1.5	13.4
Sorghum	1.4	-	1.4	0.4	-	0.4	1.1	-	1.1	5.3	-	5.3
Sunflower	0.8	-	0.8	2.4	-	2.4	4.6	-	4.6	4.1	-	4.1
Other	9.3	-	9.3	1.2	-	1.2	1.6	-	1.6	3.6	-	3.6
Total Grains (tons)	696.9	176.4	873.3	402.3	102.1	504.4	514.6	29.4	544.0	429.2	30.3	459.5
Sugarcane (tons)	2,226.2	-	2,226.2	1.965,4	-	1.965,4	1,723.0	-	1,723.0	906.8	-	906.8
Cattle herd	19.3	-	19.3	9.4	-	9.4	13.3	-	13.3	6.9	-	6.9
Milking cows	-	-	-	-	-	-	1.5	-	1.5	1.1	-	1.1
Cattle (tons)	19.3	-	19.3	9.4	-	9.4	14.8	-	14.8	8.0	-	8.0
Milk (in th of liters)	-	-	-	-	-	-	3.9	-	3.9	13.3	-	13.3

(1) Domestic Market.

(2) Foreign Market.

(3) Includes Brasilagro, 50% of CRESCA, Acres del Sud, Ombú, Yatay and Yuchán. Excludes Agro-Uranga.

The following table shows the sown surface area assigned to crop production, classified into own, under lease, under concession and leased to third parties for the fiscal years indicated below, measured in hectares:

	2020(1)0(1)	2019(1)	2018(1)	2017(1)
Own	105,799	94,062	102,448	102,683
Under lease	138,867	135,955	72,688	71,481
Under concession	26,409	18,638	24,244	22,454
Leased to third parties	13,837	14,325	9,533	7,663
Total	284,912	262,980	208,913	204,281

 (1) Includes double crops, all farms in Argentina, Bolivia, Paraguay and Brazil, and Agro-Uranga (Associated – 35.72%).

104

	Season
Stock	2020	2019	Variation
	(in tons)		%
Corn	60,294	77,216	(21.9)
Soybean	108,171	174,575	(38.0)
Sunflower	87	6,187	(98.6)
Sorghum	527	443	19.0
Bean	2,535	-	-
Wheat	1,076	2,516	(57.2)
Sugarcane	5,865	485	1.109.3
Cotton	1,130	1,586	(28.8)
Other	1,230	3,704	(66.8)
Total	180,915	266,712	(32.2)

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 farms 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 farms for production of crops generally consist of lease agreements with payments based on a fixed amount of Pesos per hectare or sharecropping agreements with payments in kind basedon a percentage of the crops obtained or a fixed amount of tons of crops obtained or their equivalent value in Pesos. The principal advantage of leasing farms 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.

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 August. Crops are available to be sold as commodities after the harvest from December to June and we usually storepart 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, 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.

Agro-Uranga S.A.

We have a 35.72% interest in AgroUranga S.A.. This company optimizes production processes with special emphasis in soil conservation, the application of rational techniques and care of the environment.

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.

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 production 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.

105

The initial duration of lease agreements is typically one crop season and sugarcane. Leases of farms for production of crops consist in lease agreements with payments based on a fixed amount of Pesos per hectare or sharecropping agreements with payments in kind based on a percentage of the crops obtained or a fixed amount of tons of crops obtained or their equivalent value in Pesos. Leases of farmlands for 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. Leases of farms for production of sugarcane consist in a percentage lease agreements and have a term of 15 years.

During fiscal year 2020, we leased to third parties a total of 88 fields, covering 124,894 hectares, including 52,387 hectares in Brazil. Out of the total leased area 138,713 hectares were assigned to agricultural production including double crops, and 12,635 hectares to cattle raising. The properties for agricultural production were leased, primarily, for a fixed price prior to harvest and only a small percentage consisted of sharecropping agreements.

The following table shows a breakdown of the number of hectares of leased land used for each of our principal production activities:

	2020	2019	2018	2017
Crops (1)	111,001	117,397	66,333	71,481
Cattle	12,635	14,135	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.

Results

The following table shows the Company’s results for fiscal year 2020 for Crops and Sugarcane activities, compared to the preceding fiscal year:

Crops

	FY 2020	FY 2019	FY 2018	YoY var 2020 vs. 2019
	(in millions of ARS )			%
Revenues	11,464	6,977	5,541	64.3
Costs	(9,788)	(6,160)	(4,409)	58.9
Initial recognition and changes in the fair value of biological assets and agricultural produce	1,176	1,500	1,259	(21.6)
Changes in the net realizable value of agricultural produce	657	(43)	532	-
Gross profit	3,509	2,274	2,923	54.3
General and administrative expenses	(547)	(475)	(456)	15.2
Selling expenses	(1,553)	(859)	(1,086)	80.8
Other operating results, net	445	438	-	1.6
Profit from operations	1,854	1,378	1,381	34.5
Share of profit of associates and joint ventures	55	57	39	(3.5)
Activity profit	1,909	1,435	1,420	33.0

106

Sugarcane

	FY 2020	FY 2019	FY 2018	YoY var 2020 vs. 2019
	(in millions of ARS )			%
Revenues	3,177	2,651	2,048	19.8
Costs	(2,993)	(2,311)	(1,948)	29.5
Initial recognition and changes in the fair value of biological assets and agricultural produce	1,243	552	625	125.2
Gross profit	1,427	892	725	60.0
General and administrative expenses	(251)	(296)	(258)	(15.2)
Selling expenses	(113)	(71)	(91)	59.2
Other operating results, net	6	(6)	-	-
Profit from operations	1,069	519	376	106.0
Activity profit	1,069	519	376	106.0

Cattle

Our cattle production involves the breeding and fattening of our own animals. In some cases, if market conditions are favorable, we also purchase and fatten cattle which we sell to slaughterhouses and supermarkets. As of June 2020, our cattle aggregated 84,173 heads, and we had a total surface area of 87,788 hectares of own and leased lands devoted to this business activity. In addition, we have leased to third parties 9,818 hectares assigned to these activities.

During the fiscal year ended June 30, 2020, our production was 11,783 tons, a 5.5% year-on-year increase. The following table sets forth, for the fiscal years indicated below, the cattle production volumes measured in tons:

	2020	2019	2018	2017	2016
Cattle production(1)	11,783	11,173	10,751	8,061	8,205

(1) 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 cattle owned by us.

Our 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 cattle are directly submitted to the fattening process. Upon starting this process, 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.

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 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 is external to us and visits each establishment monthly to control and agree tasks.

Currently, the cattle raising farms 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.

107

Our cattle stock is organized into breeding and fattening activities. The following table shows, for the fiscal years indicated, the number of heads of cattle for each activity:

	2020	2019	2018
Breeding stock	63,073	85,118	83,151
Winter grazing stock	10,539	13,993	10,440
Total Stock (heads)	73,612	99,111	93,591

We seek to improve 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 crops for feeding and dietary supplementation purposes, animal health and payroll costs, among others.

Results

The following table shows this activity’s results for fiscal year 2020, compared to the preceding fiscal years:

	FY 2020	FY 2019	FY 2018	YoY var 2020 vs. 2019
	(In millions of ARS)			%
Revenues	1,866	819	858	127.8
Costs	(1,622)	(725)	(749)	123.7
Initial recognition and changes in the fair value of biological assets and agricultural produce	194	(23)	(287)	-
Gross profit / (loss)	438	71	(178)	516.9
General and administrative expenses	(92)	(104)	(122)	(11.5)
Selling expenses	(115)	(67)	(96)	71.6
Other operating results, net	2	(1)	(20)	-
Profit/(loss) from operations	233	(101)	(416)	-
Activity profit/(loss)	233	(101)	(416)	-

Leases and Agricultural Services

We lease own farms to third parties for agriculture, cattle breeding and seed production, mainly in two types of farms. On the one hand, we lease our farms under irrigation in the Province of San Luis (Santa Bárbara and La Gramilla) to seed producers or enter into production agreements whereby we render production services to seed companies. These farms 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, when market conditions are favorable, we lease farms recently put into production after agricultural development. In this way, we manage to reduce our production risk, ensuring fixed rental income until the new farms reach stable productivity levels.

In addition, in this segment we include the irrigation service we provide to our own farms leased to third parties.

108

Results

The following table shows this activity’s results for fiscal year 2020, compared to the preceding fiscal years:

	FY 2020	FY 2019	FY 2018	YoY var 2020 vs. 2019
	(in millions of ARS )			%
Revenues	679	653	411	4.0
Costs	(273)	(270)	(111)	1.1
Gross profit	406	383	300	6.0
General and administrative expenses	(63)	(84)	(38)	(25.0)
Selling expenses	(34)	(29)	(29)	17.2
Other operating results, net	1	(3)	-	-
Profit from operations	310	267	233	16.1
Activity profit	310	267	233	16.1

Other segments

This segment includes, principally, feedlot farming, slaughtering and processing in the meat refrigeration plant; among others. The segment “Other segments” aggregate the activities Agro-industrial and Others:

Agro-industrial Activities

This activity consists in the slaughtering and processing of beef in meat packing plants.

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 12,500 cattle heads per month.

During the last years, the smaller supply of 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.

Results

The following table shows this activity’s results for fiscal year 2020, compared to preceding fiscal year:

	FY 2020	FY 2019	FY 2018	YoY var 2020 vs. 2019
	(in millions of ARS)			%
Revenues	6,228	5,764	4,821	8.0
Costs	(5,627)	(5,354)	(4,683)	5.1
Initial recognition and changes in the fair value of biological assets and agricultural produce	10	6	(9)	66.7
Gross profit	611	416	129	46.9
General and administrative expenses	(168)	(174)	(149)	(3.4)
Selling expenses	(575)	(466)	(182)	23.4
Other operating results, net	79	31	60	154.8
Loss from operations	(53)	(193)	(242)	(72.5)
Activity loss	(53)	(193)	(242)	(72.5)

109

Others 

This activity includes part of our investment in Futuros y Opciones (FyO), as crop trading is reflected in the Crops activity. 

Results

The following table shows this activity’s results for fiscal year 2020, compared to preceding fiscal year:

	FY 2020	FY 2019	FY 2018	YoY var 2020 vs. 2019
	(in millions of ARS )			%
Revenues	2,845	2,197	1,476	29.5
Costs	(1,955)	(1,321)	(989)	48.0
Gross profit	890	876	487	1.6
General and administrative expenses	(118)	(115)	(127)	2.6
Selling expenses	(219)	(224)	(149)	(2.2)
Other operating results, net	167	116	44	44.0
Profit from operations	720	653	255	10.3
Share of profit (loss) of associates and joint ventures	72	(46)	(2)	(39.0)
Activity profit	792	607	253	30.5

Corporate

This segment includes, principally, the corporative expenses related to the agricultural business.

Results

The following table shows the “Corporate” segment’s results for fiscal year 2019, compared to preceding fiscal years:

	FY2019	FY2018	FY2017	YoY var 2019 vs. 2018
	(in millions of ARS )			%
Revenues	-	-	-	-
Costs	-	-	-	-
Gross profit	-	-	-	-
General and administrative expenses	(177)	(274)	(225)	(35.4)
Loss from operations	(177)	(274)	(225)	(35.4)
Segment loss	(177)	(274)	(225)	(35.4)

Futuros y Opciones.Com S.A. (FyO)

Futuros y Opciones.com’s main business is crop trading (crop brokerage, futures and options, consulting and logistic and financial services) and sale and distribution of own inputs and third-party products.

As concerns the Crops business, revenues grew thanks to the increase in invoiced volumes and prices compared to the previous fiscal year. As well as the inputs business grew by 50% compared to the previous year, due to the consolidation of the nutritional specialties business.

During fiscal year 2020, increased efforts were made in the company’s cash flow analysis, generating financial income from the investments made. The financial services provided to our clients were also increased, allowing them access to capital market tools. Net financial income also increased favorably compared to the previous year due to the effect of the devaluation.

110

Concerning the goals for next year, the Crops business is expected to keep growing at the same pace as in the past years, aspiring to lead the crop trading business and differentiating ourselves in the services offered to clients. As concerns inputs, FyO’s goals include consolidating its suite of products, increasing sales, improving margins and focusing business on the sale of nutritional specialties for the soil. Other objectives include becoming a leading company in the knowledge of the crop’s markets, being digital innovators and expanding the company’s reach into the region.

AGROFY S.A.U.

Agrofy S.A.U. continued to position itself in 2020 as the leading online platform for agriculture in Argentina, Brazil, and Uruguay, doubling the flow of annual visits and contacts per month when compared to the previous year. During this fiscal year, Agrofy raised USD 23 million of new equity capital, incorporating two new strategic investors while Cresud reduced its shareholding to 22.2% and BrasilAgro was incorporated as a shareholder with 1.9% of the capital stock. During the next fiscal year we will seek to continue and consolidate Agrody’s regional expansion strategy.

111

Farmland Portfolio 

As of June 30, 2020, we owned, together with our subsidiaries, 26 farms, with a total surface area of 629,794 hectares. 

The following table sets forth our farm portfolio as of June 30, 2020:

Use of farms owned and under concession as of June 30, 2020
	Locality	Province	Date of	Surface	Main Business	Cattle	Sheep	Agriculture	Cattle(2)
			Acquisition	Area (has)	(has)		(has)	(has)	(Head)
El Recreo	Recreo	Catamarca	May ‘95	12,395	Natural woodlands
Los Pozos	JV González	Salta	May ‘95	239,639	Cattle/ Agriculture/ Natural woodlands	40,579		18,384	39,652
San Nicolás (1)	Rosario	Santa Fe	May ‘97	1,431	Agriculture			1,409
Las Playas (1)	Idiazabal	Cordoba	May ‘97	1,534	Agriculture			1,534
La Gramilla/ Santa Bárbara	Merlo	San Luis	Nov ‘97	7,072	Agriculture Under irrigation			5,000
La Suiza	Villa Angela	Chaco	Jun ‘98	26,371	Agriculture/ Cattle	17,419		3,215	12,732
El Tigre	Trenel	La Pampa	Apr ‘03	8,360	Agriculture	240		6,535	2,316
San Pedro	Concepción de Uruguay	Entre Rios	Sep ‘05	6,022	Agriculture			3,965
8 De Julio/ Estancia Carmen	Puerto Deseado	Santa Cruz	May ‘07/ Sep ‘08	100,911	Sheep		85,000
Cactus Argentina	Villa Mercedes	San Luis	Dec ‘97	171	Natural woodlands	101
Las Londras	Santa Cruz	Bolivia	Nov ‘08	4,566	Agriculture			4,367
San Rafael	Santa Cruz	Bolivia	Nov ‘08	2,969	Agriculture			2,824
La Primavera	Santa Cruz	Bolivia	Jun ‘11	2,340	Agriculture			1,666
Marangatu/Udra	Mariscal Estigarribia	Paraguay	Feb ‘09	59,585	Agriculture/ Natural woodlands	3,064		10,174	4,284
Finca Mendoza	Lujan de Cuyo	Mendoza	Mar ‘11	674	Natural woodlands
Establecimiento Mendoza	Finca Lavalle	Mendoza	Nov’03	9	Natural woodlands
Jatoba	Jaborandi/BA	Brazil		14,930	Agriculture	2,813		0	1,664
Alto Taquari	Alto Taquari/MT	Brazil		5,103	Agriculture			3,206
Araucaria	Mineiros/GO	Brazil		5,534	Agriculture			3,831
Chaparral	Correntina/BA	Brazil		37,182	Agriculture	0		14,350
Nova Buriti	Januária/MG	Brazil		24,212	Forestry
Preferência	Barreiras/BA	Brazil		17,799	Agriculture / Natural woodlands	6,344		134	9,116
São José	São Raimundo das Mangabeiras/MA	Brazil		17,566	Agriculture			9,101
Arrojadinho	Jaborandi/BA	Brazil		16,642	Agriculture			2,900
Rio do Meio	Correntina/BA	Brazil		12,288	Agriculture
Serra Grande	Baixa Grande do Ribeiro/PI	Brazil		4,489	Agriculture
Subtotal Owned				629,794		70,560	85,000	92,595	69,764
Agropecuaria Anta SA	Las Lajitas	Salta		132,000		2,993		26,409	1,967
Subtotal Under Concession				132,000		2,993		26,409	1,967
Total				761,794		73,553	85,000	119,004	71,731

(1) 

Hectares in proportion to our 35.72% interest in Agro-Uranga S.A.

(2)

Does not include sheep or cattle in sold or rented fields.

Additional information about our Farmlands

Argentina

El Recreo

“El Recreo” farm, 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 farm is maintained as a productive reserve.

112

Los Pozos

“Los Pozos” farm 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 cattle raising and forestry activities (poles and fence posts), and it has agricultural potential for summer crops such as soybean, sorghum and corn, among others. For the fiscal year ended June 30, 2020, we used 18,384 hectares in agricultural production. As of June 30, 2020, there were 39,652 heads of cattle in this farm.

San Nicolás

“San Nicolás” is a 4,005 hectares farm owned by Agro-Uranga S.A., and is located in the Province of Santa Fe, approximately 45 kilometers from the Port of Rosario. As of June 30, 2019, 5,831 hectares were planted for agricultural production, including double crops. The farm has two plants of silos with a storage capacity of 14,950 tons.

Las Playas

“Las Playas” farm has a surface area of 4,294 hectares and is owned by Agro-Uranga S.A. It is located in the Province of Córdoba, and it is used for agricultural purposes. As of June 30, 2020, the farm had a sown surface area, including double crops, of 6,673 hectares for crop production.

La Gramilla and Santa Bárbara

These farms have a surface area of 7,072 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 farms well suited for agricultural production after investments were made in the development of lands, wells and irrigation equipment. In the course of the 2019/2020 crop season, a total of 5,983 hectares were sown. We leased, in turn, 8 hectares to third parties. The remaining hectares are kept as land reserves.

La Suiza

“La Suiza” farm has, at the end of the fiscal year, a surface area of 26,380 hectares and is located in Villa Ángela in the Province of Chaco. It is used for raising cattle. As of June 30, 2020, “La Suiza” had a stock of approximately 12,732 heads of cattle. During the 2019/20 season, we used 3,215 hectares for agricultural production.

On June 29, 2018, Cresud signed the title deed with an unrelated third party of a fraction of 10,000 hectares of livestock activity of the establishment “La Suiza”. The total amount of the operation was set at USD 10 million, of which USD 3 million has been charged to date. The remaining balance of USD 7 million, guaranteed with a mortgage on the property, will be charged in 10 installments of the same amount ending in June 2023 and will accrue interest of 4.5% per annum on the balances. The accounting profit of the operation amounts to the approximate sum of ARS 238 million.

El Tigre

“El Tigre” farm was acquired on April 30, 2003 and has a surface area of 8,360 hectares. It is located in Trenel in the Province of La Pampa. As of June 30, 2020, 7,844 hectares were assigned to crop production, including double crops.

San Pedro

“San Pedro” farm 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 2019/2020 crop season, 4,985 hectares were used for agricultural production, including double crops.

113

8 de Julio and Estancia Carmen

“8 de Julio” farm was acquired on May 15, 2007 and has a surface area of 90,000 hectares. It is in the Department of Deseado in the Province of Santa Cruz. Due to its large surface area, this farm 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 farm 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 in the Province of Santa Cruz, next to our “8 de Julio” farm.

Cactus

The feedlot has a surface area of 171 hectares. It is located in Villa Mercedes, Province of San Luis. Given its degree of urban development and closeness to the city, we decided to discontinue fattening activities in this facility.

Finca 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 USD 4.0 million; therefore, the amount of USD 1.6 million was payable by Cresud.

On June 8, 2017, a title deed for the sale of 262 ha was signed. The total price was USD 2.2 million. The Company has recognized a gain of ARS 11.8 million as a result of this transaction.

On April 17, 2019, we have purchased to Zander Express S.A. the 60% of the property, and the total price was USD 1.25 million. As a result of this acquisition, we have become owner of a 100% of the property.

Establecimiento Mendoza

The establishment is located north of the city of Mendoza, in the department of Lavalle. It is composed of 9 Ha, which are currently not in use and are considered land reserves.

Bolivia

Las Londras

On January 22, 2009, the bill of purchase for “Las Londras” farm 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 2019/2020 crop season, it was used for crop production and sugarcane.

San Rafael

On November 19, 2008, the bill of purchase for “San Rafael” farm was cast into public deed. This farm 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 2019/2020 crop season.

La Primavera

On June 7, 2011, we acquired “La Primavera” farm, with a surface area of approximately 2,340 hectares. During the 2019/2020 season, this farm was used for crop production and sugarcane.

Brazil (through our subsidiary Brasilagro)

Jatobá

Jatobá is a farm in the northeastern region of Brazil, with a total surface area of 14,930 hectares. Jatobá was acquired in March 2007 for BRL 33 million. We consider that this farm is in a very advantageous location for the movement of crops, as it is close to the Candeias Port, in the State of Bahia. During the 2019/2020 season, 2,813 hectares were used for cattle production.

114

On June 13, 2018, the Company, through its subsidiary Brasilagro, signed a purchase contract for a total area of 9,784 hectares (7,485 are agricultural hectares) of the Establishment.

On July 31, 2018, the buyer made the payment of the first installment for BRL 225 million in accordance with the conditions set forth in the contract, obtaining the transfer of possession and enabling the recognition of the income by the Company. The remaining balance will be paid in six annual installments.

In June 2019, the Company entered into a commitment to sell 3,124 hectares of the Jatobá field. The sale price is BRL 543 million. The buyer made an initial payment of BRL 58 million and made on July 31, 2019 the cancellation of the first installment equivalent to BRL 58 million; and the balance equivalent to 563,844 soybeans bags, will be paid in six annual installments. The delivery of the possession and the result of the operation will be recognized on June 30, 2019, which represents a gain of BRL 422 million.

On July 15, 2020 BrasilAgro entered into an agreement fore the sale of 1,875 hectacres (1,500 are production acres) of the Jatobá Establishment, a rural property located in the Municipality of Jaborandi, for a purchase price of 300 bags of soybeans, equivalent to BRL 45 million. At the time of slae, the buyer made an initial payment, equivalent to BRL 5 million. In August 2020, the buyer made a second payment, equivalent to an additional BRL 3.5 million. The remaining balance of the purchase price will be paid by the purchaser in six annual installments. The book value of the Jatobá field parcel that was sold is BRL 3.7 million (acquisition cost plus investments made).

Araucária

Araucária is a farm located in the municipal district of Mineiros, in the State of Goiás, and it has a total surface area of 5,534 hectares, 3,831 of which are used for agriculture. Araucaria was acquired in 2007 for BRL 70.4 million. Before we purchased it, Araucária had been used for crop planting. The farm 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 BRL 10.3 million. In May 2014, the sale of 1,164 hectares was agreed for a total amount of BRL 41.3 million.

In March 2017, an area of 274 hectares was sold, of which 196 are developed and productive hectares. The price of the sale is 1,000 bags of soybeans per hectare. The Company has recognized a gain of ARS 29.9 million as a result of this transaction.

In May 2017, an area of 1,360 hectares was sold, of which 918 are developed and productive hectares. The sale price is 280 bags of soybeans per hectare. The Company has recognized a gain of ARS 37.4 million as a result of this transaction.On May 3, 2018, has been subscribed a purchase-sale ticket for the sale of a fraction of 956 hectares (660 productive) at a price of 1,208 bags of soybeans per hectare or BRL 61.6 million (BRL / ha 93,356).

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 5,103 hectares, 3,206 of which are used for agriculture. The farm was acquired in August 2007 for BRL 33.2 million. Before we purchased it, the farm had been used for agriculture and cattle raising. Following its transformation, it is being used for sugarcane production.

On November 21, 2018, the Company, through its subsidiary Brasilagro, entered into a commitment to sell 103 hectares of the Alto Taquari field. The sale price is 1,100 bags of soybeans bags per hectare equivalent to BRL 63.4 million. The buyer made the initial payment of 22,656 soybean bags equivalent to BRL 17 million; and the balance will be paid in eight semiannual installments. The result of the operation recognized in this period was BRL 64 million.

On October 29, 2019, the Company, through its subsidiary BrasilAgro, entered into a commitment to sell 85 hectares (65 productive hectares) of the Alto Taquari Establishment, a rural property located in the municipality of Alto Taquari, for a purchase price of equivalent to BRL 5.5 million. On the closing date, the buyer made an initial payment of 14,300 bags of soybeans, equivalent to BRL 1 million. The remaining balance will be paid in four annual installments. The result of the operation recognized in this period was BRL 4 million.

115

On May 29, 2020, the Company, through its subsidiary BrasilAgro, entered into a commitment to sell 105 productive hectares of the Alto Taquarí field. The purchase price was 115,478 bags of soybeans, equivalent to BRL 11 million. On the closing date, the buyer made an initial payment of equivalent to BRL 1.8 million. The remaining balance will be paid in five annual installments. The result of the operation recognized in this period was BRL 8 million.

Chaparral

Chaparral is a 37,182-hectare farm, with 18,948 hectares used for agriculture. It is located in the municipal district of Correntina, State of Bahia. The farm was acquired in November 2007 for BRL 47.9 million.

Nova Buriti

Located in the municipal district of Januária, State of Minas Gerais, Nova Buriti has a surface area of 24,212 hectares. Nova Buriti was acquired in December 2007 for BRL 21.6 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

Preferência is located in the municipal district of Barreiras, in the State of Bahia. It has a total surface area of 17,799 hectares, 6,344 of which are used for agricultural activities. It was acquired for BRL 9.6 million in September 2008. The farm is being transformed into a pasturing area and will be later developed for agricultural purposes.

Sao José

Located in São Raimundo das Mangabeiras, in the state of Maranhão. With a total area of 17,566 hectares, of which 10,137 are destined to agricultural activity. It was acquired for a value of BRL 100 million in February 2017.

Arrojadinho

Located in Jaborandi, in the state of Bahia. With a total area of 16,642 hectares, of which 8,043 were rented for livestock activities. It was acquired in January 2020.

Rio do Meio

Located in Correntina, in the state of Bahia. With a total area of 12,288 hectares, of which 2,900 are used for agricultural activities. It was acquired in January 2020.

Serra Grande

Located in Baixa Grande do Ribeiro, in the state of Piauí. With a total area of 4,489 hectares, of which 2,904 are agricultural hectares. It was acquired in May 2020.

Paraguay (through our subsidiary Brasilagro)

Marangatú / Udra

We own, through BrasilAgro, the “Marangatú/UDRA” farms, located in Mariscal José Félix Estigarribia, Department of Boquerón, Paraguayan Chaco, Republic of Paraguay, totaling 59,585 hectares, out of which 10,174 hectares have been allocated to agricultural production, 3,064 hectares to cattle production and 1,612 hectares were leased to thir parties.

Land Management

In contrast to traditional Argentine farms, run by families, we centralize policy making in an Executive Committee that meets on a weekly basis in Buenos Aires. Individual farm management is delegated to farm managers who are responsible for farm 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 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 farm 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 cattle herds, irrigation equipment and machinery, among other things. 

116

Principal Markets

Crops

Our crop production is mostly sold in the domestic market. The prices of our crops are based on the market prices quoted in Argentine grains exchanges such as the Buenos Aires Grains Exchange (Bolsa de Cereales de Buenos Aires) and the cereal exchanges in each country, which take as reference the prices in international grains markets. 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.

Cattle

Our cattle production is sold in the local market. The main buyers are slaughterhouses and supermarkets.

Prices in the 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.

Customers

For the fiscal year 2020, our sales from the agribusiness segment (excluding sales of farms) were made to approximately 300 customers. Sales to our ten largest customers represented approximately 45% to 50% of our net sales. Some of these customers included Cargill, FASA, Bunge Alimentos S.A. and GLENCORE. 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 Buenos Aires Grains Exchange and 13% in the Chicago Board of Trade for hedging purposes.

Our storage capabilities allow us to condition and store crops with no third-party involvement and thus to capitalize the fluctuations in the price of commodities. In addition, we store crops in silo bags. On the other hand, in Brazil we have a total storage capacity of 10,279 tons.

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 Carnes Pampeanas, Frigorífico Bermejo, Arre Beef S.A., Sáenz Valiente Bullrich, and Colombo y Magliano S.A. Prices are based on the price at Liniers Market.

We are usually responsible for the costs of the freight to the market and, in general, we pay commissions on our transactions.

117

Inputs

The current direct cost of our production of crops 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 crops (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 cattle and our forestry activities tend to be more of a successive character than of a seasonal character. However, the production of beef 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.

Regulation and Governmental Supervision of our Agricultural Business

Argentina

Farming and Animal Husbandry Agreements

According to Law No. 13,246, as amended by Law No. 22,298, all lease agreements related to rural properties and land are required to have a minimum duration of 3 years, except in the case of those designated as “accidental agreements” pursuant to Section 39, subsection a), Law No. 13,246. Upon death of the tenant farmer, the agreement may continue with his successors. Upon misuse of the land by the tenant farmer or default in payment of the rent, the land owner may initiate an eviction proceeding.

Law No. 13,246, amended by Law No. 22,298, also regulates sharecropping agreements pursuant to which one of the parties furnishes the other with animals or land for the purpose of sharing benefits between the parties. These agreements are required to have a minimum term of duration of 3 years, although the rule of Section 39 of Law No. 13,246 on accidental agreements for smaller terms also applies in this case. The agreement is not assignable under any circumstance whatsoever, unless expressly agreed by the parties. Upon death, disability of the tenant farmer or other impossibility, the agreement may be terminated.

Quality control of Crops and Cattle

The quality of the crops and the health measures applied on the cattle are regulated and controlled by the Servicio Nacional de Sanidad y Calidad Agroalimentaria (“SENASA”), which is an entity within the Agro-industry Ministry that oversees 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 Cattle

Even though the sale of cattle is not specifically regulated, general contract provisions are applicable. Further, every province has its own rural code regulating the sale of cattle.

Argentine law establishes that the transportation of cattle is lawful only when it is done with the respective certificate that specifies the relevant information about the 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. 

118

Export Restriction of Beef

In addition, the Secretary of Agriculture, Livestock, Fishing and Food Products, within the orbit of the Ministry of Economy and Public Finance, oversees the farming and animal sanitary activities.

The Secretary of Agriculture, Livestock, Fishing and Food Products is in charge of distributing the annual regular quota of top quality chilled beef without bones, the “Cuota Hilton.” The destination of the Cuota Hilton is the European Union.

The Secretary of Agriculture, Livestock, Fishing and Food Products granted to our subsidiary Sociedad Anónima Carnes Pampeanas up to 1,420 tons to export beef under the Cuota Hilton for the July 2019-June 2020 period.

Environment

The development of our agribusiness activities depends on a number of federal, provincial 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. Under the Argentine Criminal Code, persons (including directors, officers and managers of corporations) 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 enforced 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 warnings 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 prohibition against entering into contracts with public entities.

The Forestry Legislation of Argentina prohibits the devastation of forests and forested lands, 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.

In accordance with legislative requirements, we have applied for approval to develop certain parts of our land reserves and were authorized to develop them partially and to maintain other areas as land reserves. 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 development of genetically modified organisms is subject to special laws and regulations and special permits.

On November 28, 2007, the 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 owners of native forests, from deforesting or converting forested areas into non-forested land for other commercial uses without prior permission from each local government that gives the permit and requires the preparation, assessment and approval of an environmental impact report. The Forest Law also provides that each province should adopt its own legislation and regional regulation map within a term of one year. Until such provincial implementation is carried into effect, no new areas may be deforested. In addition, the Forest Law also establishes a national policy for sustainableuse 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.

119

Besides, the Rules issued by the CNV provide that publicly traded companies whose corporate purpose includes environmentally hazardous activities should report to their shareholders, investors and the general public their compliance with the applicable environmental laws and risks inherent to such activities, so as to be able to reasonably assess such hazards.

Our activities are subject to a number of national, provincial and municipal environmental regulations. 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 redress 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 andof 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 determine specific standards and issue the applicable regulations.

On November 6, 2009, the Argentine Congress passed Law No. 25,675. This law regulates the minimum standards for the achievement of a sustainable environment and the preservation and protection of biodiversity and sets environmental policy goals. Moreover, 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 imposes the obligation to restore it to its former condition or, if that is not technically feasible, to pay a compensation in lieu thereof. The Law also fosters environmental education and provides for certain minimum obligations to be fulfilled by natural and artificial persons.

Leases

Laws and regulations governing the acquisition and transfer of real estate, as well as municipal zoning ordinances, are applicable to the development and operation of the Company’s properties.

Currently, Argentine law does not specifically regulate shopping mall lease agreements. Since our shopping mall leases generally differ from ordinary commercial leases, we have created provisions which govern the relationship with our shopping mall tenants.

Argentine law imposes certain restrictions on property owners, including:

● 

a prohibition to include price indexation clauses based on inflation increases in lease agreements; and

● 

a two-year minimum lease term is established for all purposes, except in particular cases such as embassy, consulate or international organization venues, room with furniture for touristic purposes for less than three months, custody and bailment of goods, exhibition or offering of goods in fairs or in cases where they are entered into for a specific purpose expressly stated in the agreement that is usually fulfilled within an agreed shorter term.

Rent Increase

In addition, there are at present contradictory court rulings with respect to whether the rent price can or cannot be increased during the term of the lease agreement. Most of our lease agreements have incremental rent increase clauses that are not based on any official index. As of the date of this document, no tenant has filed any legal action against us challenging incremental rent increases, but we cannot assure that such actions will not be filed in the future and, if any such actions were successful, that they will not have an adverse effect on our company.

Limits on lease terms

Under the Argentine Civil and Commercial Code lease terms may not exceed fifty years, irrespective of the intended use of the property (save in case of residential use, where the maximum term is twenty years). Generally, terms in its lease agreements go from 3 to 10 years.

Early termination rights

The Argentine Civil and Commercial Code provides that tenants of properties may declare the early termination of lease agreements after the first six months of the effective date. Such termination is subject to penalties which range from one to one and a half months of rent. If the tenant terminates the agreement during the first year of the lease, the penalty is one and a half month’s rent and, if the termination occurs after the first year of lease, the penalty is one month’s rent.

It should be noted that the Argentine Civil and Commercial Code became effective on August 1, 2015 and that, among other rules, it repealed the Urban Lease Law (No. 23,091), which provided for a rule similar to the one described above, but (i) it established the obligation to give at least 60 days’ prior notice of exercise of the early termination right by the tenant; and (ii) it set forth in its Section 29 that its provisions were mandatory. There are no court rulings yet with respect to the new regulations related to: (i) unilateral right to termination by tenant; i.e. whether the parties may waive the tenant’s right to terminate the agreement unilaterally; or in relation to (ii) the possibility of establishing a penalty different from the penalty described above in the event of unilateral termination by the lessee.

Other

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 adversely affecting our rental income. The Argentine Civil and Commercial Procedural Code enables the lessor to pursue collection of outstanding rental payments through an “executory proceeding” upon lessee’s payment default. 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 formalities of debt instrument itself. The Procedural Code also permits special eviction proceedings, which are carried out in the same wayas ordinary proceedings. The Argentine Civil and Commercial Code requires that a notice be given to the tenant demanding payment of the amounts due in the event of breach prior to eviction, of no less than ten days for leases for residential purposes, andestablishes no limitation or minimum notice for leases for other purposes. 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.

Development and Use of the Land

Buenos Aires Urban Planning Code. Our real estate activities are subject to several municipal zoning, building, occupation and environmental regulations. In the City of Buenos Aires, where the vast majority of the 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) supplements 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.

120

Sales and Ownership

Buildings Law. Buildings Law No. 19,724 (Ley de Pre horizontalidad) was repealed by the new Argentine Civil and Commercial Code which became effective on August 1, 2015. The new regulations provide that for purposes of execution of agreements with respect to built units or units to be built under this regime, theowner is required to purchase insurance in favor of prospective purchasers against the risk of frustration of the operation pursuant to the agreement for any reason. A breach of this obligation prevents the owner from exercising any right against the purchaser – such as demanding payment of any outstanding installments due – unless he/she fully complies with his/her obligations, but does not prevent the purchaser from exercising its rights against seller.

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. Architectural requirements refer to pathways, stairs, ramps and parking.

Real Estate Installment Sales Law. The Real Estate Installment Sales Law No. 14,005, as amended by Law No. 23,266 and Decree No. 2015/85, 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 with 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 Law, unless seller registers its 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 Law prohibits the termination 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.

121

Other Regulations

Consumer Relationship. Consumer or End User Protection. The Argentine Constitution expressly establishes in Section 42 that consumers and users of goods and services have a right to protection of health, safety and economic interests in a consumer relationship. Consumer Protection Law No. 24,240, as amended, regulates several issues concerning the protection of consumers and end users in a consumer relationship, in the arrangement and execution of contracts.

The Consumer Protection Law, and the applicable sections of the Argentine Civil and Commercial Code are intended to regulate the constitutional right conferred under the Constitution on the weakest party of the consumer relationship and prevent potential abuses deriving from the stronger bargaining position of vendors of goods and services in a mass-market economy where standard form contracts are widespread.

As a result, the Consumer Protection Law and the Argentine Civil and Commercial Code deem void and unenforceable certain contractual provisions included in consumer contracts entered into with consumers or end users, including those which:

● 

deprive obligations of their nature or limit liability for damages;

● 

imply a waiver or restriction of consumer rights and an extension of seller rights; and

● 

impose the shifting of the burden of proof against consumers.

In addition, the Consumer Protection Law imposes penalties ranging from warnings to fines from ARS 100 to ARS 5,000,000, the seizure of merchandise, closing down of establishments for a term of up to thirty (30) days, suspension of up to 5 years in the State suppliers register, the forfeiture of concession rights, privileges, tax regimes or special credits to which the sanctioned party was entitled. These penalties may be imposed separately or jointly.

The Consumer Protection Law and the Argentine Civil and Commercial Code define consumers or end users as the individuals or legal entities that acquire or use goods or services free of charge or for a price for their own final use or benefit or that of their family or social group. In addition, both laws provide that those who though not being parties to a consumer relationship as a result thereof acquire or use goods or services, for consideration or for non-consideration, for their own final use or that of their family or social group are entitled to such protection rights in a manner comparable to those engaged in 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 Argentine Civil and Commercial Code defines a consumer agreement as such agreement that is entered into between a consumer or end user and an individual or legal entity that acts professionally or occasionally or a private or public company that manufactures goods or provides services, for the purpose of acquisition, use or enjoyment of goods or services by consumers or users for private, family or social use.

It is important to point out that the protection under the laws afforded to consumers and end users encompasses the entire consumer relationship process (from the offering of the product or service) and it is not only based on a contract, including the consequences thereof.

In addition, the Consumer Protection Law establishes a joint and several liability system under which for any damages caused to consumers, if resulting from a defect or risk inherent in the thing or the provision of a service, the producer, manufacturer, importer, distributor, supplier, seller and anyone who has placed its trademark on the thing or service shall be liable.

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.

122

Pursuant to Resolution No. 104/05 issued by the Secretariat of Technical Coordination reporting to the Argentine Ministry of Economy, the Consumer Protection Law adopted Resolution No. 21/2004 issued by the Mercosur’s Common Market Group which requires that those who engage in commerce over the Internet (E-Business) shall 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.

On September 17, 2014, a new Consumer Protection Law was enacted by the Argentine Congress –Law No. 26,993–. This law, known as “System for Conflict Resolution in Consumer Relationships,” provided for the creation of new administrative and judicial procedures for this field of Law. It created a two-instance administrative system: the Preliminary Conciliation Service for Consumer Relationships (Servicio de Conciliación Previa en las Relaciones de Consumo, COPREC) and the Consumer Relationship Audit, and a number of courts assigned to resolution of conflicts between consumers and producers of goods and services (Fuero Judicial Nacional de Consumo). In order to file a claim, the amount so claimed should not exceed a fixed amount equivalent to 55 adjustable minimum living wages, which are determined by the Ministry of Labor, Employment and Social Security. The claim is required to be filed with the administrative agency. If an agreement is not reached between the parties, the claimant may file the claim in court. The administrative system known as Preliminary Conciliation Service for Consumer Relationships (COPREC) is currently in full force and effect. However, the court system (fuero judicial nacional de consumo) is not in force yet, therefore, any court claims should be currently filed with the existing applicable courts. A considerable volume of claims filed against us are expected to be settled pursuant to the system referred to above, without disregarding the full force and effect of different instances for administrative claims existing in the provincial sphere and the City of Buenos Aires, which remain in full force and effect, where potential claims related to this matter could also be filed.

Antitrust Law

Law No. 27,442, as amended, or the “Antitrust Law,” prevents collusive practices by market participants and requires administrative approval 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 transactions 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 and the aggregate volume of business in Argentina of the companies concerned exceeds 100 million mobile units, the respective concentration must be submitted for approval to the CNDC. The request for approval may be filed, either prior to the transaction or the implementing of the control take.

For the purpose of determining the volume of the business mentioned on the paragraph before, the CNDC will annually inform the amount in legal currency that will apply during the corresponding year. For that purpose, the CNDC will consider the mobile unit value current at the last business day of the previous year. When a request for approval is filed, the CNDC 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 subject to acquisition or disposition do not exceed 20 million mobile units each do not require approval. When the amount of the transactions consummated in the preceding 12 months exceeds in aggregate 20 million mobile units or 60 million mobile units in the preceding 36 months, these transactions require CNDC approval.

As our consolidated annual sales volume and our parent’s consolidated annual sales volume exceed ARS 812,000,000, we are required to notice to the CNDC of any concentration provided for by the Antitrust Law; provided that no exception to the notice requirement under the Antitrust Law is applicable.

123

Taxes on the Transfer of Property and Sale of Meat and Grains

Value Added Tax (VAT). VAT is a federal tax that applies mainly to the (i) sale of goods located in Argentina; (ii) provision of services within Argentina; (iii) final import of goods and services (services rendered outside Argentina to persons registered as domestic VAT taxpayers that are economically used or exploited inside the country); and (iv) digital services provided by a foreign company or individuals that are economically used or exploited inside the country. Services rendered inside Argentina deemed to be used or exploited outside the country are not subject to VAT (export of services) and exports are exempted to pay VAT.

VAT is paid at each stage of the chain of production or distribution of goods or services. The general tax rate is 21%.

The value added tax law imposes a reduced rate, equal to 10.5% on the sale price of on the sale price of live animals (including cattle, sheep, camels and goats, among others) as well as their meat and edible remains, fruits and vegetables, all of which whether fresh, chilled, or frozen, which have not undergone any cooking or manufacturing process turning them into a manufactured product. This 10.5% reduced rate is also applicable to the sale of grains (cereals and oilseeds, excluding rice), and dry pulses (beans, peas, and lentils). In the case of milk, the sale is subject to a 21% rate (except for sales to final consumers, the federal government, the provinces, municipalities or the City of Buenos Aires or any subordinate agencies, school or university kitchens, health funds or entities under the scope of paragraphs e), f), g) and m) of Section 20 of the Income Tax Law, which are exempt).

The sale of land and immovable property is not subject to this tax.

Gross Income Tax. This is a local tax (collected by the provinces and the City of Buenos Aires) that levies onerous activities (habitually activities) carried out within a province or the City of Buenos Aires. The taxable base is the gross income derived from said activities.

When the same business is developed in more than one jurisdiction, the tax is applicable pursuant to the regulations set forth in the Multilateral Agreement, which distributes taxable base among the different jurisdictions, in accordance with certain parameters (usually, attribution of income or expenses to each jurisdiction), which is relevant for taxpayers that carry out activities in several jurisdictions, and is applicable in order to avoid double taxation.

In the City of Buenos Aires, gross income derived from livestock raising and milk production are subject to this tax at a general rate of 0.75%. In certain 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 instrumented acts, i.e. executed and delivered by means of 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 rate applicable to the transfer by public deed of real property is 3.6% and 2% in the Province of Buenos Aires. The purchase and sale of real property through public deed, however, is not taxable in the province and the City of Buenos Aires –up to a certain value of the property- if the real estate is used for permanent dwelling purposes, and provided that it is the only property owned by the purchaser.

124

Urban Properties and Investments Business (through our subsidiary IRSA)

As of June 30, 2020, our investment in IRSA’s common shares amounts to 62.1%.

The following information corresponds to data of the segments extracted from our subsidiary IRSA’s Annual Report and Financial Statements as of June 30, 2020.

The revenue figures for fiscal year 2018 described in the different tables correspond to the twelve-month period reported in IRSA’s Financial Statements.

Description of main operations

Operation Center in Argentina.

Shopping Malls

As of June 30, 2020, IRSA owned, through its subsidiary IRSA CP, a majority interest in and operated, a portfolio of 15 shopping malls in Argentina, six of which are located in the City of Buenos Aires (Abasto, Alcorta Shopping, Alto Palermo Shopping, Patio Bullrich, Dot Baires Shopping and Distrito Arcos), two are located in the greater Buenos Aires area (Alto Avellaneda and Soleil Premium Outlet), and the rest are located in different provinces of Argentina (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 and Patio Olmos (operated by a third party) in the City of Córdoba, La Ribera Shopping in Santa Fe (through a joint venture) and Alto Comahue in the City of Neuquén).

The shopping malls IRSA operates comprise a total of 333,062 square meters of GLA (excluding certain spaces occupied by hypermarkets which are not our tenants). Total tenant sales in our shopping malls, as reported by retailers, were ARS 69,965 million for fiscal year 2020 and ARS 94,436 million for fiscal year 2019, a decrease of 25.9% in real terms (+6.7% in nominal terms). The greatest impact of this drop was evidenced in the fourth quarter of the yearbecause of the closure of operations due to the lockdown decreed in Argentina on March 20, 2020 as a consequence of COVID19. Tenant sales at our shopping malls are relevant to our revenues and profitability because it is an important factor in determining rent our tenants pay. Sales also affect tenant’s overall occupancy costs as a percentage of that tenant’s sales.

125

The following table shows certain information about IRSA, through its subsidiary IRSA CP’s shopping malls as of June 30, 2020:

Shopping malls	Date ofacquisition/development	Location	GLA(sqm)(1)	Numberof stores	Occupancyrate(2)	Ourownershipinterest(3)	Rental revenue
					(%)	(%)	(in million of ARS)
Alto Palermo	Dec-97	City of Buenos Aires	18,655	136	91.9	100.0	997
Abasto Shopping(4)	Nov-99	City of Buenos Aires	36,760	164	94.9	100.0	854
Alto Avellaneda	Dec-97	Buenos Aires Province	38,330	125	97.4	100.0	600
Alcorta Shopping	Jun-97	City of Buenos Aires	15,725	114	97.3	100.0	532
Patio Bullrich	Oct-98	City of Buenos Aires	11,396	89	91.4	100.0	308
Dot Baires Shopping	May-09	City of Buenos Aires	48,805	167	74.6	80.0	653
Soleil Premium Outlet	Jul-10	Buenos Aires Province	15,156	79	97.1	100.0	248
Distrito Arcos	Dec-14	City of Buenos Aires	14,335	65	93.8	90,0	459
Alto Noa Shopping	Mar-95	City of Salta	19,313	85	99.0	100.0	185
Alto Rosario Shopping(4)	Nov-04	City of Rosario	33,681	142	97.2	100.0	520
Mendoza Plaza Shopping	Dec-94	City of Mendoza	43,313	129	97.8	100.0	295
Córdoba Shopping	Dec-06	City of Córdoba	15,361	104	95.4	100.0	177
La Ribera Shopping	Aug-11	City of Santa Fé	10,530	68	99.0	50.0	59
Alto Comahue	Mar-15	City of Neuquén	11,702	95	96.2	99.9	377
Patio Olmos(5)	Sep-07	City of Córdoba	—	—	—	—	—
Total			333,062	1,562	93.2		6,263

(1) Corresponds to gross leasable area in each property. Excludes common areas and parking spaces.

(2) Calculated dividing occupied square meters by leasable area as of the last day of the fiscal year.

(3) Company’s effective interest in each of its business units.

(4) Excludes Museo de los Niños (which represents 3,732 square meters in Abasto and 1,261 square meters in Alto Rosario).

 (6) IRSA CP owns the historic building of the Patio Olmos shopping mall in the Province of Córdoba, operated by a third party and does not include the rental revenues of Patio Olmos, for more details see “Accumulated rental income”.

The following table shows information about IRSA, through its subsidiary IRSA CP’s expansions and future expansions on current assets as of June 30, 2020:

Expansions	Ownership interest	Surface	Locations
	(%)	(sqm)
Alto Palermo Adjoining Plot	100	3,900	City of Buenos Aires
Subtotal current expansions		3,900
Other future expansions(1)		98,055
Subtotal future expansions		98,055
Total Shopping Malls		101,955
Patio Bullrich - Offices / Hotel	100	10,000	City of Buenos Aires
Philips Building	100	20,000	City of Buenos Aires
Subtotal future expansions		30,000
Total offices		30,000
Total expansions		131,955

(1) 

Includes Alto Palermo, Paseo Alcorta, Alto Avellaneda, Soleil, Alto Noa, Alto Rosario, Mendoza, Córdoba y La Ribera Shopping

126

Rental income

The following table sets forth total rental income for each of IRSA, through its subsidiary IRSA CP’s shopping malls for the fiscal years indicated:

	For the fiscal years ended June 30, (1)
	2020	2019	2018
	(in millions of ARS )
Alto Palermo	997	1,408	1,515
Abasto Shopping	854	1,312	2,040
Alto Avellaneda	600	943	1,059
Alcorta Shopping	532	693	735
Patio Bullrich	308	403	425
Dot Baires Shopping	653	1,111	1,087
Soleil Premium Outlet	248	367	385
Distrito Arcos	459	632	620
Alto Noa Shopping	185	248	279
Alto Rosario Shopping	520	683	732
Mendoza Plaza Shopping	295	410	449
Córdoba Shopping Villa Cabrera	177	246	272
La Ribera Shopping(2)	59	87	92
Alto Comahue	377	419	361
Subtotal	6,263	8,960	10,053
Patio Olmos (3)	7	10	10
Adjustments and eliminations (4)	(336)	(430)	(313)
Total	5,935	8,541	9,750

(1) 

Includes base rent, percentage rent, admission rights, fees, parking, commissions, revenue from non-traditional advertising and others. Does not include Patio Olmos.

(2) 

Through our joint venture Nuevo Puerto Santa Fé S.A.

(3) 

IRSA CP owns the historic building where the Patio Olmos shopping mall is located in the province of Cordoba. The property is managed by a third party.

(4) 

Includes indirect incomes and eliminations between segments. In 2019 and 2018, revenue from Buenos Aires Design are included. End of concession December 5, 2018.

The following table sets forth IRSA ’s revenue from cumulative leases by revenue category for the fiscal years presented:

127

	For the fiscal year ended June 30,
	2020	2019	2018
	(in millions of ARS)
Base rent	3,128	4,780	5,623
Percentage rent	1,471	1,779	1,863
Total rent	4,599	6,559	7,486
Non-traditional advertising	184	222	245
Revenues from admission rights	903	1,051	1,162
Fees	105	118	138
Parking	296	473	571
Commissions	155	321	429
Other	21	216	22
Subtotal(1)	6,263	8,960	10,053
Patio Olmos	7	10	10
Adjustments and eliminations(2)	(336)	(430)	(313)
Total	5,935	8,541	9,750

(1)

Does not include Patio Olmos

(2)

Includes indirect incomes and eliminations between segments. In 2019 and 2018, revenues from Buenos Aires Design are included. End of concession December 5, 2018.

Tenant retail sales

For the 2020 fiscal year, IRSA, through its subsidiary IRSA CP’s shopping mall tenants’ sales reached ARS 69,965 million, a decrase of 25.9% in real terms compared to the previous fiscal year (+6,7% in nominal terms).

Tenant sales at the shopping malls located in the City of Buenos Aires and Greater Buenos Aires recorded year-on-year decreases of 26.9% in real terms (+5.0% in nominal terms), up from ARS 65,404 million to ARS 47,805 million during fiscal year 2020, whereas shopping malls in the interior of Argentina decreased approximately 23.7% in real terms (+10.4% in nominal terms) in comparison with the previous fiscal year, from ARS 29,032 million to ARS 22,160 million during fiscal year 2020.

The following table sets forth the total retail sales of IRSA, through its subsidiary IRSA CP’s shopping mall tenants for the fiscal years indicated:

	For the fiscal years ended June 30,(1)
	2020	2019	2018
	(in millions of ARS)
Alto Palermo	8,537	11,585	12,803
Abasto Shopping	8,681	12,287	14,441
Alto Avellaneda	7,671	11,019	13,892
Alcorta Shopping	5,090	6,535	6,999
Patio Bullrich	3,463	4,293	3,880
Buenos Aires Design (1)	-	562	1,785
Dot Baires Shopping	6,819	9,416	11,948
Soleil Premium Outlet	3,543	5,056	5,664
Distrito Arcos	4,001	4,651	4,669
Alto Noa Shopping	3,473	4,172	5,039
Alto Rosario Shopping	7,230	9,286	10,359
Mendoza Plaza Shopping	5,643	7,402	8,743
Córdoba Shopping Villa Cabrera	2,226	3,029	3,582
La Ribera Shopping(2)	1,476	2,167	2,623
Alto Comahue	2,112	2,976	3,260
Total	69,965	94,436	109,687

(1)Retail sales based upon information provided to us by retailers and prior owners. The amounts shown reflect 100% of the retail sales of each shopping mall, although in certain cases we own less than 100% of such shopping malls. Includes sales from stands and excludes spaces used for special exhibitions.

(2) End of concession term was December 5, 2018

(3) Owned by Nuevo Puerto Santa Fé S.A., in which we are a joint venture partner.

128

Total sales by type of business

The following table sets forth the retail sales of IRSA, through its subsidiary IRSA CP’s shopping mall tenants by type of business for the fiscal years indicated:

	For the fiscal years ended June 30,(1)
	2020	2019	2018
	(in millions of ARS )
Department Store	3,724	5,111	6,290
Clothes and footwear	38,273	52,475	57,220
Entertainment	2,147	3,166	3,404
Home and decoration	1,431	2,097	3,071
Home Appliances	7,890	10,577	12,094
Restaurants	9,999	11,838	12,955
Miscellaneous	804	1,127	1,183
Services	5,697	8,045	13,470
Total	69,965	94,436	109, 687

(1)Includes sales from stands and excludes spaces used for special exhibitions.

Occupancy rate

The following table sets forth the occupancy rate of IRSA, through its subsidiary IRSA CP’s shopping malls expressed as a percentage of gross leasable area of each shopping mall for the fiscal years indicated:

	As of June 30,
	2020	2019	2018
	(%)
Alto Palermo	91.9	99.1	99.5
Abasto Shopping	94.9	98.7	99.1
Alto Avellaneda	97.4	98.6	98.9
Alcorta Shopping	97.3	97.9	99.8
Patio Bullrich	91.4	93.5	97.1
Dot Baires Shopping	74.6	74.5	99.5
Soleil Premium Outlet	97.1	99.0	97.7
Distrito Arcos	93.8	99.4	99.7
Alto Noa Shopping	99.0	99.5	96.8
Alto Rosario Shopping	97.2	99.6	99.5
Mendoza Plaza Shopping	97.8	97.3	98.3
Córdoba Shopping Villa Cabrera	95.4	99.3	100.0
La Ribera Shopping	99.0	94.6	94.9
Alto Comahue	96.2	96.2	94.4
Total (1)	93.2	94.7	98.5

(1)

As of June 30, 2020, the occupancy rate decreased mainly due to 12,600 square meters vacancy generated by Walmart in Dot Baires Shopping. Excluding this effect, the occupancy would have been 96.0%.

129

(2)

Rental price

The following table shows the annual average rental price per square meter of our shopping malls for the fiscal years indicated:

	For the fiscal years endedJune 30,(1)
	2020	2019	2018
	(in ARS)
Alto Palermo	35,535	51,660	57,623
Abasto Shopping	16,174	25,185	33,820
Alto Avellaneda	11,578	19,337	22,859
Alcorta Shopping	22,764	30,582	33,119
Patio Bullrich	17,853	23,435	24,777
Dot Baires Shopping	8,976	13,309	15,122
Soleil Premium Outlet	12,702	19,764	21,717
Distrito Arcos	25,057	36,348	36,592
Alto Noa Shopping	8,143	10,871	12,805
Alto Rosario Shopping	12,020	16,428	18,233
Mendoza Plaza Shopping	5,530	7,883	9,116
Córdoba Shopping Villa Cabrera	9,058	13,070	14,876
La Ribera Shopping	4,523	6,814	7,616
Alto Comahue	30,634	29,567	35,969

(1) Corresponds to consolidated annual accumulated rental prices according to the IFRS divided by gross leaseable square meters. Does not include revenues from Patio Olmos.

Lease expirations(1)(2)

The following table sets forth the schedule of estimated lease expirations for our shopping malls for leases in effect as of June 30, 2020, assuming that none of our tenants exercises its option to renew or terminate its lease prior to expiration:

	As of June 30, 2020
Agreements’ Expiration	Number ofagreements(1)	Square meters to expire	Due toexpire(%)	Total leasepayments(in millions of ARS)(3)	Agreements(%)
Vacant Stores	113	22,684	6.8
Expired in-force	246	53,600	16.1	486	18.4
As of June 30, 2021	424	68,355	20.5	763	28.9
As of June 30, 2022	383	48,719	14.6	589	22.3
As of June 30, 2023	278	38,916	11.7	418	15.8
As of June 30, 2024 and subsequent years	118	100,788	30.3	383	14.5
Total	1,562	333,062	100.0	2,639	100.0

(1) Includes vacant stores as of June 30, 2020. A lease may be associated with one or more stores.

(2) Does not reflect our ownership interest in each property.

(3) The amount expresses the annual base rent as of June 30, 2020 of agreements due to expire.

Five largest tenants of the portfolio

The five largest tenants of the portfolio (in terms of sales) account for approximately 16.6% of their gross leasable area as of June 30, 2020 and represent approximately 9.8% of the annual basic rent for the fiscal year ending on that date.

130

The following table describes our portfolio’s five largest tenants:

Tenant	Type of Business	Sales	Gross Leaseable Area	Gross Leaseable Area
		(%)	(sqm)	(%)
Zara	Clothes and footwear	7.5	10,771	3.2
Falabella	Department store	5.4	28,892	8.7
Nike	Clothes and footwear	4.0	7,610	2.3
Fravega	Home appliances	3.2	3,524	1.1
Mc Donald’s	Restaurant	2.5	4,400	1.3
Total		22.5	55,197	16.6

New leases and renewals

The following table shows certain information about IRSA, through its subsidiary IRSA CP’s, leases agreement as of June 30, 2020:

	Number ofagreements renewed	Annualbase rent(in millions of ARS)	Annualadmissionrights(in millions of ARS)	Average annual baserent per sqm (ARS)		Number of non-renewedagreements(1)	Non-renewedagreements(1)annualbase rent amount (in millions of ARS )
Type of business				New andrenewed	Formeragreements
Clothing and footwear	268	478	95	12,781	10,103	578	1,122
Restaurant	72	107	15	13,466	11,877	130	226
Miscellaneous(2)	56	112	26	6,741	25,798	147	318
Home	32	61	8	8,484	9,762	54	128
Services	28	47	4	8,636	10,927	12	59
Entertainment	11	19	0	1,224	1,455	14	73
Supermarket	1	5	0	1,222	2,950	1	9
Total	468	829	148	7,057	8,123	936	1,935

(1) Includes vacant stores as of June 30, 2020. Gross leasable area with respect to such vacant stores is included under the type of business of the last tenant to occupy such stores.

(2) Miscellaneous includes anchor store.

Principal Terms of our Leases

Under the Civil and Commercial Code of Argentina, the term of the locations cannot exceed twenty years for the residential destination and fifty years for the other destinations.

Leasable space in our shopping malls is marketed through an exclusive arrangement with our wholly owned subsidiary and real estate broker Fibesa S.A., or “Fibesa.” We use a standard lease agreement for most tenants at our shopping malls, the terms and conditions of which are described below. However, our largest or “anchor” 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.

131

Rent amount specified in our leases generally is the higher of (i) a monthly Base Rent and (ii) a specified percentage of the tenant’s monthly gross sales in the store, which generally ranges between 3% and 12% of tenant’s gross sales. In addition, pursuant to the rent escalation clause in most of our leases, a tenant’s Base Rent generally increases between 18% and 28% on a semi-annually and cumulative basis from the thirteenth (13th) month of effectiveness of the lease. Although many of our lease agreements contain price adjustment provisions, 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 will be able to enforce such clauses contained in our lease agreements. These terms and conditions have not been applied during a period when the shopping malls remained closed due to the Social, Preventive and Mandatory Isolation decreed by the government of Argentina as a result of the novel COVID-19 virus since IRSA CP decided to defer the billing and collection of the Base Rent until September 30, 2020, with some exceptions and IRSA CP alsos suspended collection of the collective promotion fund during the same period, prioritizing the long-term relationship with its tenants.

In addition to rent, we charge most of our tenants an admission right, which must be paid upon execution of the lease agreement and upon its renewal. The admission right is normally paid as a lump sum or in a small number of monthly installments. If the tenants pay this fee in installments, the tenants are responsible for paying the balance of any such unpaid amount if they terminate the lease prior to its expiration. In the event of unilateral termination and/or resolution for breach by the tenants, tenants will not be refunded their admission payment without our consent. We lease our stores, kiosks and spaces in our shopping malls through our wholly-owned subsidiary Fibesa. We charge our tenants a fee for the brokerage services, which usually amounts to approximately three months of the Base Rent plus the admission right.

We are responsible, except in the mall Distrito Arcos, for providing each unit within our shopping malls with electricity, a main telephone switchboard, central air conditioning and a connection to a general fire detection system. We also provide the food court tenants with sanitation and with gas systemsconnections. In Distrito Arcos, the connections are managed by the tenants. Each tenant is responsible for completing all necessary installations within its rental unit, in addition to paying direct related expenses, including electricity, water, gas, telephone and air conditioning. Tenants must also pay for a percentage of total expenses and general taxes related to common areas. We determine this percentage based on different factors. The common area expenses include, among others, administration, security, operations, maintenance, cleaning and taxes.

We carry out promotional and marketing activities to draw consumer traffic to our shopping malls. These activities are paid for with the tenants’ contributions to the Collective Promotion Fund, or “CPF,” which is administered by us. Tenants are required to contribute 15% of their rent (Base Rent plus Percentage Rent) to the CPF. We may increase the percentage tenants must contribute to the CPF with up to 25% of the original amount set forth in the corresponding lease agreement for the contributions to the CPF. We may 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 extraordinary contribution may not exceed 25% of the tenant’s preceding monthly lease payment.

Each tenant leases its rental unit as a shell without any fixtures and is responsible for the interior design of its rental unit. Any modifications and additions to the rental units must be pre-approved by us. We have the option to charge the tenant for all costs incurred in remodeling the rental units andfor 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 cover, among other things, damage caused by fire, glass breakage, theft, flood, civil liability and workers’ compensation.

132

Insurance

IRSA and our subsiadiary IRSA CP carry all-risk insurance for the shopping malls and other buildings covering property damage caused by fire, terrorist acts, explosion, gas leak, hail, storms and wind, earthquakes, vandalism, theft and business interruption. In addition, we carry liability insurance covering any potential damage to third parties or property caused by the conduct of our business throughout Argentina. IRSA and our subsiadiary IRSA CP are in compliance with all legal requirements related to mandatory insurance, including insurance required by the Occupational Risk Law (Ley de Riesgos del Trabajo), life insurance required under collective bargaining agreements and other insurance required by laws and executive orders. IRSA CP’s and our history of damages is limited to one single claim resulting from a fire in Alto Avellaneda Shopping in March 2006, which loss was substantially recovered from our insurers. These insurance policies contain specifications, limits and deductibles which we believe are adequate to the risks to which we are exposed in our daily operations. IRSA and our subsiadiary IRSA CP also maintain liability insurance covering the liability of our directors and corporate officers.

Control Systems

IRSA CP has computer systems equipped to monitor tenants’ sales (except stands) in all of its shopping malls. IRSA CP also conduct regular audits of our tenants’ accounting sales records in all of our shopping malls. Almost every store in its shopping malls has a point of sale that is linked to our main server. IRSA CP uses the information generated from the computer monitoring system to prepare statistical data regarding, among other things, total sales, average sales and peak sale hours for marketing purposes and as a reference for the internal audit. Most of its shopping mall lease agreements require the tenant to have its point of sale system linked to our server. During this fiscal year, we signed an agreement to renew our payment terminals with contactless technology (Clover).

Competition

IRSA is the largest owner and operator of shopping malls, offices and other commercial properties in Argentina in terms of gross leaseable area and number of rental properties. Given that most of our shopping malls are located in highly populated areas, there are competing shopping malls within, or in close proximity to, our targeted areas, as well as stores located on avenues or streets. The number of shopping malls in a particular area could have a material effect on our ability to lease space in our shopping malls 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 is difficult for other companies to compete with us in areas through the development of new shopping malls. Our principal competitor is Cencosud S.A. which owns and operates Unicenter Shopping and the Jumbo hypermarket chain, among others.

133

The following table shows certain information concerning the most significant owners and operators of shopping malls in Argentina, as of June 30, 2020. 

Entity	Shopping malls	Location	GLA	Marketshare(1)
				(%)
IRSA CP	Alto Palermo	City of Buenos Aires	18,655	1.44
Abasto Shopping(2)		City of Buenos Aires	36,760	2.83
Alto Avellaneda		Province of Buenos Aires	38,330	2.95
Alcorta Shopping		City of Buenos Aires	15,725	1.21
Patio Bullrich		City of Buenos Aires	11,396	0.88
Dot Baires Shopping(4)		City of Buenos Aires	48,805	3.75
Soleil		Province of Buenos Aires	15,156	1.17
Distrito Arcos		City of Buenos Aires	14,335	1.10
Alto Noa(2)		City of Salta	19,313	1.49
Alto Rosario(3)		City of Rosario	33,681	2.59
Mendoza Plaza		City of Mendoza	43,313	3.33
Córdoba Shopping		City of Córdoba	15,361	1.18
La Ribera Shopping		City of Santa Fe	10,530	0.81
Alto Comahue		City of Neuquén	11,702	0.90
Subtotal			333,062	25.62
Cencosud S.A.			277,203	21.33
Other operators			689,587	53.05
Total			1,299,852	100.00

(1) Corresponding to gross leaseable area in respect of total gross leaseable area. Market share is calculated dividing sqm over total sqm.

(2) Does not include Museo de los Niños (3,732 sqm).

(3) Does not include Museo de los Niños (1,261 sqm).

(4) Our interest in PAMSA is 80%:

Source: Argentine Chamber of Shopping Centers.

Seasonality

IRSA CP’s business is directly related with seasonality, affecting the level of our tenants’ sales. During summer holidays (January and February) our tenants’ sales reach their minimum level, whereas during winter holidays (July) and in December (Christmas) they reach their maximum level. Clothing stores generally change their collections in spring and autumn, positively affecting our shopping malls’ sales. Sales at discount prices at the end of each season are also one of the main sources of impact on our business.

Offices

According to Colliers International, as of June 30, 2020, the A+ and A office inventory decreased compared to 2019 to 1,827,742 sqm. The vacancy rate was steady at approximately 11.2% during the second quarter of 2020. These values indicate that the market is healthy in terms of its operations, allowing an optimum level of supply with robust values.

Compared to the previous quarter, the Premium Offices prices decreased in the order of USD 24.3 per square meter compared to the previous quarter, and showed the same period last year, which was USD 25.3 per square meter. Theprices for A+ properties were USD 27.39 per square meter for the second quarter of 2020. In this context, Catalinas presents as the zone with higher prices per square meter, reaching an average of USD 33.0. Likewise, the industry reported a 3.0% decreased in rental prices for A properties compared to the first quarter of 2020, reaching an average of USD 22.06 per square meter, in which the North zone of Ciudad de Buenos Aires reach the higher prices, reaching USD 30.7 per square meter.

Management of office buildings

IRSA generally acts as the manager of the office properties in which we own an interest. We typically own the entire building or a substantial number of floors in the 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 owned area. As building manager, we handle services such as security, maintenance and housekeeping, which are generally outsourced. The cost of the services is passed through to, and paid for by, the tenants, except in the case of our units that have not been leased, if any, for which we bear the cost. We market our leasable area through commissioned brokers or directly by us.

134

Leases

IRSA usually leases our offices by using contracts with an average term between three to ten years. Contracts for the rental of office buildings and other commercial properties are generally stated in U.S. dollars. Rental rates for renewed periods are negotiated at market value.

Properties

The following table sets forth certain information regarding IRSA, through its subsidiary IRSA CP’s office buildings, as of June 30, 2020: 

	Date ofacquisition/development	GLA (sqm)(1)	Occupancy rate(2)	Ownership interest	Total rental incomefor the fiscal yearendedJune 30, 2020
			(%)	(%)	(in thousands of ARS)
Offices
AAA & A buildings
República Building	Dec-14	19,885	86.9	100	433,254
Bankboston Tower(5)	Dec-14	14,865	96.4	100	324,165
Intercontinental Plaza(3)	Dec-14	2,979	100.0	100	40,421
Bouchard 710(6)	Dec-14	15,014	92.5	100	371,835
Dot Building	Nov-06	11,242	84.9	80	232,468
Zetta	Jun-19	32,173	97.5	80	760,908
Total AAA & A buildings		96,158	93.0		2,163,051
B buildings
Philips	Jun-17	8,017	82.7	100	74,172
Suipacha 652/64	Dec-14	11,465	31.2	100	39,010
Total B buildings		19,482	52.4		113,182
Total Offices		115,640	86.1		2,276,232
Other rental properties(4)					74,980
Total Offices and Others					2,351,212

(1) Corresponds to the gross leasable area of each property as of June 30, 2020. Excludes common areas and parking spaces.

(2) Calculated by dividing occupied square meters by leasable area as of June 30, 2020.

(3) We own 13.2% of the building that has 22,535 square meters of gross leasable area.

(4) Includes rental income from all those properties that are not buildings intended for rent, but that are partially or fully rented (Philips Deposit, Anchorena 665 and San Martin Plot)

(5) On July 15, 2020, our subsidiary IRSA CP sold one floor and five parking spaces, on August 26, 2020, it sold five floors and twenty five parking spaces, on November 5, 2020, it sold four floor and fifteen parking spaces and on November 12, 2020, it sold three floors and fifteen parking spaces. For more information, see “Recent Developments – Boston Tower Floor’s sale - Signature of a Purchase ticket regarding Boston Tower floor with possession”.

(6) On July 30, 2020, IRSA CP sold the entire building. For more information see: “Recent Developments – Bouchard 710 Building sale”

135

 Occupancy rate

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

	Occupancy rate (1)
	As of June 30,
	2020	2019	2018
	(%)
Offices:
República Building	86.9	95.2	98.4
Bankboston Tower (2)	96.4	93.5	85.6
Intercontinental Plaza	100.0	100.0	100.0
Bouchard 710(3)	92.5	100.0	100.0
Suipacha 652/64	31.2	44.6	86.2
DOT Building	84.9	100.0	100.0
Philips Building	82.7	45.7	69.8
Zetta Building	97.5	97.5	-
Total	86.1	88.3	92.3

(1)

Leased square meters pursuant to lease agreements in effect as of June 30, 2020, 2019 and 2018 over gross leasable area of offices for the same fiscal years.

(2)

On July 15, 2020, our subsidiary IRSA CP sold one floor and five parking spaces, on August 26, 2020, our subsidiary IRSA CP sold five floors and twenty five parking spaces, on November 5, 2020, it sold four floor and fifteen parking spaces and on November 12, 2020, it sold three floors and fifteen parking spaces . For more information, see “Recent Developments – Boston Tower Floor’s sale - Signature of a Purchase ticket regarding Boston Tower floor with possession”.

(3)

On July 30, 2020, our subsidiary IRSA CP sold the entire building. For more information see: “Recent Developments – Bouchard 710 Building sale”.

Annual average income per surface area as of June 30, 2020, 2019 and 2018(1):

	Income per square meter (1)
	As of June 30,
	2020	2019	2018
	(ARS/sqm)
República Building	25,072	23,464	16,395
Bankboston Tower(2)	22,622	24,072	17,205
Intercontinental Plaza	13,569	15,399	17,127
Bouchard 710(3)	26,774	24,500	20,422
Suipacha 652/64	10,905	22,329	8,677
Dot Building	24,356	19,992	14,437
Philips Building	11,187	25,792	7,188
Zetta Building	24,257	15,925	-

(1)

Calculated by dividing annual rental income by the gross leasable area of offices based on our interest in each building as of June 30 for each fiscal period.

(2)

On July 15, 2020, our subsidiary IRSA CP sold one floor, five parking spaces and on August 26, 2020, our subsidiary IRSA CP sold five floors and twenty five parking spaces, on November 5, 2020, it sold four floor and fifteen parking spaces and on November 12, 2020, it sold three floors and fifteen parking spaces . For more information, see “Recent Developments – Boston Tower Floor’s sale - Signature of a Purchase ticket regarding Boston Tower floor with possession”.

(3)

On July 30, 2020, our subsidiary IRSA CP sold the entire building. For more information see: "Recent Developments - Bouchard 710 Building sale"

136

New agreements and renewals

The following table sets forth certain Information on lease agreements as of June 30, 2020:

Building	Number of lease agreements (1)(5)	Annual rental price(In million of Ars) (2)	Rental price per new and renewed sqm (3)	Rental price per previous sqm (ARS) (3)	Number of lease agreements not renewed	Lease agreements not renewed Annual rental price (In million of ARS) (4)
Bouchard 710(6)	-	-	-	-	1	14
Bankboston Tower(7)	2	34	1,891	1,933	-	-
Republica Building	3	133	1,703	1,777	2	25
DOT Building	1	17	882	851	-	-
Philips Building	3	35	896	-	-	-
Suipacha 664	1	25	1,046	1,046	-	-
Total Offices	10	244	1,369	1,206	3	39

(1) 

Includes new and renewed lease agreements executed in FY 2019.

(2) 

Lease agreements in U.S. dollars converted to Pesos at the exchange rate prevailing in the first effective month of the agreement, multiplied by 12 months.

(3) 

Monthly value.

(4) 

Lease agreements in U.S. dollars converted to Pesos at the exchange rate prevailing in the last effective month of the agreement, multiplied by 12 months.

(5) 

It does not include lease agreements over parking spaces, antennas or terrace area.

(6) 

On July 30, 2020, our subsidiary IRSA CP sold the entire building. For more information see: “Recent Developments – Bouchard 710 Building sale”

(7)      On July 15, 2020, our subsidiary IRSA CP sold one floor and five parking spaces, on August 26, 2020, our subsidiary IRSA CP sold five floors and twenty five parking spaces, on November 5, 2020, it sold four floor and fifteen parking spaces and on November 12, 2020, it sold three floors and fifteen parking spaces. For more information, see “Recent Developments – Boston Tower Floor’s sale - Signature of a Purchase ticket regarding Boston Tower floor with possession”.

The following table sets forth the schedule of estimated lease expirations for IRSA’s offices and other properties for leases in effect as of June 30, 2020. This data is presented assuming that none of our tenants exercises its option to renew or terminate its lease prior to expiration (most leases have renewal clauses):

Expiration year	Number ofleases dueto expire(1)	Square meters ofleases due toexpire (sqm) (3)	Square meter ofleases due toexpire(%)	Annual rentalincome amountof leases due toexpire(in million ofARS)(2)	Annual rentalincome amountof leases toexpire(%)
As of June 30, 2020	4	9,454	9	57	3
As of June 30, 2021	22	24,983	25	679	33
As of June 30, 2022 and thereafter	33	65,149	65	1,345	65
Total	59	99,586	100	2,081	100

(1)

Includes offices with leases that have not been renewed as of June 30, 2020.

(2)

It does not include square meters used by IRSA CP.

(3)

It does not include square meters or revenues from parking spaces.

Hotels

According to the Hotel Vacancy Survey (EOH) prepared by INDEC, at June 2020, overnight stays at hotel and parahotel establishments were estimated at 0.54 million, 98.2% shorter than the same month the previous year. Overnight stays by resident and nonresident travelers decreased by 97.9% and 99.2%, respectively. Total travelers who stayed at hotels during June were 0.54 million, a 98.2% decrease compared to the same month the previous year. The number of resident and nonresident travelers decreased by 97.9% and 99.2%, respectively. The Room Occupancy Rate in june was 89.0%, showing a sharp decrease compared to the same month the previous year. Moreover, the Bed Occupancy Rate for the same period was 98.2%, which represents a sharp decrease compared to June 2019.

Hotels segment has also been affected by the social, preventive, and mandatory isolation decreed by the Argentine government as of March 20, 2020, together with the closure of borders and the arrival of tourism. The Libertador hotel in the city of Buenos Aires and Llao Llao hotal in the province of Río Negro have been temporarily closed since that date and there is no certainty about their reopening and the reactivation of the sector; in turn, the Intercontinental Hotel in the City of Buenos Aires is working only under a contingency and emergency plan.

137

At the moment, there are no certainties about the opening of the social, preventive and mandatory isolation that motivates the reactivation of the sector. The perspectives of slow normalization and reopening place us at the end of the year or the beginning of next year.

Future confirmations on the relaxation of social isolation, the opening of airports for national and international flights, land borders and normal interprovincial traffic will contribute to the slow normalization. With the reopening, an initial occupancy is expected, oscillating between 5% and 15%, growing gradually.

The crisis in the sector has motivated palliative measures by national and provincial authorities, necessary measures that partially contribute to sustainability. In a complementary way, the management of each one of the hotels makes its best efforts to adapt operationally to the context.

During fiscal year 2020, we kept our 76.34% interest in Intercontinental hotel, 100% interest in Libertador hotel and 50.00% interest in Llao Llao.

The following chart shows certain information regarding IRSA’s luxury hotels:

Hotels	Date of Acquisition	IRSA’s Interest	Number of rooms	Occupancy (%)(1)	Average Price per Room ARS (2)	Fiscal Year Sales as of June 30 (in millions of ARS)
						2020	2019	2018
Intercontinental(3)	11/01/1997	76.34%	313	53.1	7,925	721	1,049	549
Libertador (4)	03/01/1998	100%	200	37.2	5,921	252	591	324
Llao Llao (5)	06/01/1997	50.00%	205	43.3	19,072	1,049	1,313	699
Total			718	45.9	10,254	2,022	2,953	1,572

(1) 

Accumulated average in the twelve-month period.

(2) 

Accumulated average in the twelve-month period.

(3) 

Through Nuevas Fronteras S.A.

(4) 

Through Hoteles Argentinos S.A.U.

(5) 

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 Holding S.A. Fifty percent is currently owned by the Sutton Group. The Hotel Llao Llao is located on the Llao Llao peninsula, 25 kilometers from the City of San Carlos de Bariloche, and it 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 has a total constructed surface area of 15,000 sqm and 158 original rooms. The hotel-resort also includes an 18-hole golf course, tennis courts, fitness facility, 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., operator, among others, of 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 205 rooms.

Hotel Intercontinental, City of Buenos Aires

In November 1997, IRSA acquired 76.34% of the Hotel Intercontinental. The Hotel Intercontinental is located in the downtown City of Buenos Aires neighborhood of Montserrat, near the Intercontinental Plaza office building. Intercontinental Hotels Corporation, a United States corporation, currently owns 23.66% of the Hotel Intercontinental. The hotel’s meeting facilities include eight meeting rooms, a convention center and a divisible 588 sqm ballroom. Other amenities include a restaurant, a business center, a sauna and a fitness facility with swimming pool. The hotel was completed in December 1994 and has 313 rooms.  

 Hotel Libertador, City of Buenos Aires

In March 1998 IRSA acquired 100% of the Sheraton Libertador Hotel from Citicorp Equity Investment for an aggregate purchase price of USD23 million. In March 1999, we sold a 20% interest in the Sheraton Libertador Hotel for USD4.7 million to Hoteles Sheraton de Argentina.

During the fiscal year 2019, we acquired 20% of the shares of Hoteles Argentinos S.A.U. (“HASAU”), reaching 100% of the capital stock of HASAU and beginning to operate the hotel directly under the name “Libertador”. The 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.

 

138

Bariloche Plot, “El Rancho,” San Carlos de Bariloche, Province of Río Negro

On December 14, 2006, through our hotel operator subsidiary, Llao Llao Resorts S.A., IRSA acquired a land covering 129,533 sqm of surface area in the City of San Carlos de Bariloche in the Province of Río Negro. The total price of the transaction was USD 7 million, of which USD 4.2 million were paid in cash and the balance of USD 2.8 million was financed by means of a mortgage to be paid in 36 monthly, equal and consecutive installments of USD 0.086 million each. The land is in the border of the Lago Gutiérrez, close to the Llao Llao Hotel in an outstanding natural environment and it has a large cottage covering 1,000 sqm of surface area designed by the architect Ezequiel Bustillo.

Sale and Development of Properties and Land Reserves

Residential Development Properties

The acquisition and development of residential apartment complexes and residential communities for sale is one of our core activities. Our 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 our development of residential communities, we frequently acquire vacant land, develop infrastructure such as roads, utilities and common areas, and sell plots of land for construction of single-family homes. We may also develop or sell portions of land for others to develop complementary facilities such as shopping areas within residential developments.

In fiscal year ended June 30, 2020, revenues from the development and sale of properties from the Operations Center in Argentina segment amounted to ARS 783 million, compared to ARS 210 million posted in the fiscal year ended June 30, 2019.

Construction and renovation works on our residential development properties are performed, under our supervision, by independent Argentine construction companies that are selected through a bidding process. We enter 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. We are 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, we deliver undeveloped pieces of land and another firm is in charge of building the project. In this case, we receive finished square meters for commercialization, without taking part in the construction works.

139

The following table shows information about IRSA, through its subsidiary IRSACP’s land reserves as of June 30, 2020:

	Ownership Interest (%)	Date of acquisition	Land Surface (sqm)	Buildable surface (sqm)	GLA (sqm)	Salable Surface (sqm)	Book Value (in millions of ARS)
RESIDENTIAL - BARTER AGREEMENTS
CONIL - Güemes 836 – Mz. 99 & Güemes 902 – Mz. 95 & Commercial stores - Buenos Aires(6)	100	Jul-96	—	—	—	1,461	65
Total Intangibles (Residential)			—	—	—	1,461	65
LAND RESERVES:
Catalinas - City of Buenos Aires(4)(5)	100	May-10	3,648	58,100	28,051	—	—
Subtotal offices			3,648	58,100	28,051	—	—
Total under Development			3,648	58,100	28,051	—	—
UOM Luján - Buenos Aires	100	May-08	1,160,000	464,000	—	—	960
San Martin Plot (Ex Nobleza Piccardo) - Buenos Aires	50	May-11	159,996	500,000	—	—	2,750
La Plata - Greater Buenos Aires	100	Mar-18	78,614	116,552	—	—	936
Caballito plot - City of Buenos Aires	100	Jan-99	23,791	86,387	10,518	75,869	3,153
Subtotal Mixed-uses			1,422,401	1,166,940	10,518	75,869	7,799
Coto Abasto air space - City of Buenos Aires(2)	100	Sep-97	—	21,536	—	16,385	34
Córdoba Shopping Adjoining plots - Córdoba(2)	100	Jun-15	8,000	13,500	—	2,160	33
Neuquén - Residential plot - Neuquén(2)	100	Jun-99	13,000	18,000	—	18,000	80
Subtotal residential			21,000	53,036	—	36,545	147
Polo Dot commercial expansion – City of Buenos Aires	80	Nov-06	—	—	15,940	—	1,367
Paraná plot - Entre Ríos (3)	100	Aug-10	10,022	5,000	5,000	—	—
Subtotal retail			10,022	5,000	20,940	—	1,367
Polo Dot - Offices 2 & 3 - City of Buenos Aires	80	Nov-06	12,800	—	38,400	—	2,627
Intercontinental Plaza II - City of Buenos Aires	100	Feb-98	6,135	—	19,598	—	1,075
Córdoba Shopping adjoining plots - Córdoba(2)	100	Jun-15	2,800	5,000	5,000	—	25
Subtotal offices			21,735	5,000	62,998	—	3,727
Total future developments			1,475,158	1,229,976	94,456	112,414	13,040
Other land reserves(1)			1,899	—	7,297	262	1,363
Total land reserves			1,477,057	1,229,976	101,753	112,676	14,403

(1) 

Includes Zelaya 3102-3103, Chanta IV, Anchorena 665, Condominios del Alto II, Ocampo parking spaces, DOT adjoining plot and Mendoza shopping adjoining plot.

(2) 

These land reserves are classified as Trading Properties, therefore, their value is maintained at historical cost. The rest of the land reserves are classified as Investment Property, valued at market value.

(3) 

Sign of the deeds pending subject to certain conditions.

(4) 

The sale agreements for 86.93% of the property under development have been signed between IRSA and IRSA CP and the remaining units have been sold to Globant, also through an agreement. The deed of sale with both entities has not yet been signed. The aforementioned fair value corresponds only to the land.

(5) 

On June 10, 2020, IRSA CP informed with an unrelated third party the assignment and transfer of the right to deed with delivery of possession of two floors of medium height of the tower under construction "200 Della Paolera" located in the Catalinas district of the Autonomous City of Buenos Aires for a total area of approximately 2,430 m2 and 16 parking units located in the building.

(6) 

Classified as Intangible Assets, therefore, their value is kept at historical cost.

140

The following table shows information about IRSA, through its subsidiary IRSACP’s expansions on its current assets as of June 30, 2020:

Expansions	Ownership interest	Surface	Locations
	(%)	(sqm)
Alto Palermo Adjoining Plot	100	3,900	City of Buenos Aires
Subtotal current expansions		3,900
Other future expansions(1)		98,055
Subtotal future expansions		98,055
Total Shopping Malls		101,955
Patio Bullrich - Offices / Hotel	100	10,000	City of Buenos Aires
Philips Building	100	20,000	City of Buenos Aires
Subtotal future expansions		30,000
Total offices		30,000
Total expansions		131,955

The following chart shows information about IRSA’s land reserves as of June 30, 2020:

	IRSA's Interest	Date of acquisition	Land surface (sqm)	Buildable surface (sqm)	Saleable surface (sqm)	Book Value (ARS millions)
LAND RESERVES
La Adela - Buenos Aires(3)	100%	8/1/2014	9,868,500	3,951,227	-	1,367
Puerto Retiro - BA City (1)	50%	5/18/1997	82,051	246,153	-	-
Solares Santa María - BA City(3)	100%	7/10/1997	716,058	716,058	-	19,977
Subtotal Mixed-uses			10,666,609	4,913,438	-	21,344
Caballito Block 35 -BA City (4)	100%	10/22/1998	9,879	57,192	30,064	394
Zetol – Uruguay (4)	90%	6/1/2009	-	-	64,080	310
Vista al Muelle – Uruguay (4)	90%	6/1/2009	-	-	60,360	266
Subtotal Residential			9,879	57,192	154,504	970
Total Future Developments			10,676,488	4,970,630	154,504	22,314
Another Land Reserves (2)(3)(4)			5,249,941	-	4,713	454
Total Land Reserves			15,926,429	4,970,630	159,217	22,768

(1) 

This landplot is under judicial litigation and it is fully allowanced.

(2) 

Includes Pilar R8 Km 53, Pontevedra, Mariano Acosta, Merlo and San Luis plot, and Llao Llao plot.

(3) 

These properties (La Adela, Solares Santa María, Pilar R.8 Km 53, Pontevedra, Mariano Acosta, Merlo and San Luis) are valuated as Fair Value.

(4) 

These properties (Caballito Block 35, Zetol, Vista al Muelle and Llao Llao plot) are valuated as Cost adjusted for inflation.

Residential Properties (available for sale)

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 malls and hypermarkets or those to be constructed. IRSA then develops 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.

Condominios del Alto II – City of Rosario, Province of Santa Fe (IRSA CP)

The Condominios del Alto II project will be composed of two opposite building blocks, commercially divided into 10 sub-blocks. The project consists of a total of 189 apartments distributed in 6 stories and 195 parking spaces located in two basements. The amenities include a swimming pool with solarium, a multiple use room, sauna, a gym with dressrooms and a laundry. As of the date of this Annual Report the works in parcel H have been completed and all the units subject to the barter have been received, with six parking spaces available for sale.

141

Horizons, Vicente López, Olivos, Province of Buenos Aires.

The IRSA-CYRELA Project, developed over two adjacent blocks, was launched in March 2008 under the name Horizons. Horizons 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: one complex faces the river and consists of three 14-floor buildings, the “Río” complex, and the other one, facing Libertador Avenue, consists of three 17-floor buildings, it is known as the “Parque” complex, thus totaling 59,000 square meters built of saleable area distributed in 467 units (excluding the units to be delivered as consideration for the purchase of the lands). Horizons is a unique and style-innovating residential complex offering 32 amenities, including a meeting room, work zone, heated swimming pools, mansion with spa, sauna, gym, children room, teen room, thematically landscaped areas, and aerobic trail. The showroom was opened to the public in March 2008 with great success. As of June 30, 2020, all the units were sold and the stock available for sale consisted of 1 parking space and 19 storage spaces.

Pereiraola (Greenville), Hudson – Province of Buenos Aires

In April de 2010 IRSA sold Pereiraola S.A., a company owner of certain lands adjacent to Abril Club de Campo that comprised 130 hectares, for USD11.7 million. The purchaser would develop a project that includes the fractioning into lots, a condo-hotel, two polo fields, and apartment buildings. The delivery to the Company of 39,634 square meters of lots amounting to approximately USD3 million was included in the sale price. As of June 30, 2020, 10 lots had been transferred and 46 remain to be traded.

Intangibles – Units to be received under barter agreements

Conil – Avellaneda, Province of Buenos Aires (IRSA CP)

These plots of land IRSA owns, through IRSA CP, face Alto Avellaneda shopping mall, totaling 2,398 square meters distributed in two opposite corners and, according to urban planning standards, around 6,000 square meters may be built. Its intended use, either through our own development or sale to a third party, is residential with the possibility of a retail space as well. In November 2014, a barter deed was executed to carry out a residential development, in consideration of which IRSA CP will receive 1,389 square meters of retail stores located on the ground floors of blocks 99 and 95 at Güemes 836 and Güemes 902, respectively. The barter was valued at USD0.7 million. Considerations for block 95 and 99 were estipulated to be delivered in January 2018 and September 2018, respectively. In June 2018 an extension to the barter agreement was signed. In consideration for the delay and as compensation, IRSA CP will receive an additional apartment (55.5 square meters) and one parking lot (14 square meters).

Zetol S.A. and Vista al Muelle S.A. – District of Canelones – Uruguay

In the course of fiscal year 2009 we acquired a 100% ownership interest in Liveck S.A., a company organized under the laws of Uruguay. In June 2009, Liveck had acquired a 90% stake in the capital stock of Vista al Muelle S.A. and Zetol S.A., two companies incorporated under the laws of Uruguay, for USD 7.8 million. The remaining 10% ownership interest in both companies is in the hands of Banzey S.A. These companies have undeveloped lands in Canelones, Uruguay, close to the capital city of Uruguay, Montevideo.

We intend to develop in these 13 plots, with a construction capacity of 182,000 sqm, an urban project that consists of the development and comercialization of 1,860 apartments. Such project has the “urban feasibility” status for the construction of approximately 200,000 sqm for a term of 10 years, which was granted by the Mayor’s Office of the Canelones department and by its Local Legislature. Zetol S.A. and Vista al Muelle S.A. agreed to carry out the infrastructure works for USD 8 million as well as minimum amount of sqm of properties. The satisfaction of this commitment under the terms and conditions agreed upon will grant an additional 10-year effective term to the urban feasibility status.

The total purchase price for Zetol S.A. was USD 7 million; of which USD 2 million were paid. Sellers may opt to receive the balance in cash or through the delivery of 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.

142

Besides, Vista al Muelle S.A. owned since September 2008 a plot of land purchased for USD 0.83 million. Then, in February 2010, plots of land were acquired for USD 1 million. In December 2010, Vista al Muelle S.A. executed the title deed of other plots for a total amount of USD 2.66 million, of which USD 0.3 million were paid. The balance will be repaid by delivering 2,334 sqm of units and/or retail stores to be constructed or in cash.

On June 30, 2009, the Company sold a 50% stake in Liveck S.A. to Cyrela Brazil Realty S.A. for USD1.3 million. On December 17, 2010, together with Cyrela Brazil Realty S.A. we executed a stock purchase agreement pursuant to which we repurchased from Cyrela Brazil Realty S.A. a 50% shareholding in Liveck S.A. for USD 2.7 million. Accordingly, as of June 30, 2016, our stake, through Tyrus, in Liveck is 100%.

As a result of the plot barter agreements executed in due time between the IMC, Zetol S.A. and Vista al Muelle S.A. in March 2014, the parcel redistribution dealing was concluded. This milestone, as set forth in the amendment to the Master Agreement executed in 2013, initiates the 10-year term for the investment in infrastructure and construction of the buildings mentioned above. Construction capacity of the 13 plots is 182,000 sqm.

On November 15, 2018, the translation deed of sale of the first plot where the first Tower of Departments, Villas and single and double parking spaces is currently being built has been signed, the total exchange price was USD 7,298,705 equivalent to 16% of all of the marketable built meters in the first Tower. 12% of it has been used to cancel part of the price balance maintained to date with the sellers of the plots acquired by Zetol S.A in June 2009. The estimated delivery date of the units is January 2022.

Canteras Natal Crespo, La Calera – Province of Córdoba

On June 26, 2013, IRSA sold 100% of our interest in Canteras Natal Crespo S.A. representing 50% of its capital stock, to Euromayor S.A. de Inversiones for USD 4,215,000 according to the following payment schedule: USD 3,815,000 in cash and USD 400,000 through the transfer of almost 40,000 sqm for business purposes within the project to be developed in the site known as Laguna Azul. Delivery of the non-monetary consideration, which consist in 30,000 sqm, is pending. In December 2019, an agreement was reached with the counterpart that allowed the resale of the non-monetary consideration to an unrelated third party for a total value of USD 450,000.

Projects under Development

Alto Palermo Expansion (IRSA CP)

IRSA, through its subsidiary IRSA CP keeps working on the expansion of Alto Palermo shopping mall, the shopping mall with the highest sales per square meter in our portfolio, that will add a gross leasable area of approximately 3,900 square meters and will consist in moving the food court to a third level by using the area of an adjacent building acquired in 2015. Work progress as of June 30 2020 was 64% and construction works are expected to be finished by June 2021.

200 Della Paolera - Catalinas building (IRSA CP)

The building under construction will have 35,000 sqm of GLA consisting of 30 office floors and 316 parking spaces and will be located in the “Catalinas” area in the City of Buenos Aires, one of the most sought-after spots for Premium office development in Argentina. The Company owns 30,832 square meters consisting of 26 floors and 272 parking spaces in the building. As of June 30, 2020, work progress was 95%.

Mixed uses

Ex UOM – Luján, Province of Buenos Aires (IRSA CP)

This 116-hectare plot of land is located in the 62 Km of the West Highway, in the intersection with Route 5 and was originally purchased by IRSA from Birafriends S.A. for USD 3 million on May 31, 2008. In May 2012, the Company acquired the property through a purchase and sale agreement entered into between related parties, thus becoming the current owner. Our intention is to carry out a mixed-use project, taking advantage of the environment consolidation and the strategic location of the plot. At present, dealings are being carried out so as to change the zoning parameters, thus enabling the consummation of the project.

143

Ex Nobleza Piccardo Plant – San Martín, Province of Buenos Aires (IRSA CP)

This plot of land is owned by Quality Invest. On May 31, 2011, Quality Invest S.A. and Nobleza Picardo S.A.I.C. y F. (Nobleza) executed the title deed for the purchase of a plot of land extending over 160,000 square meters located in the District of San Martín, Province of Buenos Aires, currently intended for industrial purposes and suitable in terms of characteristics and scales for mixed-use developments.

The Master Plan, by which it is projected to develop a large-scale integral urbanization (residential, commercial, etc.), which includes the construction of approximately 540,000 m2, was endorsed by the Municipality of San Martin through Decree 1589/19 and registered before the General Directorate of Urbanism and Directorate of Urban Planning of the Municipality. Likewise, the subdivision plan in accordance with the urban indicators was presented to the Directorate of Cadastre of the Province of Bs. As.

Additionally, during this fiscal year, the pre-feasibility requirements began to be processed with public bodies. The one corresponding to the Hydraulic Directorate of the Province is in the process of approval, and in the next fiscal year, we will begin the rest of the presentations before the service companies, to obtain the pre-feasibilities of electric power, gas, water and overturning. of effluents.

Córdoba Shopping Mall Project (IRSA CP)

The Company owns a few plots adjacent to Córdoba Shopping Mall with a construction capacity of approximately 17,300 square meters in the center of the City of Córdoba.

In May 2016, a preliminary barter agreement was signed for 13,500 square meters out of the total construction capacity, subject to certain conditions, for a term of one year, at the end of which the deed will be signed. It will be a mixed residential and office project and, as part of the consideration, the Company will receive 2,160 square meters in apartments, parking spaces, shopping space, plus IRSA CP will assume the management of permits, unifications and subdivisions in 3 plots. The consideration will be delivered by May 2022 for Torre I and by July 2024 for Torre II. The value of the barter was USD 4 million.

La Plata Plot of land (IRSA CP)

On March 22, 2018 the Company has acquired, directly and indirectly, 100% of a plot of land of 78,614 square meters located in the city of La Plata, Province of Buenos Aires. The price of the transaction was USD7.5 million, which have been fully paid.

The price of the operation was set at the amount of USD 7,5 million which have been fully paid. The purpose of this acquisition is the future development of a mixed-use project, given that the property has characteristics for a commercial development in a high potential district.

On January 21, 2019, Ordinance No. 11767, approved by the Honorable Deliberative Council of La Plata on December 26, 2018, has been promulgated. With said promulgation, the uses and indicators requested to develop a project of 116,553 sqm are formally confirmed by said Ordinance.

On September 24, 2020, the agreement that validates Ordinance No. 11767 was signed between the Mayor Dr. Julio Garro and the Director of the Real Estate Business, Dr. Daniel Elsztain, where the uses within the property are fixed, they may be: Shopping and entertainment center, Offices, Hotels, Housing, Medical Assistance Center and any other use authorized by the Planning Code of the City of La Plata.

The Master plan was consolidated with 16 lots, which are already in process to obtain the corresponding subdivision, by Geodesia in the Province of Buenos Aires.

Caballito Plot – City of Buenos Aires

On December 23, 2019, the Company transferred Parcel 1 of the land reserve located at Av. Avellaneda and Olegario Andrade 367 in the Caballito neighborhood of the City of Buenos Aires to an unrelated third party.

Plot 1 has an estimated surface of 3,221 sqm where a 10 floors residential building will be developed for a total area of 11,400 sqm, together with a commercial ground floor of 1,216 sqm and a basement of 138 parking spaces (“Building 1”).

The amount of the operation was set at USD 5.5 million to be paid in future functional units of Building 1, which represent the equivalent of 23.53% of the owned square meters, with a minimum guaranteed of 2,735 sqm composed for 1,215.62 commercial sqm, 1,519.68 residential sqm and a certain number of parking spaces that represent 22.50% of the own sqm with that destination and never less than 31 units.

The consideration is guaranteed by a mortgage on Plot 1 and Building 1 and the buyer has an Option to acquire Plot 2 of the same property until August 31, 2020 and Plots 3 and 4 until March 31, 2021, subject to certain suspensive conditions.

144

On July 20, 2020, IRSA CP was notified of the filing of a protection action (amparo) that is processed before the Administrative and Tax Litigation Jurisdiction of the City of Buenos Aires, where the plaintiff has requested the nullity of: 1) Administrative act that grants the certificate of environmental aptitude and 2) Administrative act that registered the plans. On October 1, 2020, the Chamber confirmed the precautionary measure. The Government of the City of Buenos Aires appealed the measure by filing an Appeal of Unconstitutionality. For more information, see “ITEM 8. Financial Information—A. Consolidated Statements and Other Financial Information—Legal or Arbitration Proceedings—Caballito.”

La Adela – Buenos Aires

During 2015 the company acquired the “La Adela” land reserve with an area of approximately 1,058 hectares, located in the District of Luján, Province of Buenos Aires, that was previously owned by Cresud for a total amount of ARS 210 million. Given its degree of development and closeness to the City of Buenos Aires, we intend to develop a new real estate project.

Puerto Retiro – City of Buenos Aires

At present, this 8.3 hectare plot of land, which is located in one of the most privileged areas of the city, near Catalinas, Puerto Madero and Retiro and is the only privately owned waterfront property facing directly to Río de la Plata, is affected by a zoning regulation defined as U.P. which prevents the property from being used for any purposes other than strictly port activities.

During fiscal year 1998, the Company initiated negotiations with the authorities of the Government of the City of Buenos Aires in order to obtain a rezoning permit for the property, allowing a change in the use of the property and setting forth new regulations for its development.

In turn, Tandanor filed a civil action against Puerto Retiro S.A. and the other defendants in the criminal case for violation of Section 174 (5) based on Section 173 (7) of the Criminal Code. Such action seeks -on the basis of the nullity of the decree that approved the bidding process involving the Dársena Norte property- the restitution of the property and a reimbursement in favor of Tandanor for all such amounts it has allegedly lost as a result of a suspected fraudulent transaction involving the sale of the property. Puerto Retiro has presented the allegation on the merit of the evidence, highlighting that the current shareholders of Puerto Retiro did not participate in any of the suspected acts in the criminal case since they acquired the shares for consideration and in good faith several years after the facts told in the process. Likewise, it was emphasized that the company Puerto Retiro is foreign - beyond its founders - to the bidding / privatization carried out for the sale of Tandanor shares. The pronouncement of the sentence is pending.

On September 7, 2018, the Oral Federal Criminal Court No. 5 rendered a decision. According to the sentence read by the President of the Court, Puerto Retiro won the preliminary objection of limitation filed in the civil action. However, in the criminal case, where Puerto Retiro is not a party, it was ordered, among other issues, the confiscation (decomiso) of the property owned by Puerto Retiro known as Planta I. The grounds of the Court`s judgement will be read on November 30, 2018. From that moment, all the parties might file the appeals.

On December 27, 2018, an action for annulment was filed against the judgment that ordered the confiscation of the property named “Planta 1”. On March 1, 2019 we were notified of the "in limine" rejection of the action for annulment filed. Subsequently, on March 8, 2019, a motion for restitution was filed against said resolution. On March 19, 2019, we were notified of the Court's decision that rejected the replacement and declared the appeal filed in a subsidiary inadmissible. On March 22, 2019, a complaint was filed for appeal denied (before the Federal Criminal Cassation Chamber), the caul was granted, which is why the appeal filed is currently pending. In that sense, in April the appeal was maintained and subsequently, its foundations were expanded.

On 21 February 2020, an electronic document was received from the Federal Court of Criminal notifying the decision rejecting the appeals brought by Puerto Retiro against the verdict of the Federal Oral Court 5 that provided for the confiscation of the property Plant I and the distribution of costs in the order caused as regards the exception for the limitation of civil action brought by Puerto Retiro to which the Oral Court took place. Against that decision of appeal, Puerto Retiro was brought in a timely and form of Federal Extraordinary Appeal. In addition, Federal Criminal Cassation Chamber upheld the above limitation period by rejecting, to that effect, the appeal brought by the National State and Tandanor.

In the face of the evolution of the legal cases affecting it and based on the reports of its legal advisors, the Management of Puerto Retiro has decided to record a impairment equivalent to 100% of the book value of its investment property, without prejudice to the reversal of the same in the event that a favorable judgment is obtained in the actions brought.

145

Solares de Santa María – City of Buenos Aires

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. We are owners of this property in which we intend to develop an entrepreneurship 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, and we would need to obtain all the necessary permits and authorizations.

On October 30, 2012 a new agreement was executed with the Government of the City of Buenos Aires, replacing all prior agreements, and such has been submitted to the Legislature for its consideration. The agreement provided that if by February 28, 2014 the agreement was not approved would become invalidated.

During 2016, a new Agreement was executed with the Executive Branch of the City of Buenos Aires, including a new Bill of Law. The new Bill of Law was submitted to the Legislative Branch of the City of Buenos Aires for consideration and was approved by the relevant commissions; yet, during legislative year 2018 it was reserved and remained without legislative treatment. As a consequence, at the end of the 2018 legislative session, the lackof treatment triggered the automatically invalidity of the above mentioned and executed Agreement with the Executive Branch of the City of Buenos Aires, which include such Bill of Law.

As of the date of this Annual Report, efforts are still being made both in the CABA with the Goverment as well as in the CABA Legislature in order that the project Law may be treated on the premises, for its treatment and subsequent legislative approval.

Residential

Coto Residential Project (IRSA CP)

IRSA, through its subsidiary IRSA CPowns the right to construct above the premises of the Coto hypermarket that is close to Abasto Shopping in the heart of the City of Buenos Aires which we acquired in September 24, 1997. We estimate it has a construction capacity of 23,000 square feet (it also includes the right to receive certain parking units). The premises are located within the area between Agüero, Lavalle, Guardia Vieja and Gallo streets, in the Abasto neighborhood.

On October 25, 2019, IRSA CP transferred to a non-related third party the rights to develop a residential building (“Tower 1”) on Coto Supermarket airspace located in Abasto neighborhood in the City of Buenos Aires. Tower 1 will have 22 floors of 1 to 3 rooms apartments, totaling an area of 8,400 sqm.

The amount of the operation was set at USD 4.5 million: USD 1 million in cash and the balance in at least 35 apartment units, which represent the equivalent of 24.20% of the owned square meters, with a minimum guaranteed of 1,982 sqm.

In a 30 month-period since the signature, when certain conditions have been met, IRSA CP must transfer to the same unrelated third party the rights to build a second apartment building.

Neuquén Residential Plot– Neuquén, Province of Neuquén (IRSA CP)

Through Shopping Neuquén S.A., IRSA owns a plot of 13,000 square meters with construction capacity of 18,000 square meters of residential properties in an area with significant growth potential. This area is located close to the shopping mall Alto Comahue, the hypermarket currently in operation and a hotel to be constructed.

146

Caballito Plot – City of Buenos Aires 

On June 29, 2011, IRSA and TGLT, a residential developer, entered into an agreement to barter for the development of a plot of land located at Méndez de Andes street in the neighborhood of Caballito in the City of Buenos AiresA neighborhood association named Asociación Civil y Vecinal SOS Caballito secured a preliminary injunction which suspended the works to be carried out by TGLT in the abovementioned property. On April 2018 TGLT and us terminated the barter agreement and we recovered the land. In July 2018, the Supreme Court of Justice issued a favorable final decision allowing the construction of 57,192 sqm of apartments on the plot.

Offices

Polo Dot 2nd and 3rd Stages – City of Buenos Aires (IRSA CP)

These two parcels of 6,400 square meters with a construction capacity of 33,485 square meters each, are located adjoining to where the extension of Dot Baires Shopping is planned. In April 2018, both plots were unified into a single one of 12,800 square meters.

Intercontinental Plaza II Plot - City of Buenos Aires (IRSA CP)

In the heart of the neighborhood of Monserrat, just a few meters from the most trafficked avenue in the city and the financial center, is the Intercontinental Plaza complex consisting of an office tower and the exclusive Intercontinental Hotel. In the current plot of 6,135 square meters a second office tower of 19,600 square meters and 25 stories could be built to supplement the tower currently located in the intersection of Moreno and Tacuarí streets.

Other Land Reserves

Other Land Reserves – Pilar, Pontevedra, Mariano Acosta, Merlo, San Luis Plot, Llao Llao Plot and Casona Abril remaining surface

We grouped here those plots of land with a significant surface area the development of which is not feasible in the short term either due to their current urban and zoning parameters, their legal status or the lack of consolidation of their immediate environment. This group totals around 7 million sqm.

Isla Sirgadero

On September 3, 2015, the entire property of 10,083,270 sqm was sold to several companies for USD3.9 million, payable in 16 quarterly installments, plus an installment in kind, land resulting from the final blueprint, equivalent to 10% of the surface area. Delivery of the non-monetary consideration, consisting in 1,083,327 sqm, is pending.

International

Lipstick Building, New York, United States

The Lipstick Building is a landmark building in the City of New York, located at Third Avenue and 53th Street in Midtown Manhattan, New York. It was designed by architects John Burgee and Philip Johnson (Glass House and Seagram Building, among other renowned works) and it is named after its elliptical shape and red façade. Its gross leaseable area is approximately 58,000 sqm and consists of 34 floors.

As of June 30, 2020, the building’s occupancy rate was 95.6%, thus generating an average rent of USD75.70 per sqm.

Lipstick	Jun-20	Jun-19	YoY Var
Gross Leaseable Area (sqm)	58,092	58,092	-
Occupancy	95.6%	95.9%	-0.3 p.p.
Rental price (USD/sqm)	78.7	75.8	3.8%

During the fiscal year ended June 30, 2019, Metropolitan 885 Third Avenue Leasehold LLC ("Metropolitan"), which owns the building, did not exercise the option to purchase a part of the land (Ground Lease) where the Lipstick was built, and whose term expired on April 30, 2019.

Latham & Watkins occupies 40,035 sqm of the office and storage space on a lease expiring on June 30, 2021. In April 2018, Latham & Watkins communicated its intention of not be renewing its lease. For more information see “Risk Factors – Risks relating to our business in the United States.”

147

On March 4, 2019, Metropolitan, a subsidiary of New Lipstick, has renegotiated its debt without recourse to IRSA and has been reconfigured with a balance of USD 11 million, which was canceled on February 12, 2020.

In June 2019, an “Escrow Agreement” was signed for the sum of USD 5.1 million, through which an option was bought to purchase the controlling position of one of the lands where the Lipstick was built. This option expired on August 30, so the seller collected such deposit from the escrow account.

On August 7, 2020, as a consequence of negotiations conducted in the context of an increased lease price effective as of May 2020, Metropolitan signed an agreement with the owner of the Ground Lease to terminate the commercial relationship, leaving the administration of the building. For this reason, as of June 30, 2020, Metropolitan no longer recognizes the liability associated with the ground lease, as well as all the assets and liabilities associated with the building and the operation of the administration. For more information see “Recent Developments – Lipstick Building”.

Investment in Condor Hospitality Trust

IRSA maintains its investment in the Condor Hospitality Trust Hotel REIT (NYSE: CDOR) mainly through our subsidiary Real Estate Investment Group VII (“REIG VII”), in which we hold a 100% interest. Condor is a REIT listed in NYSE focused on medium-class hotels located in various states of the United States of America, managed by various operators and franchises.

Condor's investment strategy is to build a branded premium, select service hotels portfolio within the top 100 Metropolitan Statistical Areas ("MSA") with a particular focus on the range of MSA 20 to 60. Since the beginning of the reconversion of the hotel portfolio in 2015, Condor has acquired 14 high quality select service hotels in its target markets for a total purchase price of approximately USD277 million. In addition, during this time, it has sold 53 legacy assets for a total value of approximately USD161 million.

On July 19, 2019, Condor signed an agreement and merger plan with a company not related to the group. As agreed, each Condor ordinary share, whose nominal value is USD 0.01 per share will be canceled before the merger and will become the right to receive a cash amount equivalent to USD 11.10 per ordinary share. Additionally, in accordance with the terms and conditions of the merger agreement, each Series E convertible share will be automatically canceled and its holders will become entitled to receive a cash amount equal to USD 10.00 per share. The closing of the acquisition, scheduled for March 23, 2020, did not occur.

On October 12, 2020, Condor executed an agreement with Nextponint Hospitality Trust and some of its affiliates (“NHT Parties”) to resolve and settle any and all claims between them related to the merger agreement mentioned hereinabove.

According to the agreement with NHT Parties shall make three payments to Condor in three instalments ending the last payment on December 30, 2020 and totalling USD 7,0 million.

As of the date of presentation of these financial statements, the Company has 2,197,023 common shares and 325,752 Series E shares.

Others

IRSA’s interest in Banco Hipotecario

As of June 30, 2020, we held a 29.91% interest in Banco Hipotecario. 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 are located in Argentina where it operates a nationwide network of 63 branches in the 23 Argentine provinces and the City of Buenos Aires, and 12 additional sales offices throughout Argentina.

148

Banco Hipotecario is an inclusive commercial bank that provides universal banking services, offering a wide variety of banking products and activities, including a wide range of individual and corporate loans, deposits, credit and debit cards and related financial services to individuals, small-and medium-sized companies and large corporations. As of March 31, 2020, Banco Hipotecario ranked thirteenth in the Argentine financial system in terms of totals assets and twelfth in terms of loans. As of June 30, 2020, Banco Hipotecario’s shareholders’ equity was ARS 14,285.0 million, its consolidated assets were ARS 121,203.6 million, and its net income for the six-month period ended June 30, 2020 was ARS 119.7 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 ADR program.

Banco Hipotecario continues its business strategy of diversifying its loan portfolio. As a result, non-mortgage loans were ARS 36,153.3 million as of June 30, 2020. Total non-mortgage loans granted by the bank to the non-financial private sector were ARS 36,145,9 million as of June 30, 2020.Non-performing loans represented 12.7% of its total portfolio as of June 30, 2020..

In recent years, Banco Hipotecario has diversified its funding base and has become one of the most frequent issuers of corporate debt in Argentina based on the percentage of its total funding, by developing presence in the domestic and international capital markets, and it has also increased its deposit base. Its financial indebtedness as a percentage of its total funding was 37.8% as of June 30, 2020.

Its subsidiaries include BACS Banco de Crédito y Securitización S.A., a bank specialized in investment banking, asset securitization and asset management; BACS Administradora de Activos S.A.S.G.F.C.I., a mutual investment fund management company; BHN Sociedad de Inversión S.A., which controls BHN Vida S.A., a life insurance company; and BHN Seguros Generales S.A., a property insurance company.

By virtue of communications "A" 6939 and "7035" of the BCRA, the distribution of dividends is suspended until December 31, 2020.

Others Assets

La Rural (Exhibition and Convention Center)

LRSA holds usufruct rights for the commercial operation of the emblematic Predio Ferial de Palermo (Palermo exhibition center) in the City of Buenos Aires. We own 35% of the equity of LRSA.

In July 2016, we acquired from FEG Entretenimientos S.A. 25% of the shares of EHSA, in which we already held 50% of the share. We also acquired a 1.25% interest in ENUSA from Mr. Marcelo Figoli. The aggregate acquisition price for such acquisitions was ARS 66.5 million. Immediately after this acquisition, we sold 5% of the shares of EHSA to Mr. Diego Finkelstein, who already owned a 25% equity interest. The sale amount was agreed at ARS 13.5 million. As a result, we now hold 70% of the shares of EHSA and Mr. Diego Finkelstein holds the remaining 30%.

EHSA holds, directly and indirectly, 100% of the shares of OASA and 95% of the shares of ENUSA. OASA holds 50% of the voting stock of LRSA and SRA holds the remaining 50%. In addition, OASA manages LRSA pursuant to agreements entered into with SRA that include the right to appoint the chairman of the board of LRSA—with deciding vote on certain key governance matters—and the chief executive of LRSA. ENUSA is mainly engaged in organizing entertainment events for trade fairs.

On August 4, 2017, a 15-year concession for the Exhibition and Convention Center of the City of Buenos Aires was executed by the joint venture La Rural S.A., OFC S.R.L., Ogden Argentina S.A. and Entretenimiento Universal S.A. - Union Transitoria, which was granted pursuant a public bidding process. The members of the joint venture hold the following interests: (a) LRSA 5%; (b) OFC SRL 20%; (c) OASA 55%; and (d) EUSA 20%.

The shareholders of LRSA are Sociedad Rural Argentina and OASA, each of which owns 50% equity interest. OASA and EUSA are controlled by EHSA. Consequently, we indirectly hold a 50.00% interest in the joint venture.

The Exhibition and Convention Center has a surface area of approximately 22,800 sqm and may accommodate approximately 5,000 attendees. It has a main exhibit hall and an ancillary hall, offices and meetings rooms, arranged in three underground levels that were designed to blend into the landscape extending from the School of Law of the University of Buenos Aires to Parque Thays.

149

Also, La Rural S.A. continues to work on the consolidation of the commercial development of the “Convention Center of Punta del Este”, through its equity participation in the company that holds the concession until 2041.

As a result of the measures adopted by Argentina’s national Government in response to the COVID-19 pandemic, La Rural, the Buenos Aires and Punta del Este Convention Centers have been closed since March 20, 2020, the date on which social, preventive, and mandatory isolation was decreed by the government of Argentina to combat the impact of the COVID-19. All the planned congresses are suspended, a large part of the fairs and conventions were postponed, while the shows scheduled at the DirecTV Arena were mostly canceled. The reopening date of these establishments is uncertain, as well as the future agenda of fairs, conventions and shows.

TGLT (real estate)

TGLT is a real estate company listed on the BYMA which is mainly engaged in residential development projects in Argentina and Uruguay. We hold a 30.2% interest in TGLT.

On August 1, 2017, we exercised our preemptive subscription and accretion rights and purchased 22,225,000 Subordinated Notes Convertible into Newly Issued Shares of TGLT for an aggregate amount of USD22,225,000 (USD 1.00 par value) due 2027.

On August 8, 2019 has executed with TGLT certain contracts tending to collaborate in the process of financial restructuring of said company through its recapitalization. On December 11, 2019, and in compliance with the contracts signed with TGLT on August 8, 2019, IRSA CP made the exchange of all the Convertible Notes it had of TGLT. Likewise, it subscribed preferred shares making a contribution in kind of the 100% of the shares of the company La Maltería S.A., owner of the property known as Maltería Hudson, for a value of USD 24 million.

As a result of the aforementioned exchange and capitalization, IRSA Commercial Properties obtained 21,600,000 Class A preferred shares and 24,948,798 Class B preferred shares that are added to its holding of 3,003,990 ordinary shares.

On February 10, 2020, the TGLT Board of Directors determined the mandatory conversion of its Convertible Negotiable Obligations and preferred shares with immediate effect, this is how IRSA CP converted its Class A and B preferred shares of TGLT into ordinary shares of the company. As a consequence of this transaction, IRSA CP owns as of March 31, the amount of 279,502,813 ordinary shares of TGLT, representing 30.2% of its capital stock.

DirecTV Arena

DirecTV Arena is an indoor stadium with unique features designed to host top-level international events, including sporting events and concerts. The price set for the transaction was USD4.2 million. Through these types of investments, our equity stake in LRSA and through the new Convention Center of the City of Buenos Aires, we continue to expand our exposure to conventions, sporting events and entertainment, which could generate synergies with our core shopping mall business.

As is publicly known, the DirecTV Arena stadium has been closed since March 20, the date on which social, preventive, and mandatory isolation was decreed in Argentina due to COVID-19. All the planned congresses are suspended, a large part of the fairs and conventions were postponed, while the shows scheduled at the DirecTV Arena were mostly canceled. The reopening date of these establishments is uncertain, as well as the future agenda of fairs, conventions and shows.

150

Pareto

On October 8, 2018, the company Pareto S.A. was incorporated, with the social purpose of design, programming and development of software, mobile and web applications.

As of June 30, 2020, IRSA CP's participation in PARETO S.A. It was 69.96% and after the closing it increased its stake to 91.96%.

Pareto is a 100% digital customer loyalty system that promotes benefits and discounts in all our shopping mall.

Appa, Pareto’s app is a 100% digital customer loyalty system that promotes benefits and discounts across all our shopping malls. The app is also used to pay Parking lots giving customers the most convenient and fast check out available. The plan is to extend this frictionless payments method in gastronomic and apparel stores too.

Operations Center in Israel

On September 25, 2020, the Court resolved that IDBD is insolvent and therefore it resolved to grant all three orders requested and accordingly, issued an order for the initiation of proceedings and liquidation of IDBD, and has appointed a liquidator to IDBD and interim receivers over the Pledged DIC and Clal Shares.

As of the date of this Annual Report, we are analyzing together with our local and international advisors the judicial decision, alternatives and course of action. For more information see “IRSA’s Recent Developments - Corporate Information: IDBD”.

Overview

As of June 30, 2020, IRSA indirectly owned 100% of IDBD’s capital stock and 83.7% of DIC’s capital stock. The structure chart below shows our equity interest in the various entities that comprise our Operations Center in Israel:

* 

There is a non-recourse intercompany loan between Dolphin (borrower) and IDBD (lender) due to the transference of DIC shares. This loan is guaranteed with DIC shares sold. On 25 September 2020, the District Court in Tel-Aviv-Yafo decreed the insolvency and liquidation of IDBD and appointed a trustee for its shares and a custodian on the shares of DIC and Clal. For more information see “Recent Events – Operation Center in Argentina- Corporate Information: IDBD”

** As of June 30, 2020, IDBD’s stake in Clal’s outstanding share capital was 8.5% directly and 2.1% through swaps.After this date, IDBD’s holding in Clal amounts to 5.0% of its share capital.

*** After June 30, 2020, DIC has accepted the offer to purchase offer made by a private investor of its total stake in Shufersal. As a result of this transaction, DIC completes Shufersal’s sale process.

Real Estate

“Real Estate” segment mainly includes assets and operating results derived from DIC’s subsidiary PBC. As of June 30, 2020, we owned a 72.4 % equity interest in PBC. PBC is a leading real estate company that operates rental buildings and develops residential properties and other construction projects. It has operations in Israel, the United States and other countries.

151

PBC operates in the field of income-producing properties in Israel and the United States, within the areas of activity reported as three business segments in the financial statements of PBC - the income-producing properties sector in Israel, the income-producing properties sector in the US and IDBG.

As of December 31, 2019, PBC owns areas designated for rent in Israel, amounting to approximately 42,000 square meters (compared to an area of approximately 41,000 square meters on December 31, 2018). Additionally, PBC owns income-producing properties in the United States - HSBC Tower in New York, in an area of about 80,000 square meters and half of the Tivoli project, a commercial and office project, in Las Vegas in an area of about 62,000 thousand square meters.

Following an agreement in which PBC entered into in January 2020 for the sale of its entire holdings in Ispro, Ispro's activitiy is classified in the financial statements of PBC as of December 31, 2019, as discontinued operations.

Geographical distribution

The table below sets forth geographic distribution by market of our rental properties as of December 31, 2019:

Region	Number ofProducing Properties	Total GLA(sq. m.)	Percentage of Portfolio GLA	Occupancy Percentage(1)
Israel
Center (offices) .	5	18,000	9.8%	76%
Center (commercial)	1	12,000	6.5%	83%
Subtotal	6	30,000	16.3%	79.2%
United States
Northeast (offices)	1	80,000	43.5%	98%
West (commercial)*	10	62,000	33.7%	74%
Subtotal	11	142,000	77.2%	87%
Other (Parking)	-	12,000	6.5%	____
Total	17	184,000	100%	85.8%

*Refers to 100% of IDBG’s rights in Great Wash Park LLC. As of December 31, 2019, IDBG’s entire share capital was held by IDBD and PBC in equal parts (50%).

PBC’s properties can be grouped by the country and region in which they are located. PBC classifies its properties into two main regions: (i) Israel, and (ii) United States; and in three sub-regions: (i) Central (in Israel), and (ii) Northeast and (iii) West (both in the United States). As of December 31, 2019, the average rent per square meter in Israel – Central is NIS 65 for office use and NIS 50 for commercial use; the average rent per square meter in United States – Northeast is USD 78 (for office use) and in United States -West USD 31 (for commercial use). The average occupancy rate in Israel – Central is 76% for office use and 83% for commercial use; the average occupancy rate in United States – Northeast is 98% (for office use) and in United States - West is 74% (for commercial use). The distinction between the two sub regions is due to the difference in the characteristics of the two countries. Also, PBC distinguishes between different regions within the US as detailed above, when in its opinion the difference between the regions in the USA is mainly due to the fact that the properties are located in different countries, with different economic characteristics. The average rent in the Northeastern United States is significantly higher than the average rent in the western United States, the difference in rent is due, among other things, to the location and the various uses - an office tower and luxury commerce in the northeastern United States, compared to a mixed use center (commerce and offices) in the western United States, and the location of properties - in central New York in the northeastern United States, compared to a location adjacent to a residential neighborhood in the western United States.

152

However, even within each region (both in Israel and in the United States), there are differences among sites, as well as differences, in some cases, among the various properties at each site, mainly due to the characteristics of the property.

Relevant Subsidiaries

As of June 30, 2020, the most significant subsidiaries of PBC are the following:

Gav-Yam. Gav-Yam is a public company whose securities are listed for trading on the TASE. In July 2019 and September 2019, in order to comply with the Concentration Law, PBC sold 11.7% and 5.1% of Gav-Yam’s issued share capital, respectively. Our stake in Gav-Yam decreased from 51.7% to 34.9%. In May 2020, PBC sold approximately 5% of Gav-Yam’s issued share capital, such that its stake in Gav-Yam decreased from approximately 34.9% to approximately 29.9%.

Ispro. Ispro is a wholly-owned company of PBC, dedicated to the rental building segment, primarily commercial centers and logistical areas. In order to comply with the Concentration Law, on October 10, 2019, Ispro’s debentures were fully redeemed and Ispro ceased being a reporting corporation. In April 2020, an agreement was reached to sale 100% of PBC’s holdings in Ispro. As a consequence of the agreement for the sale of ISPRO’s shares, the Company has reclassified net assets totaling ARS 15,473 as “Group of Assets available for Sale”.

Type of Business

PBC (i) operates rental buildings and (ii) develops residential properties and other construction projects.

(i) Operation of Rental Properties

PBC owns and manages different kinds of rental properties, which can be grouped as follows:

Industrial and Logistics. Characterized by areas with a large single space, service yards and large operational areas. Mainly located in peripheral areas, close to airports and seaports, given low rent prices and that construction requires large areas of land.

Commercial and Recreational Centers. These include commercial centers, which are located in central areas or areas near major junctions at highways from major cities, conference centers and recreational centers. These primarily include PBC’s share in the Tivoli project in Las Vegas. The marketing and distribution of the Tivoli project is carried out through a local team engaged in marketing itself and through intermediaries, through direct contact with potential tenants, as well as through advertising and participation in conferences.

Business parks and office buildings for hi-tech industries. In the field of income-producing properties, Gav-Yam (as of June 30, 2020, held by PBC at a rate of 29.9%) engages in initiation, planning, development, construction (through contractors), marketing, rental, maintenance and management of high-tech parks, business and industrial parks, office buildings, commercial areas, logistics buildings and parking lots, nationwide in Israel, focusing on areas Demand.

153

During its years of activity in the field of income-producing properties, Gav-Yam has developed two specializations in this field. One is the establishment of business and industrial parks, and the other is designated construction. In addition, Gav-Yam, itself and/or through wholly owned subsidiaries, provides a variety of maintenance and management services to its customers throughout the lease term.

Gav-Yam's activity in the field of income-producing properties is divided into three stages - initiation and construction, marketing and rental for customers and provision of management services throughout the lease period.

Office buildings. These office buildings are located in high demand areas, and most are leased, at high occupancy rates, generally for long lease periods. Areas for office use are characterized by areas used as parking lots, which constitute an inseparable part of the buildings. These include the HSBC Tower in New York City.

Management of rental buildings.

 The field of income-producing assets is characterized by a wide range of clients, including companies and large and small business clients and private clients.

PBC often contracts with its customers on medium- and long-term leases, and the leases in Israel are usually for unprotected tenancy and index-linked rents. PBC policy is to enter into, as far as possible, long-term contracts with quality tenants.

Ancillary services in the field of income-producing properties in Israel.

PBC provides ancillary services to the areas of income-producing real estate it owns that are leased in Israel, including management services and maintenance, mainly for tenants in areas used for office and commercial purposes.

.(ii) Residential Construction

In Israel, PBC is engaged in the initiation, planning, development, construction and sale of quality residential neighborhoods and unique projects that it establishes in areas of demand.

PBC has residential land reserves, inIsrael, US and India.

In the field of residential construction, there are many bodies that initiate, locate, plan and establish residential neighborhoods and residential projects of various types. In Israel, there are entrepreneurial companies, some of which have an executive arm and some, such as PBC, contract with contractors to carry out construction work.

The products sold by PBC as part of its residential construction business are the housing units offered for sale. The housing units are being built both in the format of entire residential neighborhoods, which include full environmental development and ancillary community services, and in smaller residential projects.

In some of the projects, PBC works together with partners. Project management and marketing is usually performed by PBC. The construction financing of the projects is carried out both by PBC's own means and through bank support for the project.

The types of projects in which PBC operates in this field are diverse and include construction on land purchased or leased long-term by PBC (most projects) as well as combination transactions of various types. PBC also has activities in the field of urban renewal.

As of December 31, 2019, the balance of approved construction rights for the projects in which PBC was a partner amounted to approximately 685 residential units (of which 447 units belong to PBC), where approximately 301 residential units are currently in construction (of which 203 units belong to PBC), out of which approximately 268 residential units were sold). In 2019, construction and marketing of 62 residential units began (as compared with construction and marketing of 86 residential units in 2018). In2019In 2019, 139 residential units were sold (as compared with 205 residential units in 2018). In 2019, PBC’s revenues from the sale of residential units and lands imputed to the income statement amounted to approximately NIS 336 million, as compared with approximately NIS 517 million in 2018.

154

HSBC

The HSBC Tower was closed beginning on March 15, 2020, in accordance with directives issued by New York State and New York City. Access to the tower and to its services is permitted to tenants defined as “essential” in accordance with the city’s by laws and regulations. As of August 20, 2020, the collection rate at the tower during the months April - June 2020 amounted to approximately 98% of total rent charged. New York City, where the HSBC Tower is located, is currently in phase 4 of New York State’s reopening plan. The tower remains active and open for “essential” businesses and for tenants who choose to work from the offices, subject to restricted occupancy guidelines of up to 50%.

IDBD

Tivoli Project - IDBG is engaged, through a real estate corporation, in the construction and operation of a commercial and office project in Las Vegas, Nevada (USA) ("The Tivoli project")

The Tivoli project is a real estate project, located near the prestigious Summerlin neighborhood in Las Vegas, intended for mixed use, mainly of commerce and offices and as a unique center for entertainment and shopping. Tivoli project includes three parts of about 80 thousand square meters (the "commercial area"), out of which approximately 62 thousand square meters have been built so far.

The first two parts of the Tivoli project are open to the public in a total area of ​​670 thousand square feet (approximately 62 thousand square meters), which includes approximately 330 thousand square feet (approximately 31 thousand square meters) of commercial space and approximately 340 thousand square meters (approx. 31 thousand square meters) office space.

As of June 30, 2020 approximately 73% of the commercial and office space has been leased. Around August 20, 2020, Great Wash Park LLC “GW” is working to market the rest of the areas designated for rent. The third part of the Tivoli project is planned to include commercial and office space, with a total area of ​​about 196 thousand square feet (about 18 thousand square meters). The third part is still in the planning stages and an estimated construction date has not yet been set.

It should also be noted that GW has rights to build 300 housing units near the Tivoli project. As of December 31, 2019, IDBD and PBC held the entire share capital of IDBG, in equal parts. In February 2020, the loans that had been extended by PBC to IDBG were converted, in a manner that IDBD's share in IDBG's share capital and in the right to the repayment of the shareholder's loans to a rate of 25.82% (the remaining 74.18% are held by PBC). In June 2020, IDBD and PBC signed on an agreement for the sale of the IDBD's entire rights on IDBG for consideration of USD 27.8 million. The approval of the transaction was subject, inter alia, to the approval of PBC's general meeting, which was convened on June 23, 2020 and which decided not to approve the commitment. Following the abovementioned, as of June 30, 2020, the holding rates of IDBD and PBC in IDBG are 25.82% and 74.18%, respectively.

Following the outbreak of the Corona virus, on March 24, 2020, the center in the Tivoli project was closed, pursuant to the directives issues by the Governor of the State of Nevada. During the course of the period in which the center was closed, a number of restaurants worked in a format of deliveries and take away. Furthermore, vital activities, such as banks and clinics were allowed to operate. The center management activity was reduced to the minimum necessary for business that operated in the center in that period and some of the activities were discontinued completely (such as parking, cleaning and gardening services and etcetera). This reduction has led to a saving of approximately 36% in the center's operating expenses in the relevant period.

The occupancy rate in the project stood at approximately 73% before the outbreak of the Corona virus. During the course of the period of the closure, a number of tenants encountered difficulties and gave notice of the cessation of their activity in the project. Furthermore, a number of tenants announced that they would not be extending their rental agreements in the project, which are about to expire. However, during this period of time a number of new contracts were signed. The rental fees for March 2020 were collected without any significant change as compared with previous months. In April and May 2020 approximately 70% of the rental fees for offices and approximately 25% of the rental fees for commercial areas and restaurants have been collected up to now. For June 2020, 82% of the the rental fees have been collected so far. As of this time, the project's management has not set a uniform policy in connection with the granting of reliefs for tenants and a specific discussion is held opposite each tenant. Tivoli’s management continues working to complete the collection for the above mentioned periods.

155

The valuation of the Tivoli project in Las Vegas was updated in the first quarter of 2020 to USD 233 million from USD 237 millionas of 31.3.2019. As a result, PBC recorded a loss in the amount of NIS 11 million, while DIC’s share in the aforementioned loss amounted to a total of NIS 8 million; IDBD recorded its share in the net loss in the amount of NIS 4 million, which was recorded under discontinued operations

At present, it is not possible to estimate the full effect of the coronavirus pandemic on the Tivoli project’s results in 2020. However, at this stage, PBC estimates that the damage will be limited to a few millions of USD, where despite the expected decline in NOI, the project’s current cash flows, along with increased efficiency measures which have been implemented, will allow the project to maintain a positive cash balance.

Gav-Yam

Gav Yam - As of July 2020, the management of Gav Yam estimated that, in the long term, in light of its financial strength, as reflected, inter alia, in its high balances of available cash and cash equivalents, its low leverage ratio, the average lifetime of its debt and the comfortable distribution thereof, the fact that all of Gav Yam’s properties are unpledged, and in light of the broad geographical and sectoral distribution of Gav Yam’s properties, as well as their status, locations and occupancy rates, and the fact that the vast majority of properties are used for IT, office, logistics and industrial purposes (and not for commerce or retail), with an emphasis on the quality of lessees, and the distribution of revenues from them, all reduce the exposure of Gav Yam’s businesses to the crisis and/or to significant instability, and it has tools at its disposal in order to appropriately deal with the economic crisis described above.

Residential construction segment in Israel

 According to the assessment of PBC, at this stage there are no indications of a decline in the fair value of PBC’s inventory of apartments, inter alia, in light of the average sale prices in the period after the coronavirus outbreak, and in light of the fact that payments from apartment buyers are continuing to be received in an orderly fashion. In addition, PBC promotes and complements conditions in a number of projects for obtaining building permits, but since the outbreak of the corona virus there has been a difficulty in working with the authorities which causes delays in granting the necessary permits for the construction of projects.

PBC believes that its financial strength and the status of its properties, cash balances, and the current cash flows which it is generating, will allow it to continue financing its activities and service its liabilities.

Agriculture

Mehadrin. Mehadrin is a public company whose securities are listed for trading on the TASE. Most of Mehadrin’s activities are in the agricultural segment. Until September 2019, We and Phoenix Holdings Ltd. (“Phoenix”), which held, through a wholly owned subsidiary, 41.4% of Mehadrin, were considered to be joint controllers of Mehadrin since, pursuant to the terms of a shareholders agreement, PBC and Phoenix controlled approximately 86.8% of the voting rights and rights to appoint directors in Mehadrin. On September 18, 2019, Phoenix distributed of all shares of Mehadrin it owned as a dividend in kind to Phoenix’ shareholders, thereby terminating the joint control of the parties of Mehadrin. On November 27, 2019, PBC approved the distribution of all its shares in Mehadrin as a dividend in kind. As a result, DIC received approximately 31.4% of the share capital of Mehadrin. Additionally, in the first quarter of 2020, DIC acquired approximately 8.8% of Mehadrin’s issued share capital, such that its holding rate in Mehadrin increased to approximately 40.2%. The aforementioned acquisitions of Mehadrin shares resulted in DIC gaining control of Mehadrin. In the second quarter of 2020, DIC purchased approximately 3.5% of the issued share capital of Mehadrin, at a total cost of NIS 14 million, such that its holding rate in Mehadrin increased to approximately 43.7%.

156

Telecommunications

Cellcom is a public company which was incorporated in Israel, whose shares are listed for trading on the TASE and on the New York Stock Exchange, and whose debentures are listed for trading on the TASE. As of June 30, 2020, we owned 46.2% of the shares and had 48.4% of voting rights of Cellcom.

Segments

Cellular Segment. Cellcom is the largest provider of cellular communications services in Israel based upon number of subscribers and estimated market share as of June 30, 2020. Cellcom offers a broad range of services including cellular telephony, roaming services for tourists in Israel and for its subscribers abroad, text and multimedia messaging, advanced cellular content and data services and other value-added services in the areas of music, video, mobile office etc., based on Cellcom Israel's technologically advanced infrastructure . Cellcom operates an LTE 4 generation network and an HSPA 3.5 Generation network enabling advanced high speed broadband multimedia services, in addition to GSM/GPRS/EDGE networks. Cellcom Israel offers Israel's broadest and largest customer service infrastructure including telephone, customer service centers, retail stores, and service and sale centers, distributed nationwide. Cellcom Israel further provides OTT TV services, internet infrastructure and connectivity services and international calling services, as well as landline telephone services in Israel. As of June 30, 2020, Cellcom provided cellular communications services to approximately 2,734 million subscribers in Israel, with an estimated market share as of December 31, 2019 of approximately 26%.

Cellcom offers cellular subscribers a variety of usage and sector pricing plans and bundles combining cellular services with other communications services its group offers, including quatro bundles (internet infrastructure service and connectivity, landline telephony, cable television service and cellular services). Cellcom offer two methods of payment: post-paid and pre-paid. Post-paid services are offered to subscribers who are willing to pay for its services through banking and credit arrangements, such as credit cards and direct debits. Pre-paid services are offered to cellular subscribers who pay for its services prior to obtaining them. The majority of Cellcom’s sales are post-paid.

Fixed line services. Cellcom fixed line services include its internet infrastructure (for private customers based mostly on the landline wholesale market and increasingly on its independent fiber-optic infrastructure and for business customers based on its landline infrastructure) and connectivity services, OTT TV services, ILD services, landline telephony services and transmission services (for business customers). Cellcom also offer bundles of these services, including a triple offering (internet service including infrastructure and connectivity, landline telephony, TV service) and quatro offering. Cellcom also offer landline transmission and data services to selected business customers and telecommunications operators (including transmission revenues from Golan according to the network sharing agreement as of April 2017), using its fiber-optic infrastructure and complementary microwave links, IP switchboard services and operation and management of business telecommunications systems. Additional services include cloud services and data protection products solutions based on products and services offered by Cellcom and by third party vendors and IOT solutions such as “smart city” end-to-end cellular and fixed line solutions. For more information see “Cellcom- Golan Telecom Agreement”

Networks and Infrastructure

Cellular Segment. Cellcom have built an extensive, durable and advanced cellular network system, enabling to offer high-quality services to substantially the entire Israeli populated territory, while using a cost-effective design, utilizing shared components for its networks, where applicable. Cellcom seek to satisfy quality standards that are important to its subscribers, such as high voice quality, high data throughput rate, low “blocked call” rate (average rate of call attempts that fail due to insufficient network resources), low “dropped call” rate (average rate of calls that are terminated not in the ordinary course) and deep indoor coverage. Therefore, Cellcom have made substantial capital expenditures and expect to continue to be required to make substantial capital expenditures on its network system, though, pursuant to its Sharing Agreements, radio capital expenditures for the shared networks will be divided among the sharing parties.

157

Fixed line services. Cellcom provides, Internet services - connectivity and infrastructure, multichannel TV services, international Call Services, Wireline communication Services and other fixed-line services. Cellcom optical transmission network is strategically deployed in order to cover the major portion of Israel’s business parks from Nahariya in the north to Beer Sheva in the south and Afula and Jerusalem in the east, consisting of approximately 1,980 kilometers. The fiber-optic network is monitored by a fault-management system that performs real-time monitoring in order to provide high quality service. In order to efficiently complete its transmission network’s coverage to the majority of its cell sites and business landline and transmission subscribers, Cellcom uses a microwave network as a complementary solution in those areas that are not served by its fiber-optic network. As of December 31, 2019, Cellcom had approximately 2,808 microwave links to both its cell sites and its landline and transmission subscribers. In February 2020, Cellcom, the shareholders of Golan Telecom and Golan Telecom executed a binding memorandum of understanding for the acquisition of Golan Telecom entire capital stock. For more information see: “Significant acquisitions, dispositions and development of business – Operation Center in Israel - Cellcom- Golan Telecom Agreement.”

Others

Modiin Energy

 Modiin is a limited partnership engaged in the field of oil and natural gas exploration and is traded on the Tel Aviv Stock Exchange. IDBD operates in the field of oil and gas through Modiin. As of December 31,2019, Modiin has rights in onshore oil assets in the United States and in one oil asset in Israel (marine oil asset).

 Elron

Elron is a holding company which constitutes the technology investment arm of the IDB Group. Elron has significant holdings in a select number of start-up companies in the field of cybersecurity, enterprise software, medical device, etc. IDB Tourism

IDB Tourism is a wholly-owned subsidiary of IDBD, which was incorporated in Israel and commenced it operations in 1934. In 2014, IDB Tourism’s management decided to focus its business activity on the sale of tourism services, in the framework of tourism packages that were adapted to the preferences of the Israeli public, to the incoming tourists to Israel. Until 2015, IDB Tourism held three major companies operating in the field of tourism: Terminal 1 Holdings Ltd. (formerly - Diesenhaus Ltd.), Open Sky Ltd, and Israir Airlines & Tourism Ltd. (“Israir”), (Israir, Diesenhaus, Open Sky and related parties will be referred to hereinafter as “the IDB Tourism Group”).

In July 2020, Israir signed an agreement to have access, if needed, a loan in an amount of NIS 75 million with a 75% guarantee from the State. In addition, Israir received approval from another banking corporation and from the Ministry of Finance to receive another State-guaranteed loan at a rate of 75% and in the amount of approximately NIS 61 million, while the Bank gave its agreement in principle to increase the loan to NIS 100 million. The increase ot the said loan is subject to the approval of the Ministry of Finance, which has agreed to positively consider increasing the volume of the state-guaranteed loan to a higher percentage in about two months, depending on the situation at that time.

Supermarkets

Shufersal is the owner of the largest supermarket chain in Israel. In December 2017 the Group completed the acquisition of the entire issued share capital of Be Drugstores Ltd. (formerly New Pharm Drugstores Ltd.) (“Be”). Shufersal is a public company, which is included under the Tel Aviv 35 index, which was incorporated in Israel, whose shares and debentures are listed for trading on the TASE.

As June 30, 2020, Shufersal operates 379 branches throughout Israel, of which 298 are Shufersal stores and 81 are Be stores. Shufersal’s total commercial space encompasses approximately 543,000 square meters, of which 513,000 square meters are Shufersal stores and 30,000 square meters are Be stores, as well as 8 delivery centers encompassing 22,000 square meters, all located in Israel. Shufersal employs about 17 thousand employees (about 14.8 thousand calculated positions) and has annual revenues of about NIS 14 billion.

158

In June 2018, DIC sold 16.6% of the issued share capital of Shufersal, for a total net consideration of NIS 848 million, as a result of which DIC’s holdings in Shufersal decreased to approximately 33.6% and therefore ceased to be the controlling shareholder of Shufersal. Following certain other divestments from DIC, as of June 30, 2020, our equity interest in Shufersal was reduced to 26.02%. On July 26, 2020, DIC sold its entire stake in Shufersal, of approximately 26%, for a total net consideration of NIS 1,450 million.

Segments

The Company operates in four operating segments that are reported as business segments in its financial statements:

Retail segment. This segment includes the retail marketing of food and other products in the Shufersal’s stores and the manufacture of frozen and fresh baked products that are sold mainly in the Shufersal’s stores. As at June 30, 2020, the Shufersal’s retail segment activity is carried out in 298 stores having a wide geographical spread.

Real Estate. In this segment we manage various types of properties, including commercial centers and other properties related to the operation of our stores. The real estate activities of Shufersal were separated, beginning on April 1, 2013, into Shufersal Real Estate Ltd., a wholly owned subsidiary. This entity leases these properties both to Shufersal and to other third parties. This segment’s revenues include rental revenues based on actual amounts that the real estate segment charged the retail segment, and the operating profit of the segment includes also management fees that were charged to the subsidiaries of the real estate segment. Presented below are details regarding the real estate properties which are owned by Shufersal Real Estate as of December 31, 2019:

	Number ofproperties	Approximatelytotal area	Fair value	Rent and annualmanagement fees
		(thousands of sqm.)	(millions of NIS)	(thousands of NIS)
Stores rented to Shufersal	71	134	1,818	131,348
Properties under construction which will be rented to Shufersal	1	2	1	—
Rentable real estate properties to third parties	20	54	586	50,949
Real estate properties under construction which will be rented to externals	2	50	134	—
Total	94	240	2,539	182,297

Credit card customers’ club management segment. This segment includes operating the credit card business and providing credit to the holders of our credit cards. From January 18, 2018, the operation of the credit card business is made by means of Israel Credit Card Ltd. and Diners Club Israel Ltd.

Be segment. Following completion of the transaction to acquire New Pharm Drugstores Ltd. on December 20, 2017, which was rebranded as “Be”. As of June 30, 2020this segment includes the operation of 81 drugstores in Israel that sell mainly cosmetics, convenience and toiletry products, medicine and food supplements. In December 2019, Shufersal's Board of Directors passed a resolution that Shufersal would merge, by way of a statutory merger with BE, under which Shufersal would absorb all of BE's activities, liabilities and assets without consideration, and BE would be liquidated without liquidation.

Distribution

Most merchandise is distributed to our stores through our network of distribution centers. Common carriers ship general merchandise to and from our distribution centers. Vendors or third party distributors ship certain food items and other merchandise directly to our stores. Merchandise sold through our digital channels is distributed to our online guests via common carriers (from stores, distribution centers, vendors and third party distributors) and through guest pick-up at our stores. Using our stores as fulfillment points allows improved product availability and delivery times and also reduces shipping costs. We continue to expand other delivery options, including store drive-up and delivery.

159

Seasonality

In Israel, the retail segment business’s results are subject to seasonal fluctuations as a result of the consumption behavior proximate to the Passover holidays (March and/or April) and Rosh Hashanah and Sukkoth holidays (September and/or October).

Competition

Shufersal competes in this market primarily with the other supermarket chains, specialty stores (such as grocers, butchers, delis and bakeries), convenience stores in cities and gas stations, neighborhood grocery stores, open and closed markets, and other retailers.

Insurance

Clal is a public company which was incorporated under the laws of the State of Israel. Clal is one of the leading insurance and long-term savings groups in Israel. The shares of Clal have been listed for trading on the stock exchange since 1988. As of December 31, 2019, Clal employs over 4,500 people and markets its products through 1,897 insurance agents, all of whom provide quality service and professional support to their customers. As of December 31, 2019, Clal has NIS 220 billion in assets under management (out of which, approximately NIS 188 billion are assets managed for others). Clal divides its operations in three insurance segments: Non-Life Insurance, Long-Term Savings and Health.

As of June 30, 2020, IDBD’s stake in Clal’s outstanding share capital was 8.5% directly and 2.1% through swaps.

Segments.

Non-Life Insurance. The General Insurance domain in Clal Group is among the largest in Israel. As of December 31, 2019, Clal holds 10.3% market share of the premiums in the in the Non-Life Insurance Division and offers coverage to private and corporate customers. Clal markets its products through 1,450 non-life insurance agents, all of whom provide quality service and professional support to their customers. The Non-Life Insurance Segment offers a wide range of insurance plans: automotive, property, liability, marine insurance, personal accidents, guarantees and additional services. It`s vision is to provide professional and high-level service to company`s agents and customers, through constant improvements and new product development.

Life Insurance and Long-Term Savings. As of December 31, 2019, the Long-Term Savings Division holds a 13.7% market share of the long-term savings market, as defined by the Commissioner of Insurance and have assets in an approximate amount of NIS 149,472 billion. As at December 31, 2019, Clal holds 17.3% market share of the premiums in the in the Life Insurance Division. There is no single customer or a limited number of customers of which Clal is dependent. Clal markets insurances policies, from time to time and in the normal course of business, to companies in the IDBD Group (both policyholders in collective insurance, both as members of central provident funds and as employers depositing for pension savings for long-term savings products). This does not exceed 5% of the Clal’s total revenues in this segment. The Long-Term Savings segment manages long-term assets, including life insurance, pension and provident funds. The segment also provides comprehensive solutions to private and corporate customers in all sectors of the Israeli economy. Among the division’s customers are large corporations and many residents of the State of Israel. Its objectives are to support the company’s distribution channels and become a professional benchmark, helping to improve company business results, profitability and value, while emphasizing quality of service. The segment offers a variety of savings options, enabling its customers to maintain a strong, solid economic foundation in the event of death, accident or loss of earning capacity. It also offers a variety of pension funds designed to guarantee a monthly income for life in the event of retirement, disability, or death, enabling economic stability for the future even in difficult times.

On July 26, 2018, Clal’s Board of Directors resolved to change the organizational structure of Clal Group, and from September 1, 2018, the life insurance and pension and provident divisions merged into the long-term savings division. In addition, a new a customer and distribution division established.

160

Health Insurance. The Health Insurance segment offers a wide range of products for individuals, families and groups, specializing in comprehensive solutions for specific market segments such as women and children. As of December 31, 2019. Clal holds a 17.4% market share of the premiums in the health insurance market in Israel and offers health insurance products such as surgeries in Israel and overseas, transplants, medications, critical illness, long-term care, personal accidents, travel and more. Health Insurance segment vision is to establish Clal as a leading, innovative and professional company in the field of health and nursing care insurance, while providing a professional and timely service to its agents and customers. The segment focuses on technological innovation as well as on developing a range of innovative health insurance products, enabling flexibility in creating health insurance packages tailored for each client, based on his needs and financial status. Each package is either derived from existing packages, or custom-built for each customer. Clal markets most of its products through 852 health agents, all of whom provide quality service and professional support to their customers. The Health Insurance segment is constantly growing, and is proud to provide quality service to 400,000 members insured under private insurance plans as well as an additional 2,000,000 members insured under group insurance plans.

Legal Framework

Operations Center in Argentina

Regulation and Government Supervision

The laws and regulations governing the acquisition and transfer of real estate, as well as municipal zoning ordinances, apply to the development and operation of our properties. Currently, Argentine law does not specifically regulate shopping mall leases. Since our shopping mall leases generally diverge from ordinary commercial leases, we have developed contractual provisions which are tailored to the commercial relationship with our shopping mall tenants.

Leases

Argentine law imposes certain restrictions on property owners, including:

●

a minimum lease term of three years for all purposes, except in particular cases such as embassy, consulate or international organization venues, room with furniture for touristic purposes for less than three months, custody and bailment of goods, exhibition or offering of goods in fairs or in cases where due to the circumstances, the subject matter of the lease requires a shorter term.

Lease term limits

Under the Argentine Civil and Commercial Code lease terms may not exceed 20 years (for residential purpose) or fifty years (all other purposes). Generally, terms in our leases range from 3 to 10 years.

Rescission rights

The Argentine Civil and Commercial Code provides that tenants may terminate leases other destiny than home destiny, early after the first six months of the effective date. Such termination is subject to penalties which range from one to one and a half months of rent. If the tenant terminates the agreement during the first year of the lease, the penalty is one and a half month’s rent and if termination occurs after the first year of lease, the penalty is one month’s rent.

Other

The Argentine Civil and Commercial Code, among other rules, repealed the Urban Lease Law No. 23,091, which set forth a rule similar to the one described above, but established the obligation to give at least 60 days’ prior notice of exercise of the tenant’s unilateral termination right. There are no court rulings to date with respect to the new regulations related to: (i) the tenant’s unilateral termination right; or (ii) the possibility of agreeing a penalty different from that described above upon such termination.

161

While current policy discourages government regulation of leases, there can be no assurance that additional regulations will not be imposed in the future by 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 such costs and taxes, the government may respond to political pressure to intervene by regulating this practice, thereby adversely affecting our rental income.

The Argentine Civil and Commercial Code enables landlords to pursue what is known as an “executory proceeding” if a tenant fails to pay rent when due. In executory proceedings, debtors have fewer defenses available to prevent foreclosure, making these proceedings substantially shorter, as the origin of the debt is not in question and the trial should focus on the formalities of the contract. The Argentine Civil and Commercial Code also permits special eviction proceedings, which are carried out in the same way as ordinary proceedings. The Argentine Civil and Commercial Code also requires that a residential tenant receive at least 10 days’ prior notice when a landlord demands payment of rent due if a breach prior to eviction occurs but does not impose any such requirement for other leases. However, court cases pending resolution and numerous procedural hurdles have resulted in significant delays to eviction proceedings in the commercial context, which generally last from six months to two years from the date of filing of the suit for eviction.

Development and use of the land

In the City of Buenos Aires, where the vast majority of our properties are located, we are subject to the following regulations:

Buenos Aires Urban Planning Code

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 regulates physical features of improvements to property, such as height, design, set back and overhang, consistent with the city’s urban planning policy. The Secretary of Urban Planning of the City of Buenos Aires (Secretaría de Planeamiento Urbano) is responsible for implementing and enforcing the Buenos Aires Urban Planning Code.

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 regulating the use and development of property in the City of Buenos Aires. The Building Code requires developers to obtain building permits, including submitting architectural plans for review of the Secretary of Work and Public Services, to monitor regulatory compliance.

Buenos Aires Authorizations and Licenses Code

The Authorizations and Licenses Code (Código de Habilitaciones de la Ciudad de Buenos Aires) sets forth the conditions under which authorizations or licenses to operate may be granted. The General Bureau of Authorizations and Licenses is responsible for implementing and enforcing the Authorizations and Licenses Code. Outside Buenos Aires City, our real estate activities are subject to similar municipal zoning, building, occupation and environmental regulations, which must also comply with national standards. In some jurisdictions we may also be subject to regulation of large commercial areas, which require approval of the location of these areas. We believe that all of our real estate properties are in material compliance with 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 Decree No. 2015/85, or “Real Estate Installment Sales Act,” imposes a series of requirements on contracts for the sale of subdivided real estate property including, for example, that the purchase price for a property is payable in installments. The law requires, among other things:

Registration of intent to sell the property in subdivided plots with the Real Estate Registry in the jurisdiction where the property is located. Registration is only permitted for unencumbered property. Mortgaged property may only be registered if creditors agree to divide the debt in accordance with subdivided plots. Creditors may be judicially compelled to agree to the partition.

162

Preliminary registration with the Real Estate Registry of the purchase instrument within 30 days after its execution.

Once the property is registered, the installment sale must be completed in a manner consistent with the Real Estate Installment Sales Act. If a dispute arises over the title between the purchaser and third party creditors of the seller, the installment purchaser who has duly registered the purchase instrument will have title to the plot. The purchaser can demand conveyance of title after at least 25% of the purchase price has been paid, although the seller may record a mortgage over the subject property to secure payment of the balance of the purchase price.

After payment of 25% of the purchase price or advancement of at least 50% of construction, the Real Estate Installment Sales Act prohibits termination of the sales contract for failure by the purchaser to pay the balance of the purchase price but gives the seller the right to enforce under any mortgage on the property.

Buildings Law

Buildings Law No. 19,724 (Ley de Pre horizontalidad) was repealed by the Argentine Civil and Commercial Code which provides that for purposes of execution of sales agreements for units under construction, the owner or developer must purchase insurance in favor of prospective purchasers against the risk of frustration of the development pursuant to the agreement for any reason. A breach of this obligation precludes the owner from exercising any right against the purchaser—such as demanding payment of any outstanding installments due—unless he/she fully complies with their obligations, but does not prevent the purchaser from exercising its rights against the seller.

Protection of the Disabled

The Law for Protection of the Disabled No. 22,431, enacted on March 16, 1981, as amended, provides that properties under construction or that are being remodeled must provide access for handicapped persons. Public spaces, entrances, hallways, elevators and common use facilities must be designed to provide mobility for impaired individuals. Buildings developed before enactment of the Protection for the Disabled Law must be reformatted to provide requisite access. Buildings that, because of their architectural design, may not be adapted to the use by the physically impaired, are exempted from these requirements.

Other regulations

Consumer relations, consumer or end-user protection

Article 42 of the Argentine Constitution establishes that consumers and users of goods and services have a right to protection of health, safety and economic interests in a consumer relationship. Consumer Protection Law No. 24,240, as amended, regulates several issues concerning the protection of consumers and end users in a consumer relationship, in the arrangement and execution of contracts. The Consumer Protection Law, and the applicable sections of the Argentine Civil and Commercial Code are intended to regulate the constitutional right conferred under the Constitution on the weakest party to the consumer relationship and prevent potential abuses deriving from the stronger bargaining position of vendors of goods and services in a market economy where standard form contracts are widespread.

These laws deem void and unenforceable contractual provisions included in consumer contracts, that:

● 

deprive obligations of their nature or limit liability for damages;

● 

imply a waiver or restriction of consumer rights and an extension of seller rights; and

● 

impose the shifting of the burden of proof from the consumer to the seller in order to protect the consumers.

In addition, the Consumer Protection Law imposes penalties ranging from warnings to the forfeiture of concession rights, privileges, tax regimes or special credits to which the sanctioned party may be entitled, including closing down establishments for a term of up to 30 days.

163

The Consumer Protection Law and the Argentine Civil and Commercial Code define consumers or end users as the individuals or legal entities that acquire or use goods or services, free of charge or for a price for their own final use or benefit or that of their family or social group. The protection under the laws afforded to consumers and end users encompasses the entire consumer relationship, from the offering of the product or service, to cover more than just those relationships established by means of a contract. Providers of goods and services include those who produce, import, distribute or commercialize goods or supply services to consumers or users (but excludes professionals whose services require a college degree or higher who are required to register in officially recognized professional organizations).

The Argentine Civil and Commercial Code defines a consumer agreement as one that is entered into between a consumer or end user and an individual or entity that manufactures goods or provides services to consumers for private, family or social use. The Consumer Protection Law imposes a range of penalties for violation of its provisions, from warnings to the forfeiture of concession rights, and establishes joint and several liability of each participant in the chain of distribution or whose trademark on the thing or service for damages caused to consumers derived from a defect or risk inherent in the thing or the provision of a service.

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 when the offer is made 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.

Pursuant to Resolution No. 104/2005 issued by the Secretariat of Technical Coordination reporting to the Argentine Ministry of Treasury, Consumer Protection Law adopted Resolution No. 21/2004 issued by the Mercosur’s Common Market Group, persons engaged in internet commerce must disclose precisely 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 may give rise to sanctions.

On September 17, 2014, the Argentine Congress enacted Law No. 26,993 called “Conflict Resolution in Consumer Relationships System” law that provides for creation of new administrative and judicial procedures. The law created a bicameral administrative system: the Preliminary Conciliation Service for Consumer Relations (Servicio de Conciliación Previa en las Relaciones de Consumo), or “COPREC,” and the Consumer Relations Audit, and a number of courts assigned to the resolution of conflicts between consumers and providers (Fuero Judicial Nacional de Consumo). The amount of any filed claim may not exceed a fixed amount equivalent to 55 adjustable minimum wages, as determined by the Ministry of Labor, Employment and Social Security. The claim must be filed with the administrative agency. If an agreement is not reached, the claimant may file the claim in court. While COPREC is currently in full force and effect, the court system (Fuero Judicial Nacional de Consumo) is still pending. Therefore, any current claim must be filed with existing courts. A considerable number of claims pending against us are expected to be settled within the framework of this system.

Antitrust Law

For more information about Antitrust Law see, “Item 4. Information on the Company⸺Other regulations⸺Antitrust Law”.

Money laundering

For more information about money laundering see, “Item 10. Additional Information—E. Money Laundering”.

164

Environmental Law

Our activities are subject to several national, provincial and municipal environmental provisions.

Article 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.

165

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 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 addition, the CNV Rules require the obligation to report to the CNV any events of any nature and fortuitous acts that seriously hinder or could potentially hinder performance of our activities, including any events that generate or may generate significant impacts on the environment, providing details on the consequences thereof.

The new Argentine Civil and Commercial Code has introduced as a novel feature the acknowledgement of collective rights, including the right to a healthy and balanced environment. Accordingly, the Argentine Civil and Commercial Code expressly sets forth that the law does not protect an abusive exercise of individual rights if such exercise could have an adverse impact on the environment and the rights with a collective impact in general.

 

166

Environmental matters

 

We consistently strive to act responsibly regarding protection of the environment in the management of our operating activities by preventing and minimizing the potential adverse environmental impacts of our activities. We have adopted an environmental impact policy, which is used as a reference for the realization of our investments. We are subject to environmental legislation under a series of laws, ordinances, norms, and national, provincial and municipal regulations of Argentina. Environmental obligations vary depending on the project site, the site’s environmental conditions, current and prior uses, and the activity proposed to be developed. Compliance with environmental laws may result in project delays or impose additional requirements that may result in substantial additional costs that may adversely affect our commercial activities. Before purchasing land or carrying out an investment on a plot of land, we carry out an environmental assessment of the parcel to identify possible environmental contingencies and analyze the possible environmental impact of the investment or the development to be carried out. Historically, our operations have not been negatively affected by the existence or potential existence of pollutants, nor by the failure to obtain environmental approvals or permits.

167

We intend to continue implementing plans that enhance our monitoring activities, in line with our commitment to and respect for the environment, our compliance obligations and with existing regulations, while seeking to optimize the use of resources.

 

168

C. ORGANIZATIONAL STRUCTURE

Subsidiaries and associated companies

The following table includes a description of our direct subsidiaries and associated companies as of June 30, 2020:

Subsidiaries	Effective Ownership and Voting Power Percentage	Property/Activity
Agro-Uranga S.A	35.72%	Agro-Uranga S.A. is an agricultural company which owns 2 farmlands (Las Playas and San Nicolás) that have 8.299 hectares on the state of Santa Fe and Córdoba.
Uranga Trading S.A	35.72%	Uranga Trading S.A. is committed to facilitate and optimally manage the trade of grains of the highest quality, locally and internationally.
Brasilagro Companhia Brasileira de Propiedades Agrícolas	33.55%(1)(3)	Brasilagro is mainly involved in four areas: sugar cane, crops and cotton, forestry activities, and livestock.
Agropecuaria Santa Cruz S.A. (formerly known as Doneldon S.A.)	100%	Agropecuaria Santa Cruz S.A. is involved in investments in entities 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.
Futuros y Opciones.Com S.A.	50.10%	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 cattle operations.
Amauta Agro S.A. (formerly known as FyO Trading S.A.)	50.48%(2)	Amauta Agro 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.
FyO Acopio S.A. (formerly known as Granos Olavarria S.A.)	50.48%(2)	FyO Acopio S.A. is principally engaged to the warehousing of cereals and brokering of grains.
Helmir S.A.	100%	Helmir S.A. is involved in investments in entities 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.
IRSA Inversiones y Representaciones Sociedad Anónima	61.95%(1)(3)	It is a leading Argentine company devoted to the development and management of real estate.
IRSA Propiedades Comerciales S.A.	2.62%	It is one of the largest owners, developers and operators of shopping malls, offices and other commercial properties in Argentina in terms of gross leasable area and number of rental properties.
Sociedad Anónima Carnes Pampeanas S.A.	100%(3)	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 cattle head per month.

(1) Excludes effect of treasury stock.

(2) Includes Futuros y Opciones.Com S.A.’s interest.

(3) Includes Helmir’s interest.

D. PROPERTY, PLANTS AND EQUIPMENT

Overview of Agricultural Properties

As of June 30, 2020, we owned, together with our subsidiaries, 26 farmlands, which have a total surface area of 629,794 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 30,2020
	Facility	Province	Country	Gross Size (in hectares)	Date of Acquisition	Primary Current Use	Net Book Value (ARS Millions)(1)
1	El Recreo	Catamarca	Argentina	12,395	May ‘95	Natural woodlands	10
2	Los Pozos	Salta	Argentina	239,639	May ‘95	Cattle/ Agriculture/ Natural woodlands	1,981
3	San Nicolás/Las Playas	Santa Fe/Córdoba	Argentina	2,965	May ‘97	Agriculture/ Dairy	253
4	La Gramilla/ Santa Bárbara	San Luis	Argentina	7,072	Nov ‘97	Agriculture Under irrigation	902
5	La Suiza	Chaco	Argentina	26,371	Jun ‘98	Agriculture/ Cattle	619
6	El Tigre	La Pampa	Argentina	8,360	Apr ‘03	Agriculture/ Dairy	602
7	San Pedro	Entre Rios	Argentina	6,022	Sep ‘05	Agriculture	874
8	8 De Julio/ Estancia Carmen	Santa Cruz	Argentina	100,911	May ‘07/ Sep ‘08	Sheep	147
9	Administración Cactus	San Luis	Argentina	171	Dec ‘97	Natural woodlands	7
10	Las Vertientes	Cordoba	Argentina	-	-	Silo	2
11/12/13	Las Londras/San Rafael/ La Primavera	Santa Cruz	Bolivia	9,875	Nov-08/Jan-11	Agriculture	1,733
14	Finca Mendoza	Mendoza	Argentina	674	Mar ‘11	Natural woodlands	15
15	Establecimiento Mendoza	Mendoza	Argentina	9	Nov’03	Natural woodlands	72
16	Marangatú/Udra (2) (3)	Mariscal Estigarribia	Paraguay	59,585	Feb-09	Agriculture /Natural Woodlands	2,982
17/26	Brasilagro(2) (3)		Brazil	155,745		Agriculture/ Forestry/Cattle	7,441
Subtotal				629,794			17,640

(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) 

See the section “Overview of Brasilagro’s Properties”.

Overview of Brasilagro’s Properties

As of June 30, 2020, we owned, together with our subsidiaries, 11 farmlands, which have a total surface area of 216,013 hectares, acquired at a highly convenient value compared to the average of the region, all of them with a great appreciation potential.

		Total Area		Net Book Value
Properties	Place	(ha)	Use	(ARS Millions)
Jatobá Farmland	Jaborandi/BA	14,930	Agriculture	363
Alto Taquari Farmland	Alto Taquari/MT	5,103	Agriculture	426
Araucária Farmland	Mineiros/GO	5,534	Agriculture	582
Chaparral Farmland	Correntina/BA	37,182	Agriculture	1,146
Nova Buriti Farmland	Januária/MG	24,212	Forestry	300
Preferência Farmland	Barreiras/BA	17,799	Cattle	346
São José Farmland	Maranhão/MA	17,566	Agriculture	1,414
Marangatu/ Udra Farmlands	Boqueron Paraguai	59,585	Agriculture	2,982
Arrojadinho	Barreiras/BA	16,642	Agriculture	1,057
Rio do Meio	Correntina/MA	12,288	Agriculture	1.473
Serra Grande	Correntina/BA	4,489	Agriculture	334
Total Brazil		216,013		10,423

169

In the ordinary course of business, the leases property or spaces for administrative or commercial use both in Argentina and Israel under operating lease arrangements. The agreements entered into include several clauses, including but not limited, to fixed, variable or adjustable payments.

Overview of Urban Properties and investment business

In the ordinary course of business, the leases property or spaces for administrative or commercial use both in Argentina and Israel under operating lease arrangements. The agreements entered into include several clauses, including but not limited, to fixed, variable or adjustable payments.

The following table sets forth certain information about our properties for the Operation Center in Argentina as of June 30, 2020:

Property (6)	Date of Acquisition	Leasable/ Sale m2 / Rooms	Location	Net Book Value ARS (2)	Use	Occupancy rate
República Building (3)	Apr-08	19,885	City of Buenos Aires	8,969	Office Rental	86.9%
Bankboston Tower (3)(13)	Aug-07	14,865	City of Buenos Aires	6,642	Office Rental	96.4%
Bouchard 551	Mar-07	-	City of Buenos Aires	310	Office Rental	-
Intercontinental Plaza Building (3)	Nov-97	2,979	City of Buenos Aires	993	Office Rental	100%
Bouchard 710 (3)(14)	Jun-05	15,014	City of Buenos Aires	6,318	Office Rental	92.5%
Dot Building (3)	Nov-06	11,242	City of Buenos Aires	4,226	Office Rental	84.9%
Zetta Building	Jun-19	32,173	City of Buenos Aires	12,334	Office Rental	97.5%
Suipacha 664	Nov-91	11,465	City of Buenos Aires	1,497	Office Rental	31.20%
Phillips Building	Jun-17	8,017	City of Buenos Aires	2,668	Office Rental	82.70%
San Martín plot (ex Nobleza Picardo)	May-11	109,610	Province of Buenos Aires, Argentina	5,500	Other Rentals	22.5%
Other Properties(5)	N/A	N/A	City and Province of Buenos Aires / Detroit U.S	4,390	Other Rentals	N/A
Abasto Shopping(3)	Nov-99	36,760	City of Buenos Aires, Argentina	6,810	Shopping Mall	94.9%
Alto Palermo Shopping(3)	Dec-97	18,655	City of Buenos Aires, Argentina	8,246	Shopping Mall	91.9%
Alto Avellaneda(3)	Dec-97	38,330	Province of Buenos Aires, Argentina	4,649	Shopping Mall	97.4%
Alcorta Shopping(3)(12)	Jun-97	15,725	City of Buenos Aires, Argentina	4,867	Shopping Mall	97.3%
Patio Bullrich(3)	Oct-98	11,396	City of Buenos Aires, Argentina	2,335	Shopping Mall	91.4%
Alto Noa(3)	Nov-95	19,313	City of Salta, Argentina	1,157	Shopping Mall	99.0%
Mendoza Plaza(3)	Dec-94	43,313	Mendoza, Argentina	1,937	Shopping Mall	97.8%
Alto Rosario (3)	Dec-04	33,681	Santa Fe, Argentina	4,108	Shopping Mall	97.2%
Córdoba Shopping –Villa Cabrera(3)(11)	Dec-06	15,361	City of Córdoba, Argentina	1,266	Shopping Mall	95.4%
Dot Baires Shopping(3)	May-09	48,805	City of Buenos Aires, Argentina	5,239	Shopping Mall	74.6%
Soleil Premium Outlet(3)	Jul-10	15,156	Province of Buenos Aires, Argentina	1,855	Shopping Mall	97.1%
La Ribera Shopping(3)	Aug-11	10,530	Santa Fe, Argentina	584	Shopping Mall	99.0%
Distrito Arcos (3)	Dec-14	14,335	City of Buenos Aires, Argentina	1,891	Shopping Mall	93.8%
Alto Comahue(3)	Mar-15	11,702	Neuquén, Argentina	1,263	Shopping Mall	96.2%
Patio Olmos(3)	Sep-97	-	City of Córdoba, Argentina	899	Shopping Mall	N/A
Caballito Plot of Land (3)	Nov-97	-	City of Buenos Aires	3,154	Land Reserve	N/A
Santa María del Plata	Oct-97	116,100	City of Buenos Aires	19,977	Other Rentals	17.3%
Catalinas Building	May-10	-	City of Buenos Aires	13,544	Offices and Other Rentals	N/A
Luján plot of land(3)	May-08	1,160,000	Province of Buenos Aires, Argentina	960	Mixed uses	N/A
Other Land Reserves (4)	N/A	N/A	City and Province of Buenos Aires	6,585	Land Reserve	N/A
Building annexed to Alto Palermo Shopping	N/A	N/A	City of Buenos Aires	1,763	Properties under development	N/A
Other Developments(15)	N/A	N/A	City of Buenos Aires	227	Properties under development	N/A
Intercontinental Hotel (7) (12)	Nov-97	313	City of Buenos Aires	605	Hotel	53.1%
Libertador Hotel (8) (12)	Mar-98	200	City of Buenos Aires	301	Hotel	37.2%
Llao Llao Hotel (9)(10) (12)	Jun-97	205	City of Bariloche	907	Hotel	43.3%

170

(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 for our Hotels (considering inflation adjustment). The remaining properties are valued at fair value.

(3) Through IRSA CP.

(4) Includes the following land reserves: Pontevedra plot; Mariano Acosta Plot, San Luis Plot, Pilar plot and Merlo plot (through IRSA) and Intercontinental Plot, the building and plot annexed to Dot, Mendoza plot, Mendoza 2.992 East Av. Plot and La Plata plot (through IRSA CP).

(5) Includes the following properties: Anchorena 665, Anchorena 545 (Chanta IV), Zelaya 3102, 3103 y 3105, Madero 1020, La Adela, Paseo del Sol, Libertador 498, Beruti Parking Space, Santa María del Plata and Detroit properties.

(6) Percentage of occupation of each property. Land reserves are assets that the company keeps in the portfolio for future developments.

(7) Through Nuevas Fronteras S.A.

(8) Through Hoteles Argentinos S.A.U.

(9) Through Llao Llao Resorts S.A.

(10) Includes “Terreno Bariloche.”

(11) The cinema building located at Córdoba Shopping – Villa Cabrera is included in Investment Properties, which is encumbered by a right of antichresis as a result of loan due to Empalme by NAI INTERNACIONAL II Inc. Includes “Ocampo parking spaces”

(12) Express in number of rooms.

(13) On July 15, 2020, our subsidiary IRSA CP sold one floor and five parking spaces, on August 26, 2020, it sold five floors and twenty five parking spaces, on November 5, 2020, it sold four floor and fifteen parking spaces and on November 12, 2020, it sold three floors and fifteen parking spaces. For more information, see “Recent Developments – Boston Tower Floor’s sale - Signature of a Purchase ticket regarding Boston Tower floor with possession”.

(14) On July 30, 2020, IRSA CP sold the entire building. For more information see: “Recent Developments – Bouchard 710 Building sale”

(15) Includes the following propertiesdevelopments: EH UT, PH Office Park, Phillips Building and Alto Avellaneda.

 The following table sets forth certain information about our properties for the Operations Center in Israel as of June 30, 2020:

Property	Date of acquisition	Location	Net Book Value	Use
Tivoli	oct-15	United States	14,503	Rental properties
HSBC Building	oct-15	United States	63,829	Rental properties
Others	N/A	Israel	5,939	Rental properties
Tivoli	oct-15	United States	875	Undeveloped parcels of land
Tivoli	oct-15	United States	1,322	Properties under development
Total			86,468

Insurance

Agricultural Business

We carry insurance policies with insurance companies that we consider financially sound. We employ 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	Book Value
		(in millions of ARS )
Buildings, machinery, silos, installation and furniture and equipment	Theft, fire and technical insurance	2,657	5,960
Vehicles	Theft, fire and civil and third parties liability	130	52

171

Urban Properties and Investment Business

IRSA carries all-risk insurance for the shopping malls and other buildings covering property damage caused by fire, terrorist acts, explosion, gas leak, hail, storms and wind, earthquakes, vandalism, theft and business interruption. In addition, IRSA carries liability insurance covering any potential damage to third parties or property caused by the conduct of our business throughout Argentina. IRSA is in compliance with all legal requirements related to mandatory insurance, including insurance required by the Occupational Risk Law (Ley de Riesgos del Trabajo), life insurance required under collective bargaining agreements and other insurance required by laws and executive orders. IRSA’s history of damages is limited to one single claim resulting from a fire in Alto Avellaneda Shopping in March 2006, which loss was substantiaxlly recovered from our insurers. These insurance policies contain specifications, limits and deductibles which we believe are adequate to the risks to which we are exposed in our daily operations. IRSA also maintains liability insurance covering the liability of our directors and corporate officers.

Control Systems

IRCP has computer systems equipped to monitor tenants’ sales (except stands) in all of its shopping malls. IRCP also conduct regular audits of our tenants’ accounting sales records in all of our shopping malls. Almost every store in its shopping malls has a point of sale that is linked to our main server. IRCP uses the information generated from the computer monitoring system to prepare statistical data regarding, among other things, total sales, average sales and peak sale hours for marketing purposes and as a reference for the internal audit. Most of its shopping mall lease agreements require the tenant to have its point of sale system linked to our server.

Item 4A. Unresolved Staff Comments

This item is not applicable.

Item 5. Operating and Financial Review and Prospects

A. CONSOLIDATED OPERATING RESULTS

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.

General

We prepare our Audited Consolidated Financial Statements in pesos and in accordance with IFRS, as issued by the IASB, and with CNV Rules.

Historically, we measured the value of our portfolio of investment properties at cost. Our board of directors resolved to change our accounting policy for measuring the value of our investment properties from the cost model to the fair value model, as permitted under IAS 40. Accordingly, we retroactively recast our previously issued audited consolidated financial statements as of June 30, 2016 and 2015 and for the fiscal years ended June 30, 2016, 2015 and 2014 as required by IAS 40 and IAS 8. We have furnished to the SEC such consolidated financial statements as recast in a report on Form 6-K filed on May 26, 2017.

172

Our Audited Consolidated Financial Statements and the financial information included elsewhere in this annual report have been prepared in accordance with IFRS. We have determined that, as of July 1, 2018, the Argentine economy qualifies as a hyperinflationary economy according to the guidelines of IAS 29 since the total cumulative inflation in Argentina in the 36 months prior to July 1, 2018 exceeded 100%. IAS 29 requires that the financial information recorded in a hyperinflationary currency be adjusted by applying a general price index and expressed in the measuring unit (the hyperinflationary currency) current at the end of the reporting period. Therefore, our Audited Consolidated Financial Statements included in this annual report have been adjusted by applying a general price index and expressed in the measuring unit (the hyperinflationary currency) current at the end of the reporting period (June 30, 2020). See “Risk Factors—Risks Relating to Argentina—A high level of uncertainty with regard to these economic variables, and a general lack of stability in terms of inflation, could have a negative impact on economic activity and adversely affect our financial condition

Revenue Recognition

We identify contracts with customers and evaluates the goods and services committed therein to determine performance obligations and their classification between performance obligations that are satisfied at a given time or over time.

Revenue from satisfaction of performance obligations at a given time is recognized when the client obtains control of the committed asset or service considering whether there is a right to collection, if the client has the physical possession, if the client has the legal right and if they have the transferred the risks and benefits.

Additionally and in accordance with IFRS 15, we recognize revenues over time from the sales of real estate developments in which there is no alternative use for the asset and the Group has the right to demand payment of the contract. When these conditions are not met, the income is recognized at the time of delivery or deed (see detail in Note 2.2).

Revenue from satisfaction of performance obligations over time for real estate developments is recognized by measuring progress towards compliance with the obligation when it can be measured reliably. For this measurement, the Group uses the cost method, that is, the effort consumed by the entity and determines the percentage of progress based on the estimate of the total development costs.

Revenue are recognized at the probable value of the consideration to which it will be entitled in exchange for transferring the products or services to the customer which is not expected to suffer significant changes.

Agricultural and agricultural-related activities:

Revenue from our agricultural activities comes primarily from sales of agricultural produce and biological assets, from provision of services related to the activity and from leases of farmlands.

We recognize revenue on product sales when the agricultural produce or biological assets are delivered and the customers take ownership and assume risk of loss, which is when the products are received by the customer at its or a designated location or collected directly by the customer, collection is reasonably assured and the selling price is fixed or determinable. Net sales of products represent the invoiced value of goods, net of trade discounts and allowances, if any.

We also provides agricultural-related (including but not limited to watering and feedlot services) and brokerage services to third parties. Revenue from services are recognized when services are effective rendered.

We also leases land to third parties under operating lease agreements. Lease income is recognized on a straight-line basis over the period of the lease.

Urban properties and investments activities:

·Rental and services - Shopping malls portfolio

Revenues derived from business activities developed in the Company’s shopping malls mainly include rental income under operating leases, admission rights, commissions and revenue from several complementary services provided to the Group’s lessees.

173

Rental income from shopping mall, admission rights and commissions, are recognized in the Statements of Income on a straight-line basis over the term of the leases. When lease incentives are granted, they are recognized as an integral part of the net consideration for the use of the property and are therefore recognized on the same straight-line basis.

Contingent rents, i.e. lease payments that are not fixed at the inception of a lease, are recorded as income in the periods in which they are known and can be determined. Rent reviews are recognized when such reviews have been agreed with tenants.

The Company’s lease contracts also provide that common area maintenance charges and collective promotion funds of the Group’s shopping malls are borne by the corresponding lessees, generally on a proportionally basis. These common area maintenance charges include all expenses necessary for various purposes including, but not limited to, the operation, maintenance, management, safety, preservation, repair, supervision, insurance and enhancement of the shopping malls. The lessor is responsible for determining the need and suitability of incurring a common area expense. We make the original payment for such expenses, which are then reimbursed by the lessees. We consider that it acts as a principal in these cases. Service charge income is presented separately from property operating expenses. Property operating expenses are expensed as incurred.

·Rental and services - Offices and other rental properties

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

Rental income from offices and other rental properties is recognized in the Statements of Income on a straight-line basis over the term of the leases. When lease incentives are granted, they are recognized as an integral part of the net consideration for the use of the property and are therefore recognized on the same straight-line basis.

A substantial portion of the Company’s leases requires the tenant to reimburse the Company for a substantial portion of operating expenses, usually a proportionate share of the allocable operating expenses. Such property operating expenses include necessary expenses such as property operating, repairs and maintenance, security, janitorial, insurance, landscaping, leased properties and other administrative expenses, among others. We manage its own rental properties. We make the original payment for these expenses, which are then reimbursed by the lessees. We consider that it acts as a principal in these cases. We accrue reimbursements from tenants as service charge revenue in the period the applicable expenditures are incurred and is presented separately from property operating expenses. Property operating expenses are expensed as incurred.

·Revenue from communication services and sale of communication equipment

Revenue derived from the use of the Company’s communication networks, including mobile phones, Internet services, international calls, fixed line calls, interconnection rates and roaming service rates and television, are recognized when the service is provided, proportionally to the extent the transaction has been realized, and provided all other criteria have been met for revenue recognition.

Revenue from the sale of mobile phone cards is initially recognized as deferred revenue and then recognized as revenue as they are used or upon expiration, whichever takes place earlier.

A transaction involving the sale of equipment to a final user normally also involves a service sale transaction. In general, this type of sale is performed without a contractual obligation by the client to consume telephone services for a minimum amount over a predetermined period. As a result, the Company records the sale of equipment separately of the performance obligations and recognizes revenue pursuant to the transaction value upon delivery of the equipment to the client. Revenue from telephone services is recognized and accounted for as they are provided over time. When the client is bound to make a minimum consumption of services during a predefined period, the contract formalizes a transaction of several elements and, therefore, revenue from the sale of equipment is recorded at an amount that should not exceed its fair value, and is recognized upon delivery of the equipment to the client and provided the criteria for recognition are met. The Company ascertains the fair value of individual elements, based on the price at which it is normally sold, after taking into account the relevant discounts.

174

Revenue derived from long-term contracts is recognized at the present value of future cash flows, discounted at market rates prevailing on the transaction date. Any difference between the original credit and its net present value is accounted for as interest income over the credit term.

·Revenues from supermarkets

Revenue from the sale of goods in the ordinary course of business is recognized at the fair value of the consideration collected or receivable, net of returns and discounts. When the credit term is short and financing is that typical in the industry, consideration is not discounted. When the credit term is longer than the industry’s average, in accounting for the consideration, the Company discounts it to its net present value by using the client’s risk premium or the market rate. The difference between the fair value and the nominal amount is accounted for under financial income. If discounts are granted and their amount can be measured reliably, the discount is recognized as a reduction of revenue.

Revenues from supermarkets have been recognized in discontinued operations

Effects of the global macroeconomic factors

Most of our assets are located in Argentina, where we conduct our operations, and in Israel and Brazil. Therefore, our financial condition and the results of our operations are significantly dependent upon economic conditions prevailing in that countries.

The table below shows Argentina’s GDP, inflation rates, dollar exchange rates, the appreciation (depreciation) of the Peso against the U.S. dollar, and the appreciation (depreciation) of the NIS against the U.S. dollar for the indicated periods (inter-annual information—which is the 12 month period preceding the dates presented—is presented to conform to our fiscal year periods).

	Fiscal year ended June 30,
	2020	2019	2018
	(inter-annual data)
GDP (1)	(19.1)%	(3.7)%	2.0%
Inflation (IPIM)(2)	39.7%	60.8%	44.1%
Inflation (CPI)	42.8%	55.8%	29.5%
Depreciation of the Peso against the U.S. dollar	(66.1)%	(47.1)%	(73.7)%
Average exchange rate per USD1.00(3)	ARS 70.3600	ARS 42.3630	ARS 28.8000
Appreciation/ (depreciation) of the NIS against the U.S. Dollar	3.0%	2.4%	(4.8)%

(1) Represents inter annual growth of the last twelve months GDP average at constant prices (2004).

(2) 

IPIM (Índice de Precios Internos al por Mayor) is the wholesale price index as measured by the Argentine Ministry of Treasury.

(3) 

Represents average of the selling and buying exchange ratequoted by Banco de la Nación Argentina as of June 30, 2020. As of November 13, 2020, the exchange rate was 79.7500 per U.S. Dollar.

Sources: INDEC and Banco de la Nación Argentina.

Argentine GDP contracted 19.1% during our 2020 fiscal year, compared to a contraction of 3.7% in our fiscal year 2019. Nationally, shopping mall sales decreased 82.2% in the fiscal 2020 compared to fiscal 2019. As of June 30, 2020, the unemployment rate was at 13.1% of the country’s economically active population compared to 10.6% as of June 30, 2019. The monthly estimate of economic activity (“EMAE”) as of June 30, 2020, contracted by 12.3% compared to the same month in 2019. In the second quarter of 2020, the activity rate was 38.4%, the employment rate was 33.4% and the unemployment rate was 13.1%.

In the context of the health emergency related to the COVID-19 pandemic, the main impact on the labor market was verified in the dynamics of the employment rate (TE), which measures the proportion of employed persons in relation to the total population. The second quarter of 2020 showed a drop of 8.8 percentage points (p.p.) compared to the first quarter of the year and of 9.2 p.p. compared to the second quarter of 2019, driven by the lower proportion of people who were able to report to work. Due to Covid-19, total sales at current prices in the month of June 2020 relevant to the survey reached a total of ARS 2,841.6 million, which represents a decrease of 82.2% compared to the month of June 2019.

175

Changes in short- and long-term interest rates, unemployment and inflation rates may reduce the availability of consumer credit and the purchasing power of individuals who frequent shopping malls. These factors, combined with low GDP growth, may reduce general consumption rates at our shopping malls. Since most of the lease agreements in our shopping malls, our main source of revenue, require tenants to pay a percentage of their total sales as rent, a general reduction in consumption may reduce our revenue. A reduction in the number of shoppers at our shopping malls and, consequently, in the demand for parking, may also reduce our revenues from services rendered.

Regarding Israel’s economy, and based on information published by OECD, despite a decline in residential investment, activity remained solid at the beginning of 2018, with strong public consumption and good export performance, particularly of services. After picking up to 3.3% in 2017, growth is projected to be around 3.7% in 2018 and 3.6% in 2019. Rising wage pressures are projected to lead to a steady increase in inflation. Changes in short- and long-term interest rates, unemployment and inflation rates may reduce the availability of consumer credit and the purchasing power of individuals who frequent shopping malls. These factors, combined with low GDP growth, may reduce general consumption rates at our shopping malls. Since most of the lease agreements in our shopping malls, our main source of revenue, require tenants to pay a percentage of their total sales as rent, a general reduction in consumption may reduce our revenue. A reduction in the number of shoppers at our shopping malls and, consequently, in the demand for parking, may also reduce our revenues from services rendered.

Regarding Israel’s economy, and based on information published by OECD, despite a decline in residential investment, activity remained solid at the beginning of 2018, with strong public consumption and good export performance, particularly of services. After picking up to 3.3% in 2017, growth is projected to be around 3.7% in 2018 and 3.6% in 2019. Rising wage pressures are projected to lead to a steady increase in inflation.

Effects of inflation

The following are annual inflation rates during the fiscal years indicated, based on information published by the INDEC, an entity dependent of the Argentine Ministry of Treasury.

	Consumerprice index	Wholesaleprice index
	(inter-annual data)
Fiscal year ended June 30,
2018	29.5%	44.1%
2019	55.8%	60.8%
2020	42.8%	39.7%

The current structure of IRSA CP’s leases contracts for shopping mall tenants generally includes provisions that provide for payment of variable rent, which is a percentage of of the IRSA CP’s shopping mall tenant’s sales. Therefore, the projected cash flows for these shopping malls generally are highly correlated with GDP growth and consumption power.

For the leases of spaces at our shopping malls we use for most tenants a standard lease agreement, the terms and conditions of which are described elsewhere in this annual report However, our 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.

The rent specified in our leases generally is the higher of (i) a monthly Base Rent and (ii) a specified percentage of the store’s monthly gross sales, which generally ranges between 2% and 10% of such sales. In addition, pursuant to the rent escalation clause in most of our leases, a tenant’s Base Rent generally increases between 10% and 15% on a semi annual and cumulative basis from the seventh (7th) month following effectiveness of the lease. Although many of our lease agreements contain price adjustment provisions, these are not based on an official index nor do they reflect the inflation index. In the event of litigation regarding these adjustment provisions, there can be no assurance that we may be able to enforce such clauses contained in our lease agreements. See “Information of the Company—Business Overview—Our Shopping Malls—Principal Terms of our Leases.”

176

Continuing increases in the rate of inflation are likely to have an adverse effect on our operations. Although higher inflation rates in Argentina may increase minimum lease payments, given that tenants tend to pass on any increases in their expenses to consumers, higher inflation may lead to an increase in the prices our tenants charge consumers for their products and services, which may ultimately reduce their sales volumes and consequently the portion of rent we receive based on our tenants’ gross sales.In addition, we measure the fair market value of our shopping malls based upon the estimated cash flows generated by such assets which, as discussed in previous paragraphs, is directly related to consumer spending since a significant component of the rent payment received from our tenants is tied to the sales realized by such tenants (i.e is a percentage of the sales of our tenants). Therefore, macroeconomic conditions in Argentina have an impact in the fair market value of our shopping malls as measured in Argentine pesos. Specifically, since our tenant’s products have been adjusted (increased) to account for inflation of the Argentine peso, our expected cash flows from our shopping malls have similarly increased in nominal terms since rent is largely dependent on sales of our tenants in pesos.

Seasonality

IRSA’s shopping malls business is directly affected by seasonality, influencing the level of our tenants’ sales. During Argentine summer holidays (January and February) our tenants’ sales typically reach their lowest level, whereas during winter holidays (July) and in Christmas (December) they reach their maximum level. Clothing retailers generally change their collections in spring and autumn, positively affecting our shopping malls’ sales. Discount sales at the end of each season are also one of the main seasonal factors affecting our business. See “Item 5.A. Operating Results – The Ongoing COVID-19 Pandemic.”

In Israel, the retail segment business’s results are subject to seasonal fluctuations as a result of the consumption behavior of the population proximate to the Passover holidays (March and/or April) and Rosh Hashanah and Sukkoth holidays (September and/or October). This also affects the balance sheet values of inventory, customers and suppliers. Revenues from cellular services are usually affected by seasonality with the third quarter of the year characterized by higher roaming revenues due to increased incoming and outgoing tourism. On July 23, 2020, DIC concluded a sales agreement for a total amount of Shufersal’s shares, the consideration received was of NIS 1,456 million. For more information see: “IRSA’s Recent Developments - Sale of DIC shares in Shufersal”

Effects of interest rate fluctuations

Most of our U.S. dollar-denominated debt accrues interest at a fixed rate. An increase in interest rates will result in a significant increase in our financing costs and may materially affect our financial condition or our results of operations.

In addition, a significant increase of interest rates could deteriorate the terms and conditions in which our tenants obtain financing from banks and financial institutions in the market. As a consequence of that, if they suffer liquidity problems the collection of our lease contracts could be affected by an increase in the level of delinquency

Effects of foreign currency fluctuations

A significant portion of our financial debt is denominated in U.S. dollars. Therefore, a devaluation or depreciation of the peso against the U.S. dollar would increase our indebtedness measured in pesos and materially affect our results of operations. Foreign currency exchange restrictions imposed by the Argentine government could prevent or restrict our access to U.S. dollars, affecting our ability to service our U.S. dollar denominated liabilities.

In addition, contracts for the rental of office buildings are generally stated in U.S. dollars, so a devaluation or depreciation of the peso against the U.S. dollar would increase the risk of delinquency on our lease receivables.

177

As discussed above, we calculate the fair market value of our office properties based on comparable sales transactions. Typically real estate transactions in Argentina are transacted in U.S. dollars. Therefore, a devaluation or depreciation of the peso against the U.S. dollar would increase the value of our real estate properties measured in pesos and an appreciation of the peso would have the opposite effect. In addition, foreign currency exchange restrictions imposed by Argentine government could prevent or restrict the access to U.S. dollars for the acquisition of real estate properties, which are denominated and transacted in U.S dollars in Argentina, that could affect our ability to sell or acquire real estate properties and could have an adverse impact in real estate prices.

For more information about the evolution of the U.S dollar / Peso exchange rate, see “Exchange Rate and Exchange Controls”.

Fluctuations in the market value of our investment properties as a result of revaluations

Currently, our interests in investment properties are revalued quarterly. Any increase or decrease in the fair value of our investment properties, based on appraisal reports prepared by appraisers, is recorded in our consolidated statement of comprehensive income for the fiscal year during which the revaluation occurs. The revaluation of our properties may therefore result in significant fluctuations in the results of our operations.

Property values are affected by, among other factors, a) shopping malls, which are mainly impacted by the discount rate used (WACC), the projected GDP growth and the projected inflation and devaluation for future periods and b) office buildings, which are mostly impacted by the supply and demand of comparable properties and the U.S. dollar / peso exchange rate at the reporting period, as office buildings fair value is generally established in U.S. dollars For example:

● 

during the 2018 fiscal year there was a 73.5% depreciation of the peso from ARS 16.63 to USD1.00 as of June 30, 2017 to ARS 28.85 to USD1.00 as of June 30, 2018; and

● 

during the 2019 fiscal year, there was a 47.1% depreciation of the peso from ARS 28.85 to USD1.00 as of June 30, 2018 to ARS 42.363 to USD1.00 as of June 30, 2019.

●

during the 2020 fiscal year, there was a 66.1% depreciation of the peso from ARS 42.363 to USD1.00 as of June 30, 2019 to ARS 70.36 to USD1.00 as of June 30, 2020.

The value of the Company investment properties is determined in U.S. dollar pursuant to the methodologies further described in “Critical Accounting Policies and estimates” and then determined in pesos (the Company functional and presentation currency).

In the past, purchases and sales of office buildings were usually settled in US dollars, However, as a consequence of the restrictions imposed by the BCRA on foreign exchange transactions, purchase and sales of office buildings are now usually settled in Argentine pesos, using an implicit exchange rate that is higher than the official one (as it was the case in the operations carried out by IRSA CP in the past few months). Therefore, IRSA CP has valued its office buildings and undeveloped parcels of land in Argentine pesos at the end of the year, considering the situation described above, which results in a gain with respect to the values ​​previously recorded.

Factors Affecting Comparability of our Results Factors Affecting Comparability of our Results

Comparability of information

Operations Center in Argentina

Office buildings

On June 30, 2019, IRSA CP’s Office portfolio consisted of 115,378 square meters of GLA after incorporating the recently inaugurated Zetta building. Additionally, IRSA CP acquired the Maltería Hudson plot that has a surface area of 147,895 square meters and approximately 40,000 GLA at the intersection of Route 2 and Buenos Aires - La Plata highway.

On June 30, 2020, IRSA CP has acquired as an investment property the building “200 Della Paolera” located in Catalinas District in Buenos Aires. It consists of 35,208 square meters of gross leasable area over 30 office floors and includes 316 parking lots in 4 basements. 

178

Shopping malls

During the fiscal years ended June 30, 2020 and 2019, we maintained the same portfolio of operating shopping malls. During the fiscal year ended June 30, 2019, the surface area of our Shopping Malls segment was reduced by 11,875 square meter due to the return of Buenos Aires Design, whose concession terminated in November 2018.

Operations Center in Israel

IDBD and DIC, our principal subsidiaries in the Operations Center in Israel, report their quarterly and annual results following Israeli regulations, whose filing deadlines fall after the filing deadlines in Argentina. In addition, IDBD and DIC fiscal year ends differ from our fiscal year end, consequently, we consolidate the results of operations from IDBD and DIC on a three-month lag basis adjusted for the effects of any significant transactions taking place within such period. As such, our consolidated statement of income for the year ended June 30, 2020 includes the results of IDBD and DIC for the 12-month period from April 1, 2019 to March 31, 2020, adjusted for the significant transactions that occurred between April 1, 2020 and June 30, 2020.

Critical Accounting Policies and Estimates

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 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 our disclosure of significant IFRS accounting policies, which is provided in Note 2 to our Audited Consolidated Financial Statements, “Summary of significant accounting policies”.

The following is intended to provide an understanding of the policies that management considers critical because of the level of complexity, judgment or estimations involved in their application and their impact on the Audited Consolidated Financial Statements. These judgments involve assumptions or estimates in respect of future events. Actual results may differ from these estimates.

179

Estimation	Main assumptions	Potential implications
Business combination - Allocation of acquisition prices	Assumptions regarding timing, amount of future revenues and expenses, revenue growth, expected rate of return, economic conditions, and discount rate, among other.	Should the assumptions made be inaccurate, the recognized combination may not be correct.
Recoverable amounts of cash-generating units (even those including goodwill), associates and assets.	The discount rate and the expected growth rate before taxes in connection with cash-generating units. The discount rate and the expected growth rate after taxes in connection with associates. Cash flows are determined based on past experiences with the asset or with similar assets and in accordance with the Group’s best factual assumption relative to the economic conditions expected to prevail. Business continuity of cash-generating units. Appraisals made by external appraisers and valuators with relation to the assets’ fair value, net of realization costs (including real estate assets).	Should any of the assumptions made be inaccurate; this could lead to differences in the recoverable values of cash-generating units.
Control, joint control or significant influence	Judgment relative to the determination that the Group holds an interest in the shares of investees (considering the existence and influence of significant potential voting rights), its right to designate members in the executive management of such companies (usually the Board of directors) based on the investees’ bylaws; the composition and the rights of other shareholders of such investees and their capacity to establish operating and financial policies for investees or to take part in the establishment thereof.	Accounting treatment of investments as subsidiaries (consolidation) or associates (equity method)
Estimated useful life of intangible assets and property, plant and equipment	Estimated useful life of assets based on their conditions.	Recognition of accelerated or decelerated depreciation by comparison against final actual earnings (losses).
Fair value valuation of investment properties	Fair value valuation made by external appraisers and valuators. See Note 9 to our Audited Consolidated Financial Statements.	Incorrect valuation of investment property values
Income tax	The Group estimates the income tax amount payable for transactions where the Treasury’s Claim cannot be clearly determined. Additionally, the Group evaluates the recoverability of assets due to deferred taxes considering whether some or all of the assets will not be recoverable.	Upon the improper determination of the provision for income tax, the Group will be bound to pay additional taxes, including fines and compensatory and punitive interest.
Allowance for doubtful accounts	A periodic review is conducted of receivables risks in the Group’s clients’ portfolios. Bad debts based on the expiration of account receivables and account receivables’ specific conditions.	Improper recognition of charges / reimbursements of the allowance for bad debt.
Level 2 and 3 financial instruments	Main assumptions used by the Group are: ●Discounted projected income by interest rate ●Values determined in accordance with the shares in equity funds on the basis of its Financial Statements, based on fair value or investment assessments. ●Comparable market multiple (EV/GMV ratio). ●Underlying asset price (Market price); share price volatility (historical) and market interest rate (Libor rate curve).	Incorrect recognition of a charge to income / (loss).
Probability estimate of contingent liabilities.	Whether more economic resources may be spent in relation to litigation against the Group, such estimate is based on legal advisors’ opinions.	Charge / reversal of provision in relation to a claim.
Qualitative considerations for determining whether or not the replacement of the debt instrument involves significantly different terms	The entire set of characteristics of the exchanged debt instruments, and the economic parameters represented therein: Average lifetime of the exchanged liabilities; Extent of effects of the debt terms (linkage to index; foreign currency; variable interest) on the cash flows from the instruments.	Classification of a debt instrument in a manner whereby it will not reflect the change in the debt terms, which will affect the method of accounting recording.
Biological assets	Main assumptions used in valuation are yields, production costs, selling expenses, forwards of sales prices, discount rates.	Wrong recognition/valuation of biological assets. See sensitivities modeled on these parameters in Note 14 to our Audited Consolidated Financial Statements.

180

Business Segment Information

IFRS 8 requires 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 CODM. According to IFRS 8, the CODM represents a function whereby strategic decisions are made and resources are assigned. The CODM function is carried out by our chief executive officer, Mr. Eduardo S. Elsztain. In addition, and due to the acquisition of IDBD, two responsibility levels have been established for resource allocation and assessment of results of the two operations centers, through executive committees in Argentina and Israel.

Segment information is analyzed by the CODM from two perspectives: by geography (Argentina and Israel) and by products and services. In each operations center, the Company considers separately the various activities being developed, which represent reporting operating segments given the nature of its products, services, operations and risks. Management believes the operating segment clustering in each operations center reflects similar economic characteristics in each region, as well as similar products and services offered, types of clients and regulatory environments.

As of fiscal year 2018, the CODM reviews certain corporate expenses associated with each operations center in an aggregate manner and separately from each of the segments, and such expenses have been disclosed in the “Corporate” segment of each operation center. Additionally, as of fiscal year 2018, the “Offices” business is being monitored as a separate segment, while the entertainment business is now being monitored within the “Others” segment. Segment information for the year 2017 has been consequently recast for purposes of comparability with the present year.

The "Agricultural production" segment consists of planting, harvesting and sale of crops as wheat, corn, soybeans, cotton and sunflowers; the sale of grain derivatives, such as flour and oil, breeding, purchasing and/or fattening of free-range cattle for sale to meat processors and local livestock auction markets; agricultural services; leasing of the Group's farms to third parties; and planting, harvesting and sale of sugarcane.

In the third quarter of the fiscal year 2018, we have changed the presentation of the agricultural business segment which is monitored regularly by the CODM for a better alignment with the current business structure. The former four operating segments (crops, cattle, dairy and sugarcane) have been aggregated into a single operating segment named “Agricultural production”. Management considered for the aggregation the nature of the production processes (growing of biological assets), the methods used to distribute their products and the nature of the regulatory environment (agricultural business). Therefore this quarter four segments are considered:

Agricultural business:

In the third quarter of the fiscal year 2018, we have changed the presentation of the agricultural business segments which are reviewed by the CODM for a better alignment with the current business vision and the metrics used to such end. Four operating segments (crops, cattle, dairy and sugarcane) have been aggregated into a single operating segment named “Agricultural production”. Management consider for the aggregation the nature of the production processes (growing of biological assets), the methods used to distribute their products and the nature of the regulatory environment (agricultural business). Therefore this quarter three segments are considered:

The “Agricultural production” segment consists of planting, harvesting and sale of crops as wheat, corn, soybeans, cotton and sunflowers; the sale of grain derivatives, such as flour and oil, breeding, purchasing and/or fattening of free-range cattle for sale to meat processors and local livestock auction markets; agricultural services; leasing of the Group's farms to third parties; and planting, harvesting and sale of sugarcane.

The “Land transformation and sales” segment comprises gains from the disposal and development of farmlands activities

The “Other” segment includes, principally, slaughtering and processing in the meat refrigeration plant; and brokerage activities, among others.

The “Corporate” segment includes corporate expenses related to agricultural business.

181

Urban properties and investments business:

Operations Center in Argentina

Within this center, IRSA operates in the following segments:

The “Shopping Malls” segment includes results principally comprised of lease and service revenues related to rental of commercial space and other spaces in the shopping malls of the Company.

● 

The “Offices” segment includes the operating results from lease revenues of offices, other rental spaces and other service revenues related to the office activities.

● 

The “Sales and Developments” segment includes the operating results of the development, maintenance and sales of undeveloped parcels of land and/or trading properties. Real estate sales results are also included.

● 

The “Hotels” segment includes the operating results mainly comprised of room, catering and restaurant revenues.

● 

The “International” segment includes assets and operating profit or loss from business related to associates Condor (hotels) and New Lipstick (offices).

● 

The “Others” s segment primarily includes the entertainment activities through La Arena and La Rural S.A. and the financial activities carried out by BHSA and Tarshop.

● 

The “Corporate” segment includes the expenses related to the corporate activities of the Operations Center in Argentina.

The CODM periodically reviews the results and certain asset categories, assesses performance of operating segments and allocates resources within this operations center based on a measure of profit or loss of the segment represented by the operating income (loss) plus the share of profit / (loss) of joint ventures and associates. The valuation criteria used in preparing this information are consistent with IFRS standards used for the preparation of the Audited Consolidated Financial Statements, except for the following:

● 

Operating results from joint ventures are evaluated by the CODM applying proportional consolidation method. Under this method the profit/loss generated and assets are reported in the Statement of Income line-by-line based on the percentage held in joint ventures rather than in a single item as required by IFRS. Management believes that the proportional consolidation method provides more useful information to understand the business return. On the other hand, the investment in the joint venture La Rural S.A. is accounted for under the equity method since this method is considered to provide more accurate information in this case.

● 

Operating results from Shopping Malls and Offices segments do not include the amounts pertaining to building administration expenses and collective promotion funds (“FPC”, as per its Spanish acronym) as well as total recovered costs, whether by way of expenses or other concepts included under financial results (for example default interest and other concepts). The CODM examines the net amount from these items (total surplus or deficit between building administration expenses and FPC and recoverable expenses).

The assets’ categories examined by the CODM are: investment properties, property, plant and equipment, trading properties, inventories, right to receive future units under barter agreements, investment in associates and goodwill. The sum of these assets, classified by business segment, is reported under “assets by segment”. Assets are allocated to each segment based on how they are used in the operations and/or their physical location.

Within the Operations Center in Argentina, most revenue from its operating segments is derived from, and their assets are located in, Argentina, except for the share of profit / (loss) of associates included in the “International” segment located in USA.

Revenues for each reporting segments derive from a large and diverse client base and, therefore, there is no revenue concentration in any particular segment.

182

Operations Center in Israel

Within this center, as of June 30, 2020,  IRSA operated in the following segments:

The “Real Estate” segment through PBC, the Company operates rental properties and residential properties in Israel, USA and other parts of the world and carries out commercial projects in Las Vegas, USA.

The “Telecommunications” segment includes Cellcom whose main activities include the provision of mobile phone services, fixed line phone services, data and Internet and television, among others.

The “Others” segment includes other diverse business activities, such as technological developments, tourism, oil and gas assets, electronics, and others.

The “Corporate” segment includes the expenses related with the activities of the holding companies.

The Company consolidates results derived from its operations center in Israel with a three month lag, adjusted for the effects of significant transactions. For the fiscal year ended June 30, 2020, a full twelve-month period is consolidated, also with a three-month lag and adjusted for the effects of significant transactions.

Goods and services exchanged between segments are calculated on the basis of established prices. Intercompany transactions between segments, if any, are eliminated. Within the agricultural business, most revenue from its operating segments are generated from, and their assets are located in Argentina and Brazil. Within the urban properties and investment business, the Operations Center in Argentina, has most its revenue from its operating segments derived from, and their assets are located in, Argentina, except for the share of profit / (loss) of associates included in the “International” segment located in USA. In the operations center in Israel, also within the urban properties and investment business, most revenue from its operating segments is derived from and their assets are located in Israel, except for certain earnings from the Real Estate segment which are generatedfrom activities outside Israel, mainly in USA. For the agricultural business and the urban properties and investments business from the operations center in Argentina, the assets categories reviewed by the CODM are investment properties, property, plant and equipment, investment in joint ventures and associates and other reportable assets (goodwill and trading properties, inventories, biological assets and right to receive future units under barter agreements). The aggregate of these assets, classified by operating segment, are disclosed as “segment assets”. Assets are allocated to each segment based on the operations and/or their physical location.

183

Below is a summarized analysis of the operating segments of the Company for the year ended June 30, 2020:

	06.30.20
		Urban Properties and Investment business (II)
	Agricultural business (I)	Operations Center in Argentina	Operations Center in Israel	Subtotal	Total segment information	Joint ventures (i)	Discontinued operations (ii)	Adjustments (iii)	Elimination of inter-segment transactions and non-reportable assets / liabilities (iv)	Total Statement of Income / Financial Position
	(In million of ARS)
Revenues	26,259	11,138	81,637	92,775	119,034	(60)	-	3,100	(818)	121,256
Costs	(22,283)	(2,755)	(56,296)	(59,051)	(81,334)	53	-	(3,230)	540	(83,971)
Initial recognition and changes in the fair value of biological assets and agricultural products at the point of harvest	2,623	-	-	-	2,623	-	-	-	204	2,827
Changes in the net realizable value of agricultural products after harvest	657	-	-	-	657	-	-	-	-	657
Gross profit / (loss)	7,256	8,383	25,341	33,724	40,980	(7)	-	(130)	(74)	40,769
Gain from disposal of farmlands	838	-	-	-	838	-	-	-	-	838
Net gain from fair value adjustment of investment properties	780	33,464	(2,989)	30,475	31,255	(263)	-	-	-	30,992
General and administrative expenses	(1,419)	(2,150)	(8,764)	(10,914)	(12,333)	15	-	-	51	(12,267)
Selling expenses	(2,61)	(1,232)	(12,544)	(13,776)	(16,386)	19	-	-	19	(16,348)
Impairment of associates	-	-	(2,470)	(2,470)	(2,470)	-	-	-	-	(2,470)
Other operating results, net	1,662	(48)	1,127	1,079	2,741	18	-	17	(6)	2,770
Management fees	-	-	-	-	-	-	-	(211)	-	(211)
Profit / (loss) from operations	6,507	38,417	(299)	38,118	44,625	(218)	-	(324)	(10)	44,073
Share of profit / (loss) of associates and joint ventures	127	7,047	1,299	8,346	8,473	169	-	-	20	8,662
Segment profit / (loss)	6,634	45,464	1	46,464	53,098	(49)	-	(324)	10	52,735
							-
Reportable assets	37,070	157,987	451,267	609,254	646,324	(671)	-	-	41,287	686,94
Reportable liabilities	-	-	(403,184)	(403,184)	(403,184)	-	-	-	(161,603)	(564,787)
Net reportable assets	37,070	157,987	48,083	206,070	243,140	(671)	-	-	(120,316)	122,153

184

Below is a summarized analysis of the operating segments of the Company for the year ended June 30, 2019:

	06.30.19
		Urban Properties and Investment business (II)
	Agricultural business (I)	Operations Center in Argentina	Operations Center in Israel	Subtotal	Total segment information	Joint ventures (i)	Discontinued operations (ii)	Adjustments (iii)	Elimination of inter-segment transactions and non-reportable assets / liabilities (iv)	Total Statement of Income / Financial Position
	(In million of ARS)
Revenues	19,061	15,056	73,537	88,593	107,654	(93)	-	3,706	(526)	110,741
Costs	(16,165)	(3,201)	(52,426)	(55,627)	(71,792)	67	-	(3,855)	196	(75,384)
Initial recognition and changes in the fair value of biological assets and agricultural products at the point of harvest	2,035	-	-	-	2,035	-	-	-	270	2,305
Changes in the net realizable value of agricultural products after harvest	(43)	-	-	-	(43)	-	-	-	-	(43)
Gross profit / (loss)	4,888	11,855	21,111	32,966	37,854	(26)	-	(149)	(60)	37,619
Net gain from fair value adjustment of investment properties	665	-	-	-	665	-	-	-	-	665
Gain / (loss) from disposal of farmlands	-	(39,477)	892	(38,585)	(38,585)	839	-	-	-	(37,746)
General and administrative expenses	(1,525)	(2,668)	(8,031)	(10,699)	(12,224)	17	-	-	55	(12,152)
Selling expenses	(1,717)	(1,085)	(11,192)	(12,277)	(13,994)	7	-	-	11	(13,976)
Other operating results, net	819	(659)	742	83	902	193	-	17	(11)	1,101
Management fees	-	-	-	-	-	-	-	-	-	-
Profit / (loss) from operations	3,130	(32,034)	3,522	(28,512)	(25,382)	1,030	-	(132)	(5)	(24,489)
Share of profit / (loss) of associates and joint ventures	11	(6,183)	(150)	(6,333)	(6,322)	(1,006)	-	-	-	(7,328)
Segment profit / (loss)	3,141	(38,217)	3,372	(34,845)	-31,704	24	-	(132)	(5)	(31,817)
Reportable assets	34,597	111,717	535,565	647,282	681,879	(592)	-	-	44,747	726,034
Reportable liabilities	-	-	(461,015)	(461,015)	(461,015)	-	-	-	(137,818)	(598,833)
Net reportable assets	34,597	111,717	74,55	186,267	220,864	(592)	-	-	(93,071)	127,201

185

Below is a summarized analysis of the operating segments of the Company for the year ended June 30, 2018:

	06.30.18
		Urban Properties and Investment business (II)
	Agricultural business (I)	Operations Center in Argentina	Operations Center in Israel	Subtotal	Total segment information	Joint ventures (i)	Adjustments (iii)	Elimination of inter-segment transactions and non-reportable assets / liabilities (iv)	Total Statement of Income / Financial Position
	(In million of ARS)
Revenues	15,393	13,872	60,057	73,929	89,322	(111)	4,387	(332)	93,266
Costs	(13,096)	(2,822)	(41,935)	(44,757)	(57,853)	69	(4,445)	151	(62,078)
Initial recognition and changes in the fair value of biological assets and agricultural products at the point of harvest	1,53	-	-	-	1,530	4	-	140	1,674
Changes in the net realizable value of agricultural products after harvest	532	-	-	-	532	-	-	-	532
Gross profit / (loss)	4,359	11,05	18,122	29,172	33,531	(38)	(58)	(41)	33,394
Net gain from fair value adjustment of investment properties	216	19,809	-	19,809	20,025	(1,054)	-	-	18,971
Gain from disposal of farmlands	1,656	-	-	-	1,656	-	-	-	1,656
General and administrative expenses	(1,381)	2,335)	(7,233)	(9,568)	(10,949)	40	-	33	(10,876)
Selling expenses	(1,753)	(1,126)	(10,639)	(11,765)	(13,518)	16	-	13	(13,489)
Other operating results, net	1,541	(56)	2,136	2,080	3,621	42	(2)	(4)	3,657
Management fees	-	-	-	-	-	-	(1,456)	-	(1,456)
Profit / (loss) from operations	4,638	27,342	2,386	29,728	34,366	(994)	(1,516)	1	31,857
Share of (loss) / profit of associates and joint ventures	37	(4,227)	(422)	(4,649)	(4,612)	1,16	-	-	(3,452)
Segment profit / (loss)	4,675	23,115	1,964	25,079	29,754	166	(1,516)	1	28,405
Reportable assets	30,755	152,86	563,654	716,514	747,269	592	-	49,183	797,044
Reportable liabilities	-	-	(479,056)	(479,056)	(479,056)	-	-	(141,534)	(620,590)
Net reportable assets	30,755	152,86	84,598	237,458	268,213	592	-	(92,351)	176,454

(i)  Represents the equity value of joint ventures that were proportionately consolidated for information by segment purposes.

(ii) Includes ARS (130) million, ARS (149) million and ARS (58) million corresponding to Expenses and FPC and ARS 0 million, ARS (336) million and ARS (1,456) million to management fees, as of June 30, 2020 and 2018, respectively.

(iii) Includes deferred income tax assets, income tax and MPIT credits, trade and other receivables, investment in financial assets, cash and cash equivalents and intangible assets except for rights to receive future units under barter agreements, net of investments in associates with negative equity which are included in provisions in the amount of ARS 17 million, ARS 8,658 and ARS 5,453 million, as of June 30, 2020, 2019 and 2018, respectively.

186

Agriculture line of business:

The following tables present the operating segments by products and services within the agriculture line of business:

	06.30.20
	Agricultural production	Land transformation and sales	Corporate	Others	Total Agricultural business
	(in million of ARS)
Revenues	17,186	-	-	9,073	26,259
Costs	(14,676)	(25)	-	(7,582)	(22,283)
Initial recognition and changes in the fair value of biological assets and agricultural products at the point of harvest	2,613	-	-	10	2,623
Changes in the net realizable value of agricultural products after harvest	657	-	-	-	657
Gross profit / (loss)	5,78	(25)	-	1,501	7,256
Gain from disposal of farmlands	-	838	-	-	838
Net gain from fair value adjustment of investment properties	-	780	-	-	780
General and administrative expenses	(953)	(3)	-177	(286)	(1,419)
Selling expenses	(1,815)	(1)	-	(794)	(2,610)
Other operating results, net	454	962	-	246	1,662
Management fees	-	-	-	-	-
Profit / (loss) from operations	3,466	2,551	-177	667	6,507
Share of profit / (loss) of associates	55	-	-	72	127
Segment profit / (loss)	3,521	2,551	-177	739	6,634
	-
Investment properties	4,129	-	-	-	4,129
Property, plant and equipment	20,886	179	-	54	21,119
Investments in associates	419	-	-	293	712
Other reportable assets	7,283	331	-	3,496	11,11
Reportable assets	32,717	510	-	3,843	37,07

From all of the Company’s revenues corresponding to Agricultural Business, ARS 18,167 million are originated in Argentina and ARS 8,092 million in other countries, principally in Brazil for ARS 7,278 million.

From all of the Company’s assets included in the segment corresponding to Agricultural Business, ARS 13,269 million are located in Argentina and ARS 23,801 million in other countries, principally in Brazil for ARS 18.912 million.

	06.30.19
	Agricultural production	Land transformation and sales	Corporate	Others	Total Agricultural business
	(In million of ARS)
Revenues	11,1	-	-	7,961	19,061
Costs	(9,466)	(24)	-	(6,675)	(16,165)
Initial recognition and changes in the fair value of biological assets and agricultural products at the point of harvest	2,029	-	-	6	2,035
Changes in the net realizable value of agricultural products after harvest	(43)	-	-	-	(43)
Gross profit / (loss)	3,62	(24)	-	1,292	4,888
Net gain from fair value adjustment of investment properties	-	665	-	-	665
Gain from disposal of farmlands	-	-	-	-	-
General and administrative expenses	(959)	(3)	(274)	(289)	(1,525)
Selling expenses	(1,026)	(1)	-	(690)	(1,717)
Other operating results, net	428	244	-	147	819
Management fees	-	-	-	-	-
(Loss) / Profit from operations	2,063	881	(274)	460	3,130
Share of profit / (loss) of associates	57	-	-	(46)	11
Segment (loss) / profit	2,12	881	(274)	414	3,141
Investment properties	2,634	-	-	-	2,634
Property, plant and equipment	20,219	149	-	767	21,135
Investments in associates	391	-	-	23	414
Other reportable assets	8,472	-	-	1,942	10,414
Reportable assets	31,716	149	-	2,732	34,597

From all of the Company’s revenues corresponding to Agricultural Business, ARS 12,680 million are originated in Argentina and ARS 6,381 million in other countries, principally in Brazil for ARS 5,923 million.

From all of the Company’s assets included in the segment corresponding to Agricultural Business, ARS 13,765 million are located in Argentina and ARS 20,832 million in other countries, principally in Brazil for ARS 18,974 million.

187

	06.30.18
	Agricultural production	Land transformation and sales	Corporate	Others	Total Agricultural business
	(In million of ARS)
Revenues	9,096	-	-	6,297	15,393
Costs	(7,388)	(36)	-	(5,672)	(13,096)
Initial recognition and changes in the fair value of biological assets and agricultural products at the point of harvest	1,539	-	-	(9)	1,530
Changes in the net realizable value of agricultural products after harvest	532	-	-	-	532
Gross profit / (loss)	3,779	(36)	-	616	4,359
Net gain from fair value adjustment of investment properties	-	216	-	-	216
Loss from disposal of farmlands	-	1,656	-	-	1,656
General and administrative expenses	(878)	(2)	(225)	(276)	(1,381)
Selling expenses	(1,322)	-	-	(431)	(1,753)
Other operating results, net	(20)	1,457	-	104	1,541
Management fees	-	-	-	-	-
Profit / (Loss) from operations	1,559	3,291	(225)	13	4,638
Share of profit / (loss) of associates	39	-	-	(2)	37
Segment profit / (loss)	1,598	3,291	(225)	11	4,675
Investment properties	2,052	-	-	-	2,052
Property, plant and equipment	19,620	131	-	605	20,356
Investments in associates	316	-	-	91	407
Other reportable assets	7,073	-	-	867	7,940
Reportable assets	29,061	131	-	1,563	30,755

From all of the Company’s revenues corresponding to Agricultural Business, ARS 11,296 million are originated in Argentina and ARS 4,097 million in other countries, principally in Brazil for ARS 3,743 million.

From all of the Group’s assets included in the segment corresponding to Agricultural Business, ARS 11,735 are located in Argentina and ARS 19,020 in other countries, principally in Brazil for ARS 17,128 million.

(I)

Urban properties and investments line of business

Below is a summarized analysis of the lines of business of Company’s operations center in Argentina for the fiscal years ended June 30, 2020, 2019 and 2018:

	06.30.20
	Shopping Malls	Offices	Sales and developments	Hotels	International	Corporate	Others	Total
	(In million of ARS)
Revenues	5,976	1,566	783	2,066	10	-	133	10,534
Costs	(543)	(107)	(369)	(1,111)	(4)	-	(106)	(2,240)
Gross profit / (loss)	5,433	1,459	414	955	6	-	27	8,294
Net loss from fair value adjustment of investment properties	(28,394)	535	496	-	4	-	(262)	(27,621)
General and administrative expenses	(661)	(145)	(182)	(344)	(93)	(363)	(79)	(1,867)
Selling expenses	(371)	(69)	(83)	(221)	-	-	(15)	(759)
Other operating results, net	(57)	(23)	(208)	80	(9)	-	(220)	(437)
Management fees	-	-	-	-	-	-	-	-
Profit / (Loss) from operations	(24,050)	1,757	437	470	(92)	(363)	(549)	(22,390)
Share of profit / (loss) of associates and joint ventures	-	-	(26)	-	(2,574)	-	(1,726)	(4,326)
Segment profit / (loss)	(24,050)	1,757	411	470	(2,666)	(363)	(2,275)	(26,716)
Investment and trading properties	35,057	21,992	19,435	-	63	-	743	77,29
Property, plant and equipment	182	95	-	1,416	126	-	-	1,819
Investment in associates and joint ventures	-	-	310	-	(5,053)	-	3,425	(1,318)
Other reportable assets	79	86	129	18	-	-	63	375
Reportable assets	35,318	22,173	19,874	1,434	(4,864)	-	4,231	78,166

From all the revenues corresponding to the Operations Center in Argentina, ARS 11,127 million are originated in Argentina, and ARS 11 million in the U.S. No external client represents 10% or more of revenue of any of the reportable segments.

From all of the assets corresponding to the Operations Center in Argentina segments, ARS 155,377 are located in Argentina and ARS 2,886 million in other countries, principally in USA for ARS 2,311 million and Uruguay for ARS 575 million.

188

	06.30.19
	Shopping Malls	Offices	Sales and developments	Hotels	International	Corporate	Others	Total
	(In million of ARS)
Revenues	8,541	2,239	1,119	2,953	14	-	190	15,056
Costs	(776)	(153)	(527)	(1,588)	(6)	-	(151