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, 2018

 OR

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

 OR

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

Date of event requiring this shell company report ___

For the transition period from ____ to ____

Commission file number 000-30982

IRSA Propiedades Comerciales S.A.

 (Exact name of Registrant as specified in its charter)

IRSA Commercial Properties Inc.

(Translation of registrant’s name into English)

Republic of Argentina

(Jurisdiction of incorporation or organization)

Moreno 877, 22nd Floor

Ciudad Autónoma de Buenos Aires, Argentina

(Address of principal executive offices)

Matías Ivan Gaivironsky – Chief Financial and Administrative Officer

Tel (+ 54 11) 4323 7449 ; ir@irsacp.com.ar

Moreno 877, 24th Floor, (C1091AAQ) Ciudad Autónoma de Buenos Aires, Argentina

(Name, Telephone, E-mail and/or Facsimile number and Address of Company Contact Person)

Securities registered or to be registered pursuant to Section 12(b) of the Act:

Title of each class	Name of each exchange on which registered
American Depositary Shares (ADSs), each representing four shares of Common Stock	Nasdaq National Market of the Nasdaq Stock Market
Common Stock, par value Ps.1.00 per share	Nasdaq National Market of the Nasdaq Stock Market*

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

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

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

Indicate the number of outstanding shares of the issuer’s common stock as of June 30, 2018: 126,014,050 

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

☐ Yes  x No

If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15 (d) of the Securities Exchange Act of 1934.

  x Yes   ☐ No

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

x Yes  ☐ No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, 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 and post such files).

☐ Yes x No

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

Large accelerated filer ☐  Accelerated filer x  Non-accelerated filer

☐ Emerging growth company ☐ Non­accelerated filer ☐

 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 x 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 x No

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

Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 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 Williams
	Jaime Mercado
Zang Vergel & Viñes Abogados	Simpson Thacher & Bartlett LLP
Florida 537 piso 18º C1005AAK Buenos Aires, Argentina.	425 Lexington Avenue New York, NY 10019

Table of Contents

IRSA Propiedades Comerciales S.A.

DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS	i
PRESENTATION OF FINANCIAL AND CERTAIN OTHER INFORMATION	ii
PART I	1
ITEM 1. Identity of Directors, Senior Management and Advisers	1
ITEM 2. Offer Statistics and Expected Timetable	1
ITEM 3. Key Information	1
A. Selected consolidated financial data	1
A.1. Local Exchange Market and Exchange Rates	6
B. Capitalization and Indebtedness	8
C. Reasons for the Offer and Use of Proceeds	8
D. Risk Factors	8
ITEM 4. Information on the Company	49
A. History and Development of the Company	49
B. Business Overview	53
C. Organizational Structure	109
D. Property, Plant and Equipment	111
ITEM 4A. Unresolved staff comments	112
ITEM 5. Operating and Financial Review and Prospects	112
A. Operating Results	112
B. Liquidity and capital resources	154
C. Research and Development, Patents and Licenses, etc.	159
D. Trend Information	159
E. Off-Balance Sheet Arrangements	161
F. Tabular Disclosure of Contractual Obligations	161
G. Safe Harbor	162
ITEM 6. Directors, Senior Management and Employees	162
A. Directors and Senior Management	162
B. Compensation	167
C. Board practices	169
D. Employees	170
E. Share Ownership	171
ITEM 7. Major Shareholders and Related Party Transactions	172
A. Major Shareholders	172
B. Related Party Transactions	173
C. Interests of Experts and Counsel	176
ITEM 8. Financial Information	176
A. Consolidated Statements and Other Financial Information	176
B. Significant changes	179
ITEM 9. The Offer and Listing	179
A. The offer and listing details	179
B. Plan of Distribution	180
C. Markets	180
D. Selling Shareholders	182
E. Dilution	182
F. Expenses of the Issue	183
ITEM 10. Additional Information	183
A. Share Capital	183
B. Memorandum and Articles of Association	183
C. Material Contracts	188
D. Exchange Controls	188
E. Taxation	193
F. Dividends and Paying Agents	201
G. Statement by Experts	201
H. Documents on Display	201
I. Subsidiary Information	201
ITEM 11. Quantitative and Qualitative Disclosures About Market Risk	202
ITEM 12. Description of Securities Other than Equity Securities	202
A. Debt Securities	202
B. Warrants and Rights	202
C. Other Securities	202
D. American Depositary Shares	202
PART II	204
ITEM 13. Defaults, Dividend Arrearages and Delinquencies	204
ITEM 14. Material Modifications to the Rights of Security Holders and Use of Proceeds	204
ITEM 15. Controls and procedures	204
A. Disclosure Controls and Procedures.	204
B. Management’s Annual Report on Internal Control Over Financial Reporting	204
C. Attestation Report of the Registered Public Accounting Firm	205
D. Changes in Internal Control Over Financial Reporting	205
ITEM 16. Reserved	205
ITEM 16A. Audit Committee Financial Expert	205
Item 16B. Code of Ethics	206
Item 16C. Principal Accountant Fees and Services.	206
Item 16D. Exemption from the Listing Standards for Audit Committees	207
Item 16E. Purchase of Equity Securities by the Issuer and Affiliated Purchasers	207
Item 16F. Change in Registrant´s Certifying Account.	207
Item 16G. Corporate Governance.	207
Item 16H. Mine Safety Disclosures	209
PART III	210
ITEM 17. Financial Statements	210
ITEM 18. Financial Statements	210
ITEM 19. Exhibits	210

DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS

This annual report includes forward-looking statements, principally under the captions “Item 3. Key information - (d). Risk Factors”, “Item 4. Information on the Company” and “Item 5. 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 or elsewhere in Latin America or changes in either developed or emerging markets;

●

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;

●

deterioration in regional, national and international business and economic conditions;

●

inflation;

●

fluctuations in 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;

●

adverse legal or regulatory disputes or proceedings;

●

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

●

government intervention in the private sector and in the economy, including through nationalization, expropriation, 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 mall and other commercial properties;

●

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

●

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

●

our ability to meet our debt obligations;

●

shifts in consumer purchasing habits and trends;

●

technological changes and our potential inability to implement new technologies;

●

deterioration in regional and national business and economic conditions in Argentina;

●

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

●

fluctuations in the exchange rate of the Peso against other currencies; and

●

the risk factors discussed under “Item 3. Key information - (d.) 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,” “believes,” “estimates,” “potential,” “continue” or similar expressions. Forward-looking

  i

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, or “SEC.” You may read and copy any document we file with the SEC at the SEC’s Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330 for further information on the public reference room. The SEC also maintains a website at http://www.sec.gov that contains reports and other information regarding issuers that file electronically with the SEC. The information contained on this website does not form part of this annual report form 20-F.

You may obtain a copy of these filings at no cost by writing to us at: Moreno 877, 22nd Floor, City of Buenos Aires (C1091AAQ), Argentina or telephoning us at +54 (11) 4344-4600.

PRESENTATION OF FINANCIAL AND CERTAIN OTHER INFORMATION

In this annual report, references to “IRSA CP,” “we,” “our,” “us” or the “Company” means IRSA Propiedades Comerciales S.A. and its consolidated subsidiaries, unless the context otherwise requires, or where we make clear that such term refers only to IRSA Propiedades Comerciales S.A. and not its subsidiaries.

The terms “Argentine government” and “government” refer to the federal government of Argentina, the term “Central Bank” refers to the Banco Central de la República Argentina (the Argentine Central Bank) and the term “CNV” refers to the Comisión Nacional de Valores (the Argentine National Securities Commission). In this annual report, when we refer to “Peso,” “Pesos” or “Ps.” we mean Argentine Pesos, the legal currency of Argentina; when we refer to “U.S. dollar,” “U.S. dollars” or “US$” we mean United States dollars, the legal currency of the United States.

Financial Statements

We prepare and maintain financial statements in Pesos and in accordance with International Financial Reporting Standards, or “IFRS,” as issued by the International Accounting Standards Board, or “IASB,” and we prepared our annual financial statements under IFRS for the first time for our fiscal year ended June 30, 2013, which included comparative financial information for our 2012 fiscal year. The opening IFRS statement of financial position was prepared as of our transition date of July 1, 2011, as required by the CNV Rules.

We refer to our annual audited financial statements as of June 30, 2018 and 2017 and for the fiscal years ended June 30, 2018, 2017 and 2016 included elsewhere in this annual report as our “Audited Financial Statements.” Our previously issued consolidated financial statements as of June 30, 2016 and 2015 and for the fiscal years ended June 30, 2016, 2015 and 2014 have been retroactively recast to measure our investment properties at fair value as permitted under IAS 40 and have been furnished to the SEC on May 26, 2017 on a report in Form 6-K. In the past, we measured the value of our portfolio of investment properties at historical cost.

  ii

Inflation

We have determined that, as of July 1, 2018, the Argentine economy qualifies as a hyperinflationary economy according to the guidelines to International Accounting Standard 29, Financial Reporting in Hyperinflationary Economies (“IAS 29”) since the total cumulative inflation in Argentina in the 36 months prior to July 1, 2018, as measured by the wholesale price index published by the INDEC, exceeded 100%. IAS 29 will be applicable to our financial statements for periods ending after July 1, 2018.

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 will be adjusted by applying a general price index and expressed in the measuring unit (the hyperinflationary currency) current at the end of the most recent reporting period. We have not estimated yet the impact of the application of IAS 29 provisions in our audited consolidated financial statements. Our Audited Consolidated Financial Statements included in this annual report were not restated into constant currency.

For more information, see “Risk Factors—Risks Relating to Argentina—The peso qualifies as a currency of a hyperinflationary economy under IAS 29. We cannot assure you whether regulatory agencies of the Argentine national government will require us to not apply IAS 29 to financial statements furnished to such regulators” and “—Continuing inflation may have an adverse effect on the economy and our business, financial condition and results of operations.”

Non-IFRS financial measures

Our management uses the following Non-IFRS financial measures; which are useful to evaluate the economic productivity of our operations and for purposes of making decisions about the allocation of resources and evaluation of management and business performance. In addition, we believe they are useful to investors or other interested parties to evaluate our operational and financial performance.

To supplement our Audited Financial Statements, which are prepared and presented in accordance with IFRS, we use the following non-IFRS financial measures in this annual report:

●

Consolidated EBITDA

●

Consolidated Adjusted EBITDA

●

Consolidated Net Operating Income, or “NOI”

●

Consolidated Net Debt

●

Consolidated Adjusted Funds from Operations, or “Adjusted FFO”

●

Adjusted Segment EBITDA

●

Segment NOI

In this section, we provide an explanation of each of our non-IFRS financial measures to their most directly comparable IFRS measures of each non-IFRS measure. The presentation of these financial measures is not intended to be considered in isolation or as a substitute for, or superior to, financial information prepared and presented in accordance with IFRS.

We define Consolidated EBITDA as profit for the year excluding: (i) interest income, (ii) interest expense, (iii) income tax expense, and (iv) depreciation and amortization.

We define Consolidated Adjusted EBITDA as Consolidated EBITDA minus total financial results, net excluding financial interest net (foreign exchange differences net, gain/loss from derivative financial instruments, fair value gains from financial assets and liabilities at fair value through profit or loss, and other financial results net), minus share of profit of associates and joint ventures and excluding unrealized results due to the revaluation of the fair value of our investment properties.

  iii

We define Consolidated NOI as gross profit for the year, less selling expenses, plus net realized gain on changes in fair value of investment property and plus depreciation and amortization.

We define Consolidated Net Debt as current borrowings, plus non-current borrowings, minus cash and cash equivalents and current investments in financial assets.

We define Consolidated Adjusted FFO as total profit from the year plus depreciation and amortization, minus net gain from fair value adjustments of investment properties, minus total financial results, net, excluding financial interest net (foreign exchange differences net, gain/loss from derivative financial instruments, fair value gains from financial assets and liabilities at fair value through profit or loss, other financial results net), plus deferred income tax and minus non-controlling interest.

We define Adjusted Segment EBITDA for each of our operating segments as our segment’s profit or loss before financing and taxation for the year excluding depreciation and amortization andshare in profit / (loss) of associates and joint ventures and the unrealized results due to the revaluation of investment properties to fair value.

We define Segment NOI for each of our operating segments as our segment’s gross profit for the year less selling expenses, plus net realized gain on changes in fair value of investment properties and plus depreciation and amortization.

We use non-IFRS measures to internally evaluate and analyze financial results. We believe these non-IFRS financial measures provide investors with useful supplemental information about the liquidity and financial performance of our business, enable comparison of financial results between periods where certain items may vary independent of business performance, and enable comparison of our financial results with other public companies, many of which present similar non-IFRS financial measures.

There are limitations associated with the use of non-IFRS financial measures as an analytical tool. In particular, many of the adjustments to our IFRS financial measures reflect the exclusion of items, such as depreciation and amortization, changes in fair value and the related income tax effects of the aforementioned exclusions, that are recurring and will be reflected in our financial results for the foreseeable future. In addition, these measures may be different from non-IFRS financial measures used by other companies, limiting their usefulness for comparison purposes.

Consolidated EBITDA, Consolidated Adjusted EBITDA, Consolidated NOI, Consolidated Net Debt, Consolidated Adjusted FFO, Adjusted Segment EBITDA, Segment NOI and the ratio Consolidated Adjusted EBITDA Margin are non-IFRS financial measures that do not have standardized meanings prescribed by IFRS. We present Consolidated EBITDA, Consolidated Adjusted EBITDA, Consolidated NOI, Consolidated Net Debt, Consolidated Adjusted FFO, Adjusted Segment EBITDA and Segment NOI because we believe each of these measures provides investors with supplemental measures of our financial performance that may facilitate period-to-period comparisons on a consistent basis. Our management also uses Consolidated EBITDA, Consolidated Adjusted EBITDA, Consolidated NOI, Consolidated Net Debt, Consolidated Adjusted FFO, Adjusted Segment EBITDA, Segment NOI and Consolidated Adjusted EBITDA Margin, among other measures, for internal planning and performance measurement purposes.

Consolidated EBITDA, Consolidated Adjusted EBITDA, Consolidated NOI, Consolidated Net Debt, Consolidated Adjusted FFO, Adjusted Segment EBITDA, Segment NOI and Consolidated Adjusted EBITDA Margin should not be construed as an alternative to profit from operations, as an indicator of operating performance or as an alternative to cash flow provided by operating activities, in each case, as determined in accordance with IFRS. Consolidated EBITDA, Consolidated Adjusted EBITDA, Consolidated NOI, Consolidated Net Debt, Consolidated Adjusted FFO, Adjusted Segment EBITDA, Segment NOI and Consolidated Adjusted EBITDA Margin, as calculated by us, may not be comparable to similarly titled measures reported by other companies.

  iv

For more information regarding Consolidated EBITDA, Consolidated Adjusted EBITDA, Consolidated NOI, Consolidated Net Debt, Consolidated Adjusted FFO, Adjusted Segment EBITDA, Segment NOI and Consolidated Adjusted EBITDA Margin. See “Item 3. Key Information—Selected Financial Data” and “Item 5. Operating and Financial Review and Prospects—A. Business Segment Reporting.”

Currency translations and rounding

Our functional and presentation currency is the Peso, and accordingly our financial statements included in this annual report are presented in Pesos. 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 otherwise required by the context, the rate used to convert Peso amounts to U.S. dollars is the seller exchange rate quoted by Banco de la Nación Argentina of Ps.28.8500 per US$1.00 as of June 30, 2018. The U.S. dollar-equivalent information presented in this annual report is provided solely for convenience 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 Ps.36.6500 per US$1.00 as of October 18, 2018. See “Item 3. Key Information—Local Exchange Market and Exchange Rates.” and “Item 3. Risk Factors— Continuing inflation may have an adverse effect on the economy and our business, financial condition and the results of our operations”.

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.

Fiscal years

References to fiscal years 2018, 2017, 2016, 2015 and 2014 are to our fiscal years starting on July 1 and ending on June 30 of each such year.

Certain measurements

The standard measure of area in the real estate industry in Argentina is the square meter, or “sqm,” while in the United States and certain other jurisdictions, the standard measure of area is the square foot, or “sq. ft.” Most units of area presented in this annual report (e.g., gross leasable area, as defined below, of buildings and size undeveloped land) are expressed in terms of square meters. One square meter is equal to approximately 10.76 square feet. One hectare is equal to 10,000 square meters, approximately 107,600 square feet or 2.47 acres.

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

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, or “ICSC,” the Argentine Chamber of Shopping Malls (Cámara Argentina de Shopping Centers), and Colliers International. While we believe that these sources are reliable, we have not independently verified the information prepared by these sources.

  v

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 summary consolidated financial data and other information as of and for each of the periods indicated. This data is qualified in its entirety by reference to, and should be read together with, our financial statements included in this annual report and the notes thereto, and “Item 5. Operating Finacial Review and Prospects.”

We prepared our Audited Financial Statements in Pesos and in accordance with IFRS, as issued by the IASB, and the rules of the CNV.

We have determined that, as of July 1, 2018, the Argentine economy qualifies as hyperinflationary economy according to IAS 29. 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. We did not apply the restatement criteria to the financial information for the periods reported in this annual report since IAS 29 will be applicable to our financial statementes for periods ending after July 1, 2018. For more information, see “Operating and Financial Review and Prospects — Factors Affecting our Results of Operations—Effects of Inflation.”

The summary consolidated statements of comprehensive income and cash flow data for the fiscal years 2018, 2017 and 2016 and the summary consolidated statement of financial position data as of June 30, 2018 and 2017 have been derived from our Audited Consolidated Financial Statements included in this annual report. Our Audited Consolidated Financial Statements have been audited by Price Waterhouse & Co. S.R.L., an independent registered public accounting firm whose report is also included herein. The summary consolidated statement of comprehensive income and cash flow data for the fiscal year 2015 and 2014 and the summary consolidated statement of financial position data as of June 30, 2016, 2015 and 2014 has been derived from our audited consolidated financial statements for the fiscal years ended June 30, 2016, 2015 and 2014 which have been retroactively recast to give effect to the change of measurement basis for our investment properties. These financial statements are not included in this annual report.

We have translated Peso amounts into U.S. dollars at the seller exchange rate as of June 30, 2018, quoted by the Banco de la Nación Argentina, which was Ps.28.85 per US$1.00. The average of the seller exchange rate for the fiscal year 2018, quoted by Banco de la Nación Argentina was Ps.19.4888. 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 “—A.1. Local Exchange Market and Exchange Rates” and “Item 3. Risk Factors— Continuing inflation may have an adverse effect on the economy and our business, financial condition and the results of our operations”.

1

For the fiscal year ended June 30, (1)
	2018	2018	2017	2016	2015	2014
	(in thousand US$) (2)	(in thousands Ps.; except per share data)
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Income from sales, rents and services	146,697	4,232,206	3,508,975	2,674,873	1,924,176	1,445,190
Income from expenses and collective promotion fund	59,515	1,717,000	1,488,187	1,183,627	833,905	667,824
Operating costs	(74,158)	(2,139,447)	(1,899,786)	(1,460,204)	(1,018,023)	(844,960)
Gross profit	132,054	3,809,759	3,097,376	2,398,296	1,740,058	1,268,054
Net gain from fair value adjustments of investment properties	578,514	16,690,117	3,133,413	17,092,403	2,690,556	2,803,023
General and administrative expenses	(14,393)	(415,242)	(322,176)	(221,580)	(140,126)	(101,445)
Selling expenses	(10,221)	(294,865)	(236,528)	(162,221)	(117,683)	(76,854)
Other operating results, net	(170)	(4,906)	(51,219)	(68,552)	(110,855)	(27,939)
Profit from operations	685,784	19,784,863	5,620,866	19,038,346	4,061,950	3,864,839
Share of profit of associates and joint ventures	22,167	639,525	152,703	204,299	50,768	59,074
Profit from operations before financing and taxation	707,951	20,424,388	5,773,569	19,242,645	4,112,718	3,923,913
Finance income	23,853	688,153	242,438	512,555	105,138	124,495
Finance cost	(257,832)	(7,438,451)	(1,313,336)	(2,938,476)	(603,883)	(499,901)
Other financial results	78,629	2,268,439	284,024	1,714,702	47,215	74,730
Financial results, net	(155,350)	(4,481,859)	(786,874)	(711,219)	(451,530)	(300,676)
Profit before income tax	552,601	15,942,529	4,986,695	18,531,426	3,661,188	3,623,237
Income tax expense	(9,931)	(286,506)	(1,609,181)	(6,278,894)	(1,249,369)	(1,250,843)
Total profit for the year	542,67	15,656,023	3,377,514	12,252,532	2,411,819	2,372,394
Total comprehensive income for the year			3,377,514	12,252,532	2,411,819	2,372,394
	542,67	15,656,023
Attributable to:
Equity holders of the parent	523,395	15,099,936	3,260,476	11,821,280	2,280,391	2,272,834
Non‑controlling interest	19,275	556,087	117,038	431,252	131,428	99,560
Profit per common share attributable to equity holders of the parent for the year:
Basic	4.15	119.83	25.87	93.81	18.10	18.04
Diluted	4.15	119.83	25.87	93.81	18.10	18.04
CASH FLOW DATA
Net cash generated from operating activities	125,615	3,624,007	2,875,207	1,013,373	1,257,577	921,464
Net cash used in investing activities	(133,838)	(3,861,213)	(148,074)	(1,864,555)	(414,231)	(517,852)
Net cash generated from (used in) financing activities	62,407	1,800,431	(957,754)	579,67	(660,943)	(516,906)
Net increase (decrease) in cash and cash equivalents	54,185	1,563,225	1,769,379	(271,512)	182,403	(113,294)

For the fiscal years ended June 30, (1)
	2018	2018	2017	2016	2015	2014
	(in thousand US$) (2)	(in thousands of Ps.)
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
Assets
Non‑current assets:
Investment properties	1,873,650	54,054,811	35,916,882	32,234,096	15,388,877	10,296,796
Property, plant and equipment	3,793	109,437	120,536	118,325	120,984	23,552
Trading properties	2,127	61,362	61,600	48,029	22,34	9,661
Intangible assets	7,385	213,051	111,560	67,139	69,015	65,754
Investment in associates and joint ventures	49,689	1,433,522	791,626	597,759	328,349	282,151
Deferred income tax assets	2,105	60,734	59,455	51,759	56,956	40,326
Income tax and minimum presumed income tax credits	5,413	156,152	29	249	249	578
Trade and other receivables	33,120	955,509	777,818	488,198	90,431	85,914
Investments in financial assets	1,010	29,139	66,717	312,425	253,546	63,455
Total non‑current assets	1,978,292	57,073,717	37,906,223	33,917,979	16,330,747	10,868,187
Current assets:
Trading properties	7	206	—	—	3,154	1,214
Inventories	862	24,882	22,722	18,202	15,347	10,368
Restricted asset	—	—	49,525	—	—	—
Income tax and minimum presumed income tax credit	1,500	43,269	1,933	345,815	1,635	123
Trade and other receivables	61,216	1,766,075	1,453,312	1,934,134	808,016	937,204
Investments in financial assets	178,352	5,145,463	1,180,249	1,772,323	292,32	216,071
Derivative financial instruments	1,642	47,360	—	—	—	1,234
Cash and cash equivalents	126,278	3,643,131	1,807,544	33,049	303,499	116,706
Total current assets	369,857	10,670,386	4,515,285	4,103,523	1,423,971	1,282,920
Total assets	2,348,149	67,744,103	42,421,508	38,021,502	17,754,718	12,151,107
Shareholders’ equity
Shareholders’ equity attributable to equity holders of the parent	1,267,418	36,565,015	22,145,079	19,654,617	8,116,917	6,272,969
Non‑controlling interest	48,453	1,397,872	871,169	775,6	443,5	358,686
Total shareholders’ equity	1,315,871	37,962,887	23,016,248	20,430,217	8,560,417	6,631,655
Liabilities
Non‑current liabilities:
Trade and other payables	16,773	483,908	406,598	326,069	247,812	195,673
Borrowings	532,504	15,362,726	5,918,119	5,266,576	3,322,488	1,046,102
Deferred income tax liabilities	396,031	11,425,496	11,263,341	10,150,280	4,099,803	3,136,600
Provisions	425	12,258	16,509	26,286	9,392	22,878
Total non‑current liabilities	945,733	27,284,388	17,604,567	15,769,211	7,679,495	4,401,253
Current liabilities:
Trade and other payables	64,837	1,870,552	1,104,982	963,931	802,151	489,811
Income tax and minimum presumed income tax liabilities	1,597	46,061	268,957	114,624	123,077	56,681
Payroll and social security liabilities	6,385	184,196	147,095	107,382	94,693	76,090
Borrowings	10,589	305,481	249,868	626,492	471,255	479,237
Derivative financial instruments	1,619	46,711	4,950	2,857	—	14,225
Provisions	1,519	43,827	24,841	6,788	23,630	2,155
Total current liabilities	86,545	2,496,828	1,800,693	1,822,074	1,514,806	1,118,199
Total liabilities	1,032,278	29,781,216	19,405,260	17,591,285	9,194,301	5,519,452
Total shareholders’ equity and liabilities	2,348,149	67,744,103	42,421,508	38,021,502	17,754,718	12,151,107

2

	As of the fiscal years ended June 30, (1)
	2018	2018	2017	2016	2015	2014
	(in thousand US$) (2)	(in thousands of Ps., except for number of shares, per share and ADS data and ratios)
OTHER INFORMATION
Basic net income per ADS	16.61	479.32	103.48	375.24	72.40	72.16
Diluted net income per ADS	16.61	479.32	103.48	375.24	72.40	72.16
Dividends per share	0.19	5.40	6.11	2.25	3.47	3.23
Dividends per ADS	0.75	21.58	24.44	9.00	13.88	12.92
Number of shares outstanding	-	126,014,050	126,014,050	126,014,050	126,014,050	126,014,050
Capital stock (in thousands)	4,368	126,014	126,014	126,014	126,014	126,014
Depreciation and amortization (in thousands)	1,564	45,114	28,540	22,944	16,892	9,736
Capital expenditures (in thousands)(3)	46,383	1,338,157	897,378	188,008	378,782	285,748
Working capital (in thousands)	283,312	8,173,558	2,714,592	2,281,449	(90,835)	164,721
Ratio of current assets to current liabilities	4.27	4.27	2.51	2.25	0.94	1.15
Ratio of shareholders’ equity to total liabilities	1.27	1.27	1.19	1.16	0.93	1.20
Ratio of non-current assets to total assets	0.84	0.84	0.89	0.89	0.92	0.89

(1) Totals may not sum due to rounding.

(2) The exchange rate used to convent to U.S. dollars is the seller exchange rate quoted by Banco de la Nación Argentina of Ps. 28.8500 per US$1.00 as of June 30, 2018. The seller exchange rate quoted by Banco de la Nación Argentina was Ps.36.6500 per US$1.00 as of October 18, 2018.

(3) We define capital expenditure as the cash used in the acquisition of investment properties and property, plant and equipment plus the advanced payments for investment properties and property, plant and equipment acquisitions.

In this annual report we present Consolidated EBITDA and Consolidated Adjusted EBITDA, for definitions of such measures see “Presentation of Financial and Certain Other Information—Non-IFRS financial measures.”

In this annual report we present Consolidated EBITDA, Adjustment Segment EBITDA and Consolidated Adjusted EBITDA:

●

as a measurement of financial performance because it assists us in comparing our financial performance on a consistent basis as it removes the impact of our capital structure (primarily interest charges from our outstanding debt) and asset base (primarily depreciation and amortization) from our operating results;

●

in presentations to our board of directors to enable it to have the same measurement of financial performance used by management;

●

in order to determine the performance and cash generation of each business segment;

●

for planning purposes, including preparation of our annual operating budget;

3

●

as a performance goal in employee annual incentive compensation;

●

as a valuation measure in strategic analyses in connection with the purchase and sale of assets, as part of the relative valuation methodology that helps to analyze different assets and/or target companies;

●

in determining self-imposed limits on our debt levels, including the evaluation of our leverage ratio and interest coverage ratio.

In this annual report we also present Consolidated Adjusted EBITDA margin for the following reason:

●

as an operational metric in order to compare margins with relevant peers of shopping malls and office industries.

Our management also uses Consolidated EBITDA and Consolidated Adjusted EBITDA from time to time, among other measures, for internal planning and performance measurement purposes. Consolidated EBITDA and Consolidated Adjusted EBITDA should not be construed as an alternative to profit from operations, as an indicator of operating performance or as an alternative to cash flow provided by operating activities, in each case, as determined in accordance with IFRS. Consolidated EBITDA and Consolidated Adjusted EBITDA, as calculated by us, may not be comparable to similarly titled measures reported by other companies.The table below presents a reconciliation of profit for the relevant fiscal year to Consolidated EBITDA and Consolidated Adjusted EBITDA for the fiscal years indicated:

	For the fiscal years ended June 30,
	2018	2018	2017	2016	2015	2014
	(in thousand US$) (1)	(in thousands of Ps.)
Total profit for the year	542,670	15,656,023	3,377,514	12,252,532	2,411,819	2,372,394
Interest income	(8,319)	(240,005)	(184,296)	(102,169)	(69,307)	(60,024)
Interest expense	32,174	928,218	639,768	612,486	329,170	151,092
Income tax expense	9,931	286,506	1,609,181	6,278,894	1,249,369	1,250,843
Depreciation and amortization	1,564	45,114	28,540	22,944	16,892	9,736
Consolidated EBITDA	578,019	16,675,856	5,470,707	19,064,687	3,937,943	3,724,041
Unrealized results due to the revaluation of the fair value of investment properties	(577,794)	(16,669,347)	(3,068,248)	(16,919,859)	(2,559,492)	(2,802,546)
Share of profit of associates and joint ventures	(22,167)	(639,525)	(152,703)	(204,299)	(50,768)	(59,074)
Foreign exchange differences, net	207,736	5,993,197	550,408	1,815,553	210,162	277,258
Gain/loss from derivative financial instruments	(7,881)	(227,378)	(81,105)	(1,248,374)	2,961	(12,514)
Fair value gains of financial assets and liabilities at fair value through profit or loss	(70,747)	(2,041,061)	(203,087)	(466,328)	(50,176)	(62,216)
Other financial results, net	2,388	68,888	65,186	100,051	28,720	7,080
Consolidated Adjusted EBITDA	109,555	3,160,630	2,581,158	2,141,431	1,519,350	1,072,029
Consolidated Adjusted EBITDA Margin	75%	75%	74%	80%	79%	74%

(1) The exchange rate used to convent to U.S. dollars is the seller exchange rate quoted by Banco de la Nación Argentina of Ps. 28.8500 per US$1.00 as of June 30, 2018. The seller exchange rate quoted by Banco de la Nación Argentina was Ps.36.6500 per US$1.00 as of October 18, 2018. 

In addition, we present in this annual report Consolidated NOI, for definition of such measure see “Presentation of Financial and Certain Other Information—Non-IFRS financial measures.”

We present in this annual report Consolidated NOI because we believe NOI is a relevant metric in the Real Estate Industry, due to its use as a parameter to calculate the capitalization rate of a property, which helps to determine the property’s value and facilitates real estate investors to compare different properties. We also prepare the information by segment to evaluate the performance of the different lines of business and to compare with capitalization rates for shopping malls and offices of the relevant peers in the industry. Consolidated NOI is a non-IFRS financial measure that does not have a standardized meaning prescribed by IFRS. We present Consolidated NOI because we believe it provides investors a supplemental measure of our financial performance that may facilitate period-to-period comparisons on a consistent basis. Our management also uses Consolidated NOI from time to time, among other measures, for internal planning and performance measurement purposes. Consolidated NOI should not be construed as an alternative to profit from operations, as an indicator of operating performance or as an alternative to cash flow provided by operating activities, in each case, as determined in accordance with IFRS. Consolidated NOI, as calculated by us, may not be comparable to similarly titled measures reported by other companies. The table below presents a reconciliation of profit from operations to Consolidated NOI for the fiscal years indicated:

4

	For the fiscal years ended June 30
	2018	2018	2017	2016	2015	2014
	(in thousand US$) (1)	(in thousands of Ps.)
Gross profit for the year	132,054	3,809,759	3,097,376	2,398,296	1,740,058	1,268,054
Selling expenses	(10,221)	(294,865)	(236,528)	(162,221)	(117,683)	(76,854)
Net realized gain on changes in fair value of investment properties	720	20,770	65,165	172,543	131,064	477
Depreciation and amortization	1,564	45,114	28,540	22,944	16,892	9,736
Consolidated NOI	124,117	3,580,778	2,954,553	2,431,562	1,770,331	1,201,413

(1) The exchange rate used to convent to U.S. dollars is the seller exchange rate quoted by Banco de la Nación Argentina of Ps. 28.8500 per US$1.00 as of June 30, 2018. The seller exchange rate quoted by Banco de la Nación Argentina was Ps.36.6500 per US$1.00 as of October 18, 2018. 

We also present in this annual report Consolidated Net Debt, for definition of such measure see “Presentation of Financial and Certain Other Information—Non-IFRS financial measures.”

We present Consolidated Net Debt because is useful for us in order to show the debt that the Company has with Financial Institutions and Capital Markets after deducting the cash and cash equivalents from gross debt, due to the fact the Company usually has a strong cash and cash equivalents position as a result of the nature of its businesses, margins and cash flow generation and considering that one of the use of proceeds for this cash could be the cancelation of financial debt.

Consolidated Net Debt provides investors a supplemental measure of our financial performance that may facilitate period-to-period comparisons on a consistent basis. Our management also uses Consolidated Net Debt from time to time, among other measures, for internal planning and performance measurement purposes. Consolidated Net Debt should not be construed as an alternative to total debt, as determined in accordance with IFRS. Consolidated Net Debt, as calculated by us, may not be comparable to similarly titled measures reported by other companies. The table below presents a reconciliation of current borrowings and non current borrowings to Consolidated Net Debt for the fiscal years indicated:

	For the fiscal years ended June 30,
	2018	2018	2017	2016	2015	2014
	(in thousand US$) (1)	(in thousands of Ps.)
Current borrowings	10,589	305,481	249,868	626,492	471,255	479,237
Non-current borrowings	532,504	15,362,726	5,918,119	5,266,576	3,322,488	1,046,102
Cash and cash equivalents	(126,278)	(3,643,131)	(1,807,544)	(33,049)	(303,499)	(116,706)
Current investments in financial assets	(178,352)	(5,145,463)	(1,180,249)	(1,772,323)	(292,320)	(216,071)
Consolidated Net Debt	238,463	6,879,613	3,180,194	4,087,696	3,197,924	1,192,562

(1) The exchange rate used to convent to U.S. dollars is the seller exchange rate quoted by Banco de la Nación Argentina of Ps. 28.8500 per US$1.00 as of June 30, 2018. The seller exchange rate quoted by Banco de la Nación Argentina was Ps.36.6500 per US$1.00 as of October 18, 2018. 

We also present in this annual report Consolidated Adjusted FFO, for definition of such measure see “Presentation of Financial and Certain Other Information—Non-IFRS financial measures.”

Consolidated Adjusted FFO is a non-IFRS financial measure that does not have a standardized meaning prescribed by IFRS. Consolidated Adjusted FFO is not equivalent to our profit for the period as determined under IFRS. Our definition of Consolidated Adjusted FFO is not consistent and does not comply with the standards established by the White Paper on funds from operations (FFO) approved by the Board of Governors of the National Association of Real Estate Investment Trusts (“NAREIT”), as revised in February 2004, or the “White Paper.”

FFO is also a relevant metric in the real estate industry, which allows us to have a clear picture of the funds generated from our operations without considering non cash effects as depreciations and amortizations and the profit or loss from the sale of our properties.

Consolidated Adjusted FFO provides investors a supplemental measure of our financial performance that may facilitate period-to-period comparisons on a consistent basis. Our management also uses Consolidated Adjusted FFO from time to time, among other measures, for internal planning and performance measurement purposes. Consolidated Adjusted FFO should not be construed as an alternative to profit from operations, as an indicator of operating performance or as an alternative to cash flow provided by operating activities, in each case, as determined in accordance with IFRS. Consolidated Adjusted FFO, as calculated by us, may not be comparable to similarly titled measures reported by other companies.

5

The table below presents a reconciliation of profit for the year to Consolidated Adjusted FFO for the fiscal years indicated:

	For the fiscal years ended June 30,
	2018	2018	2017	2016	2015	2014
	(in thousand US$) (1)	(in thousands of Ps.)
Total profit for the year	542,670	15,656,023	3,377,514	12,252,532	2,411,819	2,372,394
Net gain from fair value adjustments of investment properties	(578,514)	(16,690,117)	(3,133,413)	(17,092,403)	(2,690,556)	(2,803,023)
Depreciation and amortization	1,564	45,114	28,540	22,944	16,892	9,736
Foreign exchange differences, net	207,736	5,993,197	550,408	1,815,553	210,162	277,258
Derivative financial instruments	(7,881)	(227,378)	(81,105)	(1,248,374)	2,961	(12,514)
Fair value gains of financial assets and liabilities at fair value through profit or loss	(70,747)	(2,041,061)	(203,087)	(466,328)	(50,176)	(62,216)
Other financial results, net	2,388	68,888	65,186	100,051	28,720	7,080
Deferred income tax	5,158	148,806	1,099,051	6,055,674	946,573	1,027,057
Non-controlling interest	(19,275)	(556,087)	(117,038)	(431,252)	(131,428)	(99,560)
Consolidated Adjusted FFO	83,098	2,397,385	1,586,056	1,008,397	744,967	716,212

(1) The exchange rate used to convent to U.S. dollars is the seller exchange rate quoted by Banco de la Nación Argentina of Ps. 28.8500 per US$1.00 as of June 30, 2018. The seller exchange rate quoted by Banco de la Nación Argentina was Ps.36.6500 per US$1.00 as of October 18, 2018. 

A.1. Local Exchange Market and Exchange Rates

In the period from 2001 to 2015, the Argentine government established a series of exchange control measures that restricted the free disposition of funds and the transfer of funds abroad. In 2011, these measures had significantly curtailed access to the MULC by both individuals and private sector entities. This made it necessary, among other things, to obtain prior approval from 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 to the MULC. Through Communication “A” 5,850 and later, as the local economy stabilized, Communication “A” 6,037, the Central Bank lifted the previous limitations and allowed unrestricted access to the foreign exchange market, subject to some requirements, as detailed below.

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, 2014	8.0830	5.4850	6.9333	8.0830
June 30, 2015	9.0380	8.1630	8.5748	9.0380
June 30, 2016	15.7500	9.1400	12.2769	14.9900
June 30, 2017	16.5800	14.5100	15.4017	16.5800
June 30, 2018	28.8000	16.7500	19.4388	28.8000
Month ended:
April 30, 2018	20.5000	20.0850	20.1834	20.4900
May 31, 2018	24.9400	21.1500	23.6783	24.9100
June 30, 2018	28.8000	24.8500	26.5665	28.8000
July 31, 2018	28.2500	27.1600	27.5241	27.3600
August 31, 2018	37.5500	27.2400	30.1129	36.7500
September 30, 2018	41.1500	36.8900	38.4341	41.1500
October (through October 18, 2018)	39.5000	36.4700	37.6656	36.4700

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.

6

Exchange controls

Although most exchange control regulations were lifted on August 2016, some remain in place and we cannot give you any assurance that additional exchange control regulations will not be adopted in the future. Please see “Item 3. Key information—d) Risk Factors—Risks Relating to Argentina—Exchange controls, restrictions on transfers abroad and capital inflow restrictions may limit the availability of international credit.”

Exchange controls regulations currently in effect in Argentina include the following:

Registration requirements

All incoming and outgoing funds to and from the MULC and any foreign indebtedness (financial and commercial) are subject to registration requirements before the Central Bank for informative purposes, in accordance with Communication “A” 6,401, as amended.

Corporate profits and dividends

Argentine companies may freely access the MULC for remittances abroad to pay earnings and dividends in so far as they arise from closed and fully audited balance sheets and have satisfied applicable certification requirements.

Restrictions on foreign indebtedness

Pursuant to Resolution E 1/2017 of the Ministerio de Hacienda and Communication “A” 6,150 of the Argentine Central Bank, it was deleted the obligation that required non-residents to perform portfolio investments in the country intended for the holding of private sector financial assets to maintain for a period of 120 days of permanence the funds in the country.

As of that resolution and the provisions of Communication “A” 6,244 of the Argentine Central Bank, there are no restrictions on entry and exit in the MULC.

Restrictions on exports, imports and services

Regarding exports, in 2016 the Central Bank relaxed certain rules related to the inflow and outflow of foreign currency collected abroad as a result of the collection of exports of goods, advance payments, and pre-export financings, establishing that the deadline to repatriate to Argentina the foreign currency is 10 years. The prior 10-business day period applicable for the transfer of funds collected abroad as a result of the collection of exports of goods, advance payments, and pre-export financings to a correspondent bank account of a local financial institution (cuenta de corresponsalía) was eliminated in December 2015. In relation to the export of services, Communication “A” 6,137 the Central Bank eliminated the obligation to repatriate to Argentina the foreign currency obtained.

Regarding imports, access to the foreign exchange market for the payment of imports with customs clearance date as of December 17, 2015 can be paid through the local foreign exchange market without any limit. AFIP Regulation No. 3,252 published on January 5, 2012 which required importers to file affidavits was eliminated in December 2015 and the import monitoring system (Sistema Integral de Monitoreo de Importaciones, or “SIMI”) was created, which established an obligation for importers to submit certain information electronically. Importers do not have to repatriate the goods within a specified period (previously this period was 365 calendar days from the date of access to the foreign exchange market).

Regarding the payment of services, access to the foreign exchange market for payments of services rendered as from December 17, 2015 may be carried out without restriction and without the Central Bank’s prior authorization.

7

Direct investments

Communication A 6401 established a new reporting system of direct investments, which replaced the reporting system established by Communications A 3602 and A 4237, applicable since December 31, 2017. As of date, investors who are Argentine residents must comply with the information regime if the value of their investments abroad reaches or exceeds the equivalent of US$1,000,000 (measured in terms of 1) the sum of the flows of external assets and liabilities during the previous calendar year, and 2) the balance of holdings of external assets and liabilities at the end of the previous calendar year). If the value of investments abroad does not exceed the equivalent of US$50,000,000, the information regime must be complied on an annual basis (in case it is less than US$10,000,000, the information regime will be annual but with a simplified form), instead of quarterly. If the value of the investments is less than the equivalent of US$1,000,000, compliance with said regime is optional.

Future and forward operations

The Central Bank has significantly amended the foreign exchange regulations in derivatives by eliminating the restriction on the execution of cross-border derivative transactions. In August 2016, the Central Bank introduced new foreign exchange regulations on derivative transactions which allowed local residents from entering into derivative transactions with foreign residents. Moreover, the regulations now provide that Argentine residents may access the foreign exchange market to pay premiums, post collateral and make payments related to forwards, futures, options and other derivatives entered into in foreign exchanges or with non-resident counterparties.

The foreign exchange regulations now allow Argentine residents to enter into derivative transaction with foreign counterparties without the need for authorization of the Central Bank. They also allow them to purchase foreign currency to make payments under such derivative transactions.

Law No. 27,440 in its articles 188 to 194 introduces, among others, the following modifications related to derivatives:

●

The right of the non-bankrupted party and the contracting party of an insurance entity subject to a judicial liquidation process to be resolv in advance the derivatives and passes granted by the Bankruptcy Law No. 24,522 and Law No. 20,091 of the Insurance Entities shall not apply;

●

The restriction for the exercise of the contractual mechanisms of early termination, termination, settlement, compensation and execution of guarantees contained in the derivatives established by the Financial Entities Law No. 21,526 and the Central Bank regulations shall not apply to.

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 Depository Shares (“ADSs”) involves a high degree of risk, including the possibility of loss of your entire investment.

8

Risks relating to Argentina

As of the date of this annual report, all of our operations, property and customers are located in Argentina. As a result, the quality of our assets, our financial condition and the results of our operations are dependent upon the macroeconomic, regulatory, social and political conditions prevailing in Argentina from time to time. These conditions include growth rates, inflation rates, exchange rates, taxes, foreign exchange controls, 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.

Economic and political instability in Argentina may adversely and materially affect our business, results of operations and financial condition.

The Argentine economy has experienced significant volatility in recent decades, characterized by periods of low or negative GDP growth, high and variable levels of inflation and currency depreciation and devaluation.The economy has experienced high inflation and GDP growth has been sluggish in the last few years.

During 2014, the Argentine economy saw a slowdown due to the increase in exchange rates and decreases in commodity prices that adversely impacted exports. The Argentine economy continues to confront high rates of inflation and has an increasing need of capital investment, with many sectors, particularly the energy sector, operating near full capacity.

In March 2014, the Argentine Government announced a new method for calculating GDP recommended by the IMF changing the base year to 2004 from 1993. On June 29, 2016, a recalculation of estimated GDP growth rates based on 2004 prices was undertaken and resulted in calculated rates of 2.4% in 2013, (2.5)% in 2014, 2.7% in 2015, (1.8)% in 2016 and 2.9% in 2017. According to the INDEC, GDP growth in the first and second quarter of 2018 compared with the same quarter in the previous year was 3.9% and (4.2)%, respectively. According to the IMF, the estimated Argentina's real GDP growth will be (2.6)% in 2018 and (1.6)% in 2019. Economic activity in the second quarter of 2018 has been adversely affected by the Central Bank’s increase in the reference rate to 60% during that period to curtail the weakening of the Argentine peso. As of August 31, 2018, the depreciation of the peso against the U.S. dollar was 50.1% comparing to the beginning of the year. In the second half of 2017 and the first half of 2018, the percentage of people below the poverty line was 25.7% and 27.3%, respectively. The unemployment rate in the first and second quarter of 2018 was 9.1% and 9.6%, respectively. The June 2018 / May 2018 variation of the Monthly Economic Activity Estimator was (1.3)%. On October 8, 2018, the IMF published the "World Economic Outlook" report, estimating an unemployment rate of 8.9% in 2018 and 9.4% in 2019.

On February 22, 2017, Minister of the Treasury Nicolas Dujovne announced fiscal targets for the period 2017-2019, ratifying the target set in the 2017 budget which established a primary deficit target of 4.2% of GDP for 2017, 3.2% for 2018 and 2.2% for 2019. On May 4, 2018, Minister Dujovne lowered the primary deficit target for 2018 to 2.7% of GDP in an effort to achieve a balanced budget by 2019. After agreeing to a Stand-By Arrangement with the IMF in June 2018, the Argentine Government has adjusted its primary fiscal deficit target to 1.0% of GDP for 2019 and intends to balance the budget by the end of 2020. On August 10, 2018, the IMF commenced its first review of the Argentine economy. This review is taking place during a complex period in Argentina as a bribery scandal, which involves many important businessmen, is underway and the Argentine peso is experiencing significant depreciation. On September 3, 2018, the Ministry of Treasury has adjusted its targets to a primary fiscal deficit of 2.6% of GDP in 2018, a balanced budget in 2019 and a primary fiscal surplus of 1.0% of GDP in 2019, through reducing the public primary expenditure, including reducing by half the amount of national ministries, from 20 to 10, but increasing the spending on social benefits, including the strengthening of the fair price of basic products policy and the universal child allowance (asignación universal por hijo) through the one-time granting of an extraordinary subsidy of Ps. 1,200 in September 2018. On September 26, 2018, the Argentine Government agreed with the IMF an increase in the total amount of the Stand By agreement from US$50 billion to US$57.1 billion. In this sense, the anticipated disbursements rise from US$6 billion to US$13.4 billion in 2018, and from US$11.4 billion to US$22.8 billion in 2019. On September 17, 2018, the Argentine Government summited to the Argentine Congress the budget law for fiscal year 2019 bill, ratifying the aforementioned budgetary targets. On September 26, 2018, the Central Bank announced a new monetary policy scheme aiming to lowering the inflation rate by adopting the following measures: (i) no increase in the level of the monetary base until June 2019, when it will be adjusted with the seasonality of December 2018 and June 2019; (ii) maintenance of the reference rate at 60% until the deceleration of inflation rate is taking place; (iii) implementation of a floating exchange rate with intervention and non-intervention zones for the U.S. dollar exchange rate between Ps.34 and Ps.44, with daily adjustment at a rate of 3% per month until the end of 2018 and its revision at the beginning of 2019, intervening in the purchase or sale of foreign currency for up to US$150 million per day to the extent that the exchange rate reaches the established upper or lower bound.

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Since coming into power in December 2015, the Macri administration has adopted the following key economic and policy reforms.

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INDEC reforms. President Macri appointed Mr. Jorge Todesca, previously a director of a private consulting firm, as head of the INDEC, based on its determination that INDEC had failed to produce reliable statistical information, particularly with respect to the consumer price index, or “CPI”, GDP and poverty and foreign trade data. On January 8, 2016, the Argentine government declared a state of administrative emergency relating to the national statistical system and the INDEC, until December 31, 2016. During 2016, the INDEC implemented certain methodological reforms and adjusted certain macroeconomic statistics on the basis of these reforms. Following the declared emergency, the INDEC ceased publishing statistical data until a rearrangement of its technical and administrative structure is finalized. During the course of implementing these reforms, however, INDEC has used official Consumer Price Index, or “CPI,” figures and other statistical information published by the Province of San Luis and the City of Buenos Aires. On June 29, 2016, the INDEC published revised GDP data for the years 2004 through 2015. On August 31, 2016, the IMF Executive Board met to consider the progress made by Argentina in improving the quality of official GDP and CPI data and noted the important progress made in strengthening the accuracy of Argentina’s statistics. On November 10, 2016, the IMF lifted the existing censure on Argentina regarding these data. In June 2017, INDEC began to publish revised CPI figures based on statistical information from 39 cities in Argentina.

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Agreement with holdout bondholders. The Argentine government has settled claims with substantially all of the holdout bondholders who had not previously participated in Argentina’s sovereign debt restructurings (in terms of claims) and regained access to the international capital markets, issuing several new series of sovereign bonds since President Macri took office.

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Foreign exchange reforms. The Macri administration eliminated a significant portion of foreign exchange restrictions, including certain currency controls, previously in effect. On August 9, 2016, the Central Bank issued Communication “A” 6037 which substantially changed the existing legal framework and eliminated certain restrictions limiting access to the foreign exchange market Mercado Único y Libre de Cambios, or “MULC.” On May 19, 2017, the Central Bank issued Communication “A” 6244, which unified the exchange control regulations and relaxed certain controls on the foreign exchange market. In addition, on December 26, 2017, the Central Bank implemented a new unified regime effective as of December 31, 2017 that requires the filing of an annual return, which is mandatory for any person whose total cash flow or balance of assets and liabilities amounts to US$1 million or more during the previous calendar year. The principal measures adopted as of the date of this annual report include:

i. 

the reestablishment of Argentine residents’ rights to purchase and remit foreign currency outside of Argentina without limit and without specific allocation (atesoramiento);

ii. 

the elimination of the mandatory, non-transferable and non-interest bearing 30% deposit previously required in connection with certain transactions involving foreign currency inflows;

iii. 

the elimination of the requirement to transfer and settle the proceeds from new foreign financial indebtedness incurred by the foreign financial sector, the non-financial private sector and local governments through the MULC;

iv. 

the elimination of the minimum stay-period that required that proceeds from certain foreign financial indebetness must be held for a minimum of 365 calendar days; and

v. 

elimination of the requirement of minimum holding period (of 72 business hours) for purchases and subsequent sales of securities that trade in Argentina and in foreign stock markets (such as the ADSs).

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Foreign trade reforms. The Macri administration eliminated export duties on wheat, corn, beef and regional products, and announced a gradual reduction of the duty on soybeans by 5% to 30%. Pursuant to Decree No. 1,343/16, published in the Official Gazette on January 2, 2017, the Argentine Government announced a gradual reduction of the duty on soybeans, beans, flour and soybean oil by 0.5 % per month from January 2018 to December 2019. In addition, the 5% export duty on most industrial exports and export duties on mining was eliminated. With respect to payments for imports of goods and services, the Macri administration announced the gradual elimination of restrictions on access to the MULC for any transactions originated before December 17, 2015. Regarding transactions executed after December 17, 2015, no quantitative limitations apply. However, on September 4, 2018, the Argentine Government issued Decree No. 793/2018 that reimplements an export duty of 12% until December 31, 2020 on export of goods and services, with a cap of Ps.4 for each U.S. dollar for primary goods and services and Ps.3 for the rest of the manufactured goods.

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National electricity state of emergency and reforms. Following years of minimal investment in the energy sector, exacerbated by the Argentine Government’s failure to implement tariff increases on electricity and natural gas since the 2001-2002 economic crisis, Argentina began to experience energy shortages in 2011. In response to the growing energy crisis, on December 15, 2015, the Macri administration declared a state of emergency, which remained in effect until December 31, 2017. In addition, through Resolution No. 6/2016 of the Ministry of Energy and Mining and Resolution No. 1/2016 of the National Electricity Regulatory Agency (Ente Nacional Regulador de la Electricidad), the Macri administration announced the elimination of a portion of energy subsidies then in effect and implemented a substantial increase in electricity tariffs. As a result, average electricity prices increased substantially and could increase further in the future. Certain of Macri´s Administration initiatives have been challenged in Argentine courts and resulted in judicial injunctions or determinations that limit such initiatives. On May 31, 2018, the Argentine Congress approved a law seeking to limit the increase in energy tariffs implemented by the Macri administration, which was subsequently vetoed by President Macri.

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Tax Amnesty Law. In July 2016, the Régimen de Sinceramiento Fiscal, or “Tax Amnesty Law,” was introduced to promote the voluntary disclosure of undeclared assets by Argentine residents. The Tax Amnesty Law allowed Argentine tax residents holding undeclared funds or assets located in Argentina or abroad to (i) declare such property prior to March 31, 2017 without facing prosecution for tax evasion or being required to pay past-due tax liabilities on those assets, if they could provide evidence that the assets were held as of certain specified cut-off dates, and (ii) keep the declared property outside Argentina and not repatriate such property to Argentina. With respect to cash that was not deposited in bank accounts by the specified cut-off dates, such amounts had to be disclosed and deposited by October 31, 2016 in special accounts opened at Argentine financial entities. Depending on the amount declared and how soon it was declared, the election to subscribe for certain investment securities and the payment method used, those who took advantage of the Tax Amnesty Law paid a special tax of between 0% and 15% on the total amount declared. Alternatively, they could invest an equivalent amount in Argentine Government bonds or a fund created to finance, among other things, public infrastructure projects and small- to medium-sized businesses. Taxpayers could elect to subscribe for certain investment securities and reduce the tax rates payable upon disclosure of previously undisclosed assets. On April 4, 2017, the Minister of Finance announced that as a result of the Tax Amnesty Law, assets totaling US$116,800 million were declared.

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Retiree Program. On June 29, 2016, the Argentine Congress enacted the Historical Reparation Program for Retirees and Pensioners (Programa de Reparación Histórica para Jubilados y Pensionados). The main aspects of this Program, designed to reform social security policies to comply with Supreme Court decisions, include (i) payments to more than two million retirees and retroactive compensation of more than 300,000 retirees and (ii) creation of a universal pension for senior citizens, which guarantees a pension for all people over 65 years of age who would not otherwise be eligible to retire with a pension. The Historical Reparation Program for Retirees and Pensioners will provide retroactive compensation to retirees for a total amount of more than Ps.47,000 million and expenses of up to Ps.75,000 million to cover all potential beneficiaries.

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●     Increase in transportation fares. In January 2018, the Macri administration announced an increase in public transport fares in the Greater Buenos Aires area effective as of February 1, 2018.

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Correction of monetary imbalances: The Macri administration announced the adoption of an inflation targeting regime in parallel with the floating exchange rate regime and set inflation targets for the next four years. The interannual inflation targets (comparing the rates as of December of each year) announced in 2016 by the Central Bank, were from 12% to 17% for 2017, from 8% to 12% for 2018, and from 3.5% to 6.5% for 2019. The Central Bank has increased the use of stabilization policies to reduce excess monetary imbalances and increased peso interest rates to offset inflationary pressure. On December 27, 2017, the Argentine Government modified the inflation targets for 2018, 2019 and 2020, increasing them to 15%, 10% and 5%, respectively. In June 2018, the Central Bank further adjusted inflation targets to 27% for 2018, 17% for 2019, 13% for 2020 and 9% for 2021 in light of the Stand-By Agreement with the IMF. In addition, on September 26, 2018, the Central Bank announced a new monetary policy scheme aiming to lowering the inflation rate mainly by adopting a floating exchange rate scheme, maintening the reference rate at 60% until the deceleration of inflation rate is taking place and stopping the monetary base growth until June 2019, when it will be adjusted with the seasonality of December 2018 and June 2019. On October 8, 2018, the IMF published the "World Economic Outlook" report, estimating an inflation rate of 40.5% in 2018 and 20.2% in 2019.

●     Pension system reform. On December 19, 2017, the Argentine Congress enacted the Pension Reform Law which, among other amendments, adjusted the values of pensions and social benefits in accordance with inflation and economic growth. Social security payments are subject to quarterly adjustments each year. 70% of the quarterly adjustment will be based on the CPI published by the INDEC and 30% on the variation in the Remuneración Imponible Promedio de los Trabajadores Estables (an index published by the Ministry of Labor that measures the salary increases of state employees). On December 20, 2017, Decree No. 1,058/17 was published and, with the aim of avoiding divergence with the application of the previous formula, established a compensatory bonus for retirees, pensioners and beneficiaries of the universal child allowance (asignación universal por hijo). On September 3, 2018, the Argentine Government announced the strengthening of the universal child allowance through the one-time granting of an extraordinary subsidy of Ps. 1,200 in September 2018. The Pension Reform Law also amended the Labor Law to extend the age at which private sector employers may request the retirement of employees to 70 years of age (compared to 65 years under the priorregime). Notwithstanding the foregoing, private sector employees may still request pension benefits from the ages of 65 and 60 for male and female employees, respectively.

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Tax reform. On December 27, 2017, the Argentine Congress approved the tax reform law, enacted on December 28, 2017. The reform is intended to eliminate certain inefficiencies in the Argentine tax regime, diminish tax evasion, expand the tax base and encourage investment, with the long-term goal of restoring fiscal balance. The reform is part of a larger policy initiative of the Macri administration intended to increase employment, make the Argentine economy more competitive (by reducing the fiscal deficit, for example) and diminish poverty. The main aspects of the tax reform include the following: (i) capital gains on real estate sales by Argentine tax residents (subject to certain exceptions, including a primary residence exemption) acquired after enactment of the tax reform will be subject to tax of 15%; (ii) gains on currently exempt bank deposits and sales of securities (including sovereign bonds) by Argentine tax residents is subject to tax of (a) 5% in the case of those denominated in pesos, subject to fixed interest rate and not indexed, and (b) 15% for those denominated in a foreign currency or indexed; (iii) gains on sales of shares listed on a stock exchange remain exempt; (iv) corporate income tax will decline to 30% in 2018 and 2019 and to 25% in 2020; (v) social security contributions will be gradually increased to 19.5% starting in 2022, in lieu of the differential scales currently in effect; and (vi) the percentage of tax on debits and credits that can be credited to income tax will be gradually increased over a five-year period, from the current 17% for credits to 100% for credits and debits. The tax reform is to be implemented over a period of one to five years (depending on each modification). For further information, see “ “Item 10. Additional Information—Taxation—Argentine taxation”.

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Corporate Criminal Liability Law. On November 8, 2017, the Argentine Congress approved Law No. 27,401, which establishes a system of criminal liability of corporate entities for criminal offenses against public administration and national and cross-border bribery committed by, among others, its shareholders, attorneys-in-fact, directors, managers, employees, or representatives. Convicted legal persons are subject to various sanctions including a fine of between 1% and 20% of its annual gross revenue and the partial or total suspension of its 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 with domicile or headquartered in Argentina.

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Public-Private Participation Law. On November 16, 2016, the Public-Private Participation Law was passed by the Argentine Congress, and has been regulated by Decree No. 118/2017. This new regime seeks to replace existing regulatory frameworks (Decrees No. 1,299/00 and 967/05) and supports the use of public-private partnerships for a wide variety of purposes including the design, construction, extension, improvement, provision, exploitation and/or operation and financing of infrastructure development, provision of public services, provision of productive services, investments, applied research, technological innovation and other associated services. The Public-Private Participation Law also includes protection mechanisms in favor of the private sector (contractors and lenders) in order to promote the development of these partnerships.

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Productive Financing Law. On May 9, 2018, the Argentine Chamber of Deputies approved Law No. 27,440 called “Ley de Financiamiento Productivo”, which creates a new financing regime for micro-, small- and medium-sized companies (“MiPyMEs”) and modifies Capital Markets Law No. 26,831, Investment Funds Law No. 24,083 and Law No. 23,576, among others, and implements certain tax provisions and regulations for derivative financial instruments.

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Labor reform bill. On November 18, 2017, the Executive Branch submitted a draft labor and social security reform bill to the Argentine Chamber of Senators, intended to formalize employment, decrease labor litigation, generate employment, increase productivity, protect vulnerable populations and improve worker training. As of the date of this annual report, the draft bill has not been considered by the Argentine Congress.

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Fiscal consensus and fiscal liability. On December 22, 2017, the Argentine Congress enacted the “Fiscal Pact”, also known as the “Fiscal Consensus”. The Fiscal Consensus includes a commitment to lower distortive taxes by 1.5% of GDP over the next five years, a withdrawal of lawsuits by provincial governments against the Argentine Government and a Ps.21,000 million payment to the Province of Buenos Aires for the year 2018 (which amount shall be increased over the next five years) as a partial and progressive solution to a long-standing conflict related to the Buenos Aires Metropolitan Area Fund over the Fondo del Conurbano Bonaerense. The Fiscal Consensus also set the basis for other policy reforms that were implemented by the Macri administration in December 2017, such as the tax reform, the pension system reform and the Fiscal Responsibility Law (Ley de Responsbilidad Fiscal). The fiscal deficit estimated for 2018 is 2.6% of 2018 GDP. The budget law for fiscal year 2019 bill projects a balanced budget in 2019 and a primary fiscalsurplus of 1.0% of GDP by 2020.

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IMF Stand-By Arrangement: On June 7, 2018, the Argentine Government entered into a US$50 billion, 36-month Stand-By Arrangement with the IMF, which was approved by the IMF’s Executive Board on June 20, 2018. As of July 31, 2018, the Argentine Government had drawn on a first tranche of approximately US$15 billion, and the additional available funds will be treated as precautionary. This measure was intended to halt the significant depreciation of the peso during the first half of 2018. On September 26, 2018, the Argentine Government agreed with the IMF an increase in the total amount of the Stand By agreement from US$50 billion to US$57.1 billion. In this sense, the anticipated disbursements rise from US$6 billion to US$13.4 billion in 2018, and from US$11.4 billion to US$22.8 billion in 2019.

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The impact that these measures, and any future measures taken by a new administration, will have on the Argentine economy as a whole and the financial sector in particular cannot be predicted. Economic liberalization may be disruptive to the economy and may fail to benefit, or may harm, our business, financial condition and results of operations. In particular, we have no control over the implementation of the reforms to the regulatory framework that governs its operations and cannot guarantee that these reforms will be implemented or that they will be implemented 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 position and results of operations.

In this context, as the date of this annual report, the Argentine economy remains unstable, among others, for the following reasons:

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a persistent high rate of public spending and substantial fiscal deficit;

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investments as a percentage of GDP remain low;

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public debt as a percentage of GDP remains high;

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the inflation rate remains at high levels;

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agricultural exports, which fueled the economic recovery, have been affected by the drought and lower prices than in prior years;

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rising of international crude oil prices;

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the availability of long-term credit to the private sector is scarce;

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the current trade deficit is high and could increase;

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the effects of a restrictive U.S. monetary policy, which could generate an increase in financial costs for Argentina;

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fluctuations in the Central Bank’s monetary reserves;

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uncertainty with respect to the imposition of exchange and capital controls; and

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other political, social and economic events abroad that adversely affect the current growth of the Argentine economy.

A further decline in Argentine economic growth or an increase in economic instability could adversely affect our business, financial condition or results of operations. As of the date of this annual report, the impact of the Macri administration’s policies on the Argentine economy as a whole and on the banking sector in particular cannot be predicted. In addition, congressional elections were held on October 22, 2017 and President Macri’s governing coalition obtained the largest share of votes at the national level. Although the number of coalition members in Congress increased (holding in the aggregate 108 of a total of 257 seats in the House of Representatives and 24 of 72 seats in the Senate), the coalition still lacks a majority in either chamber and, as a result, some or all of the policy proposals to promote growth of the economy (including reducing the fiscal deficit, controlling inflation and adopting fiscal and labor reforms) may not be implemented, which could adversely affect continued economic growth in Argentina. Higher rates of inflation, any decline in GDP growth rates and/or other future economic, social and political developments in Argentina, fluctuations in the rate of exchange of the Peso against other currencies, and a decline in consumer confidence or foreign direct investment, among other factors, may materially and adversely affect the development of the Argentine economy which could adversely affect our business, financial condition or results of operations.

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

 According to the INDEC, the CPI was 10.8% in 2012, 10.9% in 2013, 23.9% in 2014 and 26.9% in 2015. In November 2015, the INDEC suspended the publication of the CPI. After implementing certain methodological reforms and adjusting certain macroeconomic statistics based on these reforms, in June 2016, INDEC resumed publishing the CPI. The best available information for 2016 is the annual measurement of the index of consumer prices reported by the City of Buenos Aires of 41%. In 2017, inflation began to decrease in line with the Central Bank’s inflation targeting policies. According to the INDEC, the CPI increased 24.8% in 2017 and 1.8%, 2.4%, 2.3%, 2.7%, 2.1%, 3.7%, 3.1% and 3.9% for January, February, March, April, May, June, July and August 2018, respectively. At the end of 2017, Minister Dujovne announced that the CPI targets previously set out in the 2017 budget law were revised to 15% for 2018, 10% for 2019 and 5% for 2020. After agreeing to a Stand-By Arrangement with the IMF in June 2018, the Argentine Government has adjusted its CPI targets to 27% for 2018, 17% for 2019, 13% for 2020 and 9% for 2021. In August 2018, the Argentine Central Bank adjusted its CPI targets to 40.5% for 2018, 24.5% for 2019 and 18% for 2020.On September 17, 2018, the Argentine Government summited to the Argentine Congress the draft budget law for fiscal year 2019, estimating a year-on-year inflation rate of 23% for December 2019. On October 8, 2018, the IMF published the "World Economic Outlook" report, estimating an inflation rate of 40.5% in 2018 and 20.2% in 2019.

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 the results of our operations.

High rates of inflation would also adversely affect economic activity, employment, real salaries, consumption and interest rates. In addition, the dilution of the positive effects of any depreciation of the peso on the export-oriented sectors of the Argentine economy would decrease the level of economic activity in the country. In turn, a portion of the Argentine Government’s outstanding debt is adjusted by the Coeficiente de Estabilización de Referencia (or “CER”), a currency index tied to inflation. Therefore, any significant increase in inflation would generate an increase in Argentina’s debt measured in pesos and, consequently, its financial obligations.

In recent years, the Argentine Government has taken certain measures to contain inflation, such as implementing a fair price program that requires supermarkets to offer certain products at a government-determined price, and agreements with workers’ unions to implement salary increases. Additionally, the Argentine Government enacted Law No. 26,991 (the “Supply Law”), which empowers it to intervene in certain markets when it considers that any market participant is trying to impose prices or supply restrictions. The Supply Law provides among others pecuniary sanctions, suspension, seizure of operations, and confiscation of goods. On September 3, 2018, the Argentine Government further strengthened the fair price program by including more basic consumer goods and places of distribution around the country.

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 Argentine Government to control inflation will be effective or successful. Inflation remains a challenge for Argentina. For example, certain objectives of the Argentine Government, such as the increase in tariffs to incentivize investment in the energy sector, may create inflationary pressures. Significant inflation could have an 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 the results of our operations. See “—We depend on macroeconomic and political conditions in Argentina”.

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The Peso qualifies as a currency of a hyperinflationary economy under IAS 29. Accordingly, we will apply IAS 29 for periods ending after July 1, 2018 and our historical audited consolidated financial statements and other financial information will need to be restated.

IAS 29 requires that financial statements of any entity whose functional currency is the currency of a hyperinflationary economy, whether based on the historical cost method or on the current cost method, be adjusted in terms of the measuring unit current at the end of the reporting period. IAS 29 does not establish a set inflation rate beyond which an economy is deemed to be experiencing hyperinflation. However, hyperinflation is commonly understood to occur when changes in price levels are close to or exceed 100% on a cumulative basis over the prior three years, along with the presence of several other qualitative macroeconomic factors.

During the six-month period ended June 30, 2018, the decreasing trend of inflation in Argentina noted in recent prior periods reversed, with variations in different indexes being higher than in previous months. The total cumulative inflation in Argentina in the 36 months prior to June 30, 2018, as measured by the wholesale price index published by the INDEC, has exceeded 100%. Qualitative macroeconomic factors, including the depreciation of the peso in recent months, also support the conclusion that Argentina is now a hyper-inflationary economy for accounting purposes. Accordingly, IAS 29 will be applicable for financial statements included in any of our filings with the SEC under the Securities Act or the Exchange Act for periods ending after July 1, 2018 and, therefore, our audited consolidated financial statements and any unaudited interim financial statements included in this annual report will need to be adjusted by applying a general price index and expressed in the measuring unit (the hyperinflationary currency) current at the end of the most recent reporting period.

Pursuant to Decree No. 664/2003, the Argentine Government prohibited regulatory entities of the national government, fom receiving financial information from regulated entities that includes adjustments for inflation, changes in costs or other variations in taxes, prices or tariffs. In addition, Law No. 23,928 prohibits Argentine companies from including adjustments for inflation in their financial statements. Given the current state of Argentine law, we cannot assure you whether regulatory agencies of the Argentine national government will require us to not apply IAS 29 to financial statements furnished to such regulators. If regulatory agencies in Argentina require us not to apply IAS 29, or to only apply IAS 29 to certain, but not all, of the periods included in our audited consolidated financial statements and unaudited interim financial statements, the audited consolidated financial statements and any unaudited interim financial statements included in this prospectus may not be comparable to certain of our financial statements furnished to regulators in Argentina.

We have not estimated yet the impact of the application of IAS 29 provisions on our audited consolidated financial statements.

We cannot assure that the accuracy of Argentina’s official inflation statistics will comply with international standards.

In January 2007, the INDEC modified its methodology to calculate the CPI. At the time that the INDEC adopted this change in methodology, the Argentine Government replaced several key officers at the INDEC, prompting complaints of governmental interference from the technical staff at the INDEC. The IMF requested Argentina to clarify the INDEC methodology used to calculate inflation rates.

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On November 23, 2010, the Argentine Government began consulting with the IMF for technical assistance in order to prepare new CPI information with the aim of modernizing the current statistical system. During the first quarter of 2011, a team from the IMF started collaborating with the INDEC in order to create such an index. Notwithstanding such efforts, subsequently published reports by the IMF stated that its staff delivered alternative measures of inflation for macroeconomic surveillance, including information produced by private sources, and asserted that such measures resulted in inflation rates considerably higher than those published by the INDEC since 2007. Consequently, the IMF called on Argentina to adopt measures to improve the quality of data used by the INDEC. In a meeting held on February 1, 2013, the Executive Board of the IMF emphasized that the progress in implementing remedial measures since September 2012 had been insufficient. As a result, the IMF issued a declaration of censure against Argentina in connection with the breach of its related obligations and called on Argentina to adopt remedial measures to address the inaccuracy of inflation and GDP data immediately.

In order to address the quality of official data, a new consumer price index (the “IPCNu”), was enacted on February 13, 2014. Inflation as measured by the IPCNu was 23.9% in 2014, 29.2% in 2015 and 33.7% in 2016. The IPCNu represents the first national indicator in Argentina to measure changes in prices of household goods for final consumption. While the previous price index only measured inflation in the Greater Buenos Aires area, the IPCNu is calculated by measuring prices of goods in the main urban centers of the 23 provinces of Argentina and the City of Buenos Aires. On December 15, 2014, the IMF recognized the evolution of Argentine authorities to remedy the provision of data, but delayed the definitive evaluation of the new price index.

On January 8, 2016, based on its determination that the INDEC historically failed to issue reliable statistical information, the Macri administration issued an emergency decree and suspended the publication of statistical information. The INDEC suspended all publications of statistical information until the process of technical reorganization was completed and the administrative structure of the INDEC was recomposed. At the end of this process of reorganization and recovery, the INDEC gradually began to publish official information. The INDEC recalculated historical GDP and the revised measurements showed that the GDP increased 2.4% in 2013, contracted 2.5% in 2014, increased 2.7% in 2015, and contracted 1.8% in 2016.On November 9, 2016, the IMF, after analyzing the progress made with respect to the accuracy of official statistics regarding the CPI, decided to lift the censorship imposed in 2013, and determined that the Argentine CPI currently complies with international standards. However, we cannot assure you that such inaccuracy regarding official economic indicators will not recur. If despite the changes introduced by the Macri administration these differences between the figures published by the INDEC and those registered by private consultants persist, there could be a significant loss of confidence in the Argentine economy, which could adversely affect our business, financial condition and results of operations.

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. In 2015, government spending increased by 34.4% as compared to 2014, resulting in a primary fiscal deficit of 3.8% of GDP. In 2016, government spending increased by 42.8% as compared to 2015, resulting in a primary fiscal deficit of 4.2% of GDP. In 2017, government spending increased by 25.9% as compared to 2016, resulting in a primary fiscal deficit of 3.8% of GDP. If government spending continues to outpace revenues, the fiscal deficit is likely to increase and past sources of funding to address such deficit, such as the Central Bank and the Administración Nacional de la Seguridad Social (“ANSES”) may be utilized.

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Any such increasing deficit could have a negative effect on the Argentine Government’s ability to access the long-term financial markets, and in turn, could limit the access to such markets for Argentine companies, which could adversely affect our business, financial condition and the results of our operations.

Argentina’s ability to obtain financing in the international capital markets is limited, which may impair its ability to implement reforms and public policies and foster economic growth.

Argentina has had limited access to foreign financing in recent years, primarily as a result of a default in December 2001 by Argentina on its debt to foreign bondholders, multilateral financial institutions and other financial institutions. Argentina’s 2001 default and its failure to fully restructure its sovereign debt and negotiate with the holdout creditors has limited and may continue to limit Argentina’s ability to access international capital markets. 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 has restructured approximately 92.1% of its defaulted debt that was eligible for restructuring (the “Debt Exchanges”). 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 February 2016, the Argentine Government agreed with a group of Italian bondholders to pay in cash the total principal amount of debt owed to such holders. In mid-2016, the Argentine Government emerged from default and paid US$900 million to the approximately 50,000 Italian bondholders who owned government securities with defaulted payments part due.

During February 2016, U.S. federal court special master Daniel Pollack ratified an agreement between the Argentine Government and the holdout creditors led by Elliot Management, Aurelius Capital, Davidson Kempner and Bracebridge Capital funds providing for a US$4.65 billion payment in respect of defaulted sovereign bonds, representing a 25% discount to the total principal amount of principal and interest due on the defaulted bonds, as well as attorney fees and expenses incurred. This agreement stipulated that the terms of the settlement be approved by the Argentine Congress, and that Law No. 26,017 (the “Padlock Law”) and the Sovereign Payment Law be repealed.

In March 2016, the Argentine Government submitted a bill to Congress seeking authorization to consummate the settlement, which was approved on April 1, 2016, by enactment of Law No. 27,249 pursuant to which, the Argentine Government was authorized to pay in cash up to US$11.6 billion to the holdout bondholders. The proceeds for such payment were raised through an issuance of sovereign debt in the international capital markets. Among other provisions, the new law repealed the Padlock Law and Sovereign Payment Law.

At the beginning of April 2016, special master Daniel Pollack announced that the Argentine Government had reached agreements with additional holdout bondholders. As a result, the Argentine Government has reached agreements with nearly 90% of the debt holders that did not participate in the 2005 and 2010 bond exchange transactions. On April 13, 2016, the Court of Appeals lifted the restrictions on Argentina to fulfill its debt obligations. In April 2016, the Argentine Government issued US$16.4 billion principal amount of bonds. On April 22, 2016, the Argentine Government paid amounts due under the agreement and the U.S. courts removed all previously issued sanctions and injunctions. From December 31, 2015 to December 31, 2017, Argentina’s sovereign debt increased by US$80.3 billion, according to the Ministry of Treasury.

As of the date of this annual report, proceedings initiated by holdouts and other international creditors that did not accept Argentina’s payment offer continue in several jurisdictions, although the size of the claims involved has declined considerably. The potential consequences of final judgments from courts in various jurisdictions are unclear and further adverse rulings could adversely affect the Argentine Government’s ability to issue debt securities or obtain favorable terms when the need to access the international capital markets arises, and consequently, our own capacity to access these markets could also be limited.

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Foreign shareholders of companies operating in Argentina have initiated investment arbitration 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, or “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 the international capital markets.

The amendment of the Central Bank’s Charter and the Convertibility Law may adversely affect the Argentine economy.

On March 22, 2012, the Argentine Congress passed Law No. 26,739, which amended the Charter of the Central Bank and Law No. 23,298 (the “Convertibility Law”). This law amends the objectives of the Central Bank (established in its Charter) and includes a mandate focused on promoting social equity programs in addition to developing monetary policy and financial stability.

A key component of the Central Bank Charter amendment relates to the use of international reserves. Pursuant to this amendment, Central Bank reserves may be made available to the Argentine Government for the repayment of debt or to finance public expenditures. During 2013, U.S. dollar reserves held at the Central Bank decreased to US$30.6 billion from US$43.3 billion in 2012, while during 2014 reserves increased to US$31.4 billion. The Central Bank’s foreign currency reserves were US$25.6 billion as of December 31, 2015, US$39.3 billion as of December 30, 2016, US$55.1 billion as of December 29, 2017 and US$52.7 billion as of August 31, 2018.

The Argentine Government’s use of Central Bank reserves to repay debt or to finance public expenditures may make the Argentine economy more vulnerable to higher rates of inflation or external shocks, which could adversely affect our business, financial condition and the results of our operations.

Significant fluctuations in the value of the Peso may adversely affect the Argentine economy as well as our financial performance.

Despite the positive effects of the depreciation of the peso in 2002 on the competitiveness of certain sectors of the economy, depreciation has had a negative impact on the ability of Argentine businesses to honor their foreign currency-denominated debt obligations, initially resulting in high rates of inflation and significantly reduced real wages, which has had a negative impact on businesses that depend on domestic demand, such as utilities and the financial industry, and has adversely affected the Argentine Government’s ability to honor its foreign currency-denominated debt obligations.

Since the strengthening of foreign exchange controls began in late 2011, and upon introduction of measures that gave private companies and individuals limited access to foreign currency, the implied peso exchange rate, as reflected in the quotations for Argentine securities that trade in foreign markets compared to the corresponding quotations in the local market, increased significantly compared to the official exchange rate.

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In 2015, the U.S. dollar to 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. This trend continued in the first few months of 2018, with an increase of 7% from December 31, 2017 to March 31, 2018. Further, the U.S. dollar to peso exchange rate increased approximately 82%, from Ps.20.20 in early April 2018 to Ps.36.85 as of August 31, 2018. On September 17, 2018, the Argentine Government summited to the Argentine Congress the draft budget law for fiscal year 2019, estimating an average exchange rate of Ps.40.10 for US$1.00 in 2019, Ps.44.30 for US$1.00 in 2020, Ps.48.20 for US$1.00 in 2021 and Ps.50.50 for US$1.00 in 2022.

As a result of the significant depreciation of the peso against the U.S. dollar, on August 30, 2018 the Argentine Central Bank increased the interest rate of the Argentine peso to 60% aiming to attract investments in this currency. This high level of interest rate deteriorates the conditions for accessing credit by individuals and legal entities, producing an increase in debt levels paid off, which could affect our business, financial condition and the results of our operations.

In addition, high interest rates in Argentine pesos may not be sustainable in the medium term, which could affect the level of activity from a reduction in consumption. As a result, a negative GDP growth is expected for 2018.

A significant further depreciation of the peso against the U.S. dollar could have an adverse effect on the ability of Argentine companies to make timely payments on their debts denominated in or indexed or otherwise connected to a foreign currency, generate very high inflation rates, reduce real salaries significantly, and have an adverse effect on companies focused on the domestic market, such as public utilities and the financial industry. Such a potential depreciation could also adversely affect the Argentine Government’s capacity to honor its foreign debt, which could affect our capacity to meet obligations denominated in a foreign currency which, in turn, could have an adverse effect on our business, financial condition and results of operations. While certain of our office leases are set in U.S. dollars, we are only partially protected against depreciation of the Peso and there can be no assurance we will be able to maintain our U.S. dollar-denominated leases.

In addition, on June 7, 2018, the Argentine Government entered into a US$50 billion 36-month Stand-By Arrangement with the IMF, which was approved by the IMF’s Executive Board on June 20, 2018. The Argentine Government has drawn on a first tranche of approximately US$15 billion, and the additional available funds will be treated as precautionary. This step was intended to halt the significant depreciation of the peso. This measure was intended to halt the significant depreciation of the peso during the first half of 2018. On September 26, 2018, the Argentine Government agreed with the IMF an increase the total amount of the Stand By agreement from US$50 billion to US$57.1 billion. In this sense, the anticipated disbursements rise from US$6 billion to US$13.4 billion in 2018, and from US$11.4 billion to US$22.8 billion in 2019.

On September 26, 2018, the Central Bank announced a new monetary policy scheme aiming to lowering the inflation rate by adopting the following measures: (i) no increase in the level of the monetary base until June 2019, when it will be adjusted with the seasonality of December 2018 and June 2019; (ii) maintenance of the reference rate at 60% until the deceleration of inflation rate is taking place; (iii) implementation of a floating exchange rate with intervention and non-intervention zones for the U.S. dollar exchange rate between Ps.34 and Ps.44, with daily adjustment at a rate of 3% per month until the end of 2018 and its revision at the beginning of 2019, intervening in the purchase or sale of foreign currency for up to US$150 million per day to the extent that the exchange rate reaches the established upper or lower bound.

A substantial appreciation of the peso against the U.S. dollar negatively impacts the financial condition of entities whose foreign currency-denominated assets exceed their foreign currency-denominated liabilities. In addition, in the short-term, a significant real appreciation of the peso would adversely affect exports and could result in a slowdown in economic growth. This could have a negative effect on GDP growth and employment as well as reduce the Argentine public sector’s revenues by reducing tax collection in real terms, given its current heavy reliance on taxes on exports. As a result, the appreciation of the peso against the U.S. dollar could also have an adverse effect on the Argentine economy and, in turn, our business, financial condition and results of our operations.

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

Prior to December 2015, the Argentine Government accelerated its direct intervention in the economy through the implementation or amendment of laws and regulations, including with respect to nationalizations or expropriations; restrictions on production, imports and exports; foreign exchange and/or transfer restrictions; direct and indirect price controls; tax increases, changes in the interpretation or application of tax laws and other retroactive tax claims or challenges; cancellation of contract rights; and delays or denials of governmental approvals, among others.

In November 2008, the Argentine Government enacted Law No. 26,425 which provided for the nationalization of the Administradoras de Fondos de Jubilaciones y Pensiones (the “AFJPs”). In April 2012, the Argentine Government nationalized YPF S.A. and imposed major changes to the system under which oil companies operate, principally through the enactment of Law No. 26,714 and Decree No. 1277/2012. In February 2014, the Argentine Government and Repsol S.A. (the former principal shareholder of YPF S.A.) announced that they had reached an agreement on the compensation payable to Repsol for the expropriation of YPF S.A. of US$5 billion payable in Argentine sovereign bonds with various maturities. On April 23, 2014, the agreement with Repsol was approved by the Argentine Congress and on May 8, 2014, Repsol S.A. received the relevant Argentine Government bonds. On July 10, 2018, the United States Court of Appeals for the Second Circuit affirmed a U.S. federal trial court decision, finding that Burford Capital’s claim for more than US$3 billion in damages against the Argentine government in connection with the nationalization of YPF S.A. is subject to the jurisdiction of the U.S. federal courts. The claim by Burford Capital has been referred to the trial court for substantive proceedings.

There are other examples of intervention by the Argentine Government. In December 2012 and August 2013, Argentine Congress established new regulations relating to domestic capital markets. The regulations generally provided for increased Argentine Government intervention in the capital markets authorizing, for example, the CNV to appoint observers with the ability to veto the decisions of the board of directors of publicly listed companies under certain circumstances and to suspend the board of directors for a period of up to 180 days. On May 9, 2018, the Argentine Congress approved Law No. 27,440, which introduced modifications to the Capital Markets Law, including the removal of the CNV’s power to appoint supervisors with powers of veto over resolutions adopted by a company’s board of directors.

We cannot assure you that these or similar and other measures to be adopted by the Argentine Government, such as expropriation, nationalization, forced renegotiation or modification of existing contracts, new tax policies, modification of laws, regulations and policies that affect foreign trade, investment, among others, will not have an adverse effect on the Argentine economy and, as a consequence, adversely affect our business, financial condition and our results of operations.

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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. In the aftermath of the Argentine economic crisis, employers both in the public and private sectors experienced significant pressure from their employees and labor unions to increase wages and provide additional employee benefits. In August 2012, the Argentine Government established a 25% increase in the minimum monthly salary to Ps.2,875, effective as of February 2013. The Argentine Government increased the minimum monthly salary to Ps.3,300 in August 2013, to Ps.3,600 in January 2014, to Ps.4,400 in September 2014, to Ps.4,716 in January 2015, to Ps.5,588 in August 2015 and to Ps.6,060 as from January 2016. In May 2016, the Argentine Government announced a 33% increase in the minimum monthly salary to be implemented in three installments as follows: Ps.8,060 as from July 1, 2017, Ps.9,500 as from January 1, 2018 and Ps.10,000 in July 2018, an increase of 24% compared to the prior minimum. On August 8, 2018, the National Board of Employment, Productivity and Minimum, Vital and Mobile Salary has increased, through Decree No. 3/2018, the minimum monthly salary to be implemented in four installments as follows: Ps.10,700 as from September 1, 2018, Ps.11,300 as from December 1, 2018, Ps.11,900 as from March 1, 2019 and Ps.12,500 as from June 2019, an increase of 25% compared to the prior minimum.

It is possible that the Argentine Government could adopt measures mandating further salary increases and/or the provision of additional employee benefits in the future. Any such measures could have a material and adverse effect on our business, results of operations and financial condition. On February 14, 2018, the INDEC published new data regarding the evolution of private and public-sector salaries. The total salaries index registered a growth of 27.5% during 2017, as a result of the 26.5% increase in salaries of the formal private sector and an increase of 31.5% in the informal private sector.

Property values in Argentina could decline significantly.

Property values are influenced by multiple factors that are beyond our control, such as a decrease in the 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 of real estate properties. We cannot assure you that property values will increase or that they will not be reduced. All of the properties we own are located in Argentina. As a result, a reduction in the value of properties in Argentina could materially affect our business and our financial statements due to the valuation of our investment properties at fair market value.

Restrictions on transfers of foreign currency and the repatriation of capital from Argentina may impair our ability to pay dividends and distributions.

According to Argentine practices, the Argentine government may impose restrictions on the exchange of Argentine currency into foreign currencies and on the remittance to foreign investors of proceeds from investments in Argentina in circumstances where a serious imbalance develops in Argentina’s balance of payments or where there are reasons to foresee such an imbalance. Beginning in December 2001, the Argentine government implemented a number of monetary and foreign exchange control measures that included restrictions on the free disposition of funds deposited with banks and on the transfer of funds abroad without prior approval by the Central Bank. With the administration of President Macri, many of the former restrictions were lifted.

On January 7, 2003, the Central Bank issued communication “A” 3859, as amended, which is still in force and pursuant to which there are no limitations on companies’ ability to purchase foreign currency and transfer it outside Argentina to pay dividends, provided that those dividends arise from net earnings corresponding to approved and audited financial statements. The transfer of funds abroad by local companies to pay annual dividends only to foreign shareholders, based on approved and fully audited financial statements, does not require formal approval by the Central Bank.

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Notwithstanding the above, for many years, and as a consequence of a decrease in availability of U.S. dollars in Argentina, the previous Argentine government imposed informal restrictions on certain local companies and individuals for purchasing foreign currency. These restrictions on foreign currency purchases started in October 2011 and tightened thereafter. As a result of these informal restrictions, local residents and companies were prevented from purchasing foreign currency through the MULC for the purpose of making payments abroad, such as dividends, capital reductions, and payment for imports of goods and services.

Such restrictions and other foreign exchange control measures were lifted by the new administration, moving towards opening Argentina’s foreign exchange market. In this sense, on December 17, 2015, Communication “A” 5850 of the Central Bank reestablished the possibility for non-residents to repatriate their investment capital and, Communication “A” 6037 of the Central Bank defined the new regulations that apply to the acquisition of foreign currency and the elimination of all other restrictions that impair residents and non-residents to have access to the foreign exchange market. However, in the future, the Argentine government or the Central Bank may impose formal restrictions to the payment of dividends abroad, on capital transfers and establish additional requirements. 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. Furthermore, any restrictions on transferring funds abroad imposed by the government could undermine our ability to pay dividends on our ADSs in U.S. dollars.

Exchange controls and restrictions on transfers abroad and capital inflow restrictions, if re-imposed, could limit the availability of international credit.

Until December 2015, there were many foreign exchange restrictions and controls that limited access to the MULC. However, in December 2015, the Macri administration announced certain reforms to the foreign exchange market with the intention of providing greater flexibility and ease of access to the foreign exchange market for individuals and private sector entities. On December 16, 2015, the Central Bank issued Communication “A” 5850, lifting most of the restrictions then in place. Among these measures, free access to the MULC was granted for the purchase of foreign currency intended for general purposes, without the need for obtaining the Central Bank’s or the Administración Federal de Ingresos Públicos (the “AFIP”) previous consent, and the requirement to deposit 30% of certain capital inflows into Argentina was eliminated. Towards the end of 2016, the remaining exchange control restrictions were also lifted when the Central Bank issued Communications “A 6037 and “A” 6150, thereby granting free access to the MULC. Pursuant to Resolution E 1/2017 of the Ministry of Treasury and Communication “A” 6,150 modified by Communication “A” 6,244 of the Central Bank, the obligation requiring non-residents who make portfolio investments in the country aimed at holding private sector financial assets to maintain for a period of 120 days the funds in the country was abolished. Pursuant to this resolution and the Central Bank Communication “A” 6,244, and its amendments, there are no restrictions on entry and exit in the MULC. Accordingly, due to lifting most of the restrictions to access to the MULC, the Central Bank eliminated the obligation to enter and settle funds in foreign currency originated from the export of services to non-residents through the MULC, to the extent that they are not part of the Free On Board (“FOB”) value and/or Cost, Insurance and Freight (“CIF”) of assets exported, eliminated the requirement of a minimum holding period of 72 business hours in relation to the purchase and sale of public securities authorized to trade on the different local and international stock markets, and eliminated the requirement of compulsory entry and liquidation of flows resulting from external debt, including principal and interests. However, the results of capital inflows in the exchange market must be acredited on an account opened by a local financial institution.

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Although the Macri administration eliminated such restrictions, we cannot assure you that foreign exchange regulations will not be amended, or that new regulations will not be enacted in the future imposing greater limitations on funds flowing into and out of the Argentine foreign exchange market. Any such new measures, as well as any additional controls and/or restrictions, could materially affect our ability to access the international capital markets and, may undermine our ability to make payments of principal and/or interest on our obligations denominated in a foreign currency or transfer funds abroad to make payments on our obligations (which could affect our financial condition and results of operations). Therefore, Argentine resident or non-resident investors should take special notice of these regulations (and their amendments) that limit access to the foreign exchange market. In the future we may be prevented from making payments in U.S. dollars and/or making payments outside of Argentina due to the restrictions in place at that time in the foreign exchange market and/or due to the restrictions on the ability of companies to transfer funds abroad

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

Financial and securities markets in Argentina are influenced, to varying degrees, by economic and market conditions in other global markets. The international scenario shows contradictory signals of global growth, as well as high financial and exchange uncertainty. Although such conditions may vary from country to country, investor reactions to events occurring in one country may affect capital flows to issuers in other countries, and consequently affect the trading prices of their securities. Decreased capital inflows and lower prices in the securities market of a country may have an adverse effect on the real economy of those countries in the form of higher interest rates and foreign exchange volatility.

During periods of uncertainty in international markets, investors generally choose to invest in high-quality assets (“flight to quality”) over emerging market assets. This has caused and could continue to cause an adverse impact on the Argentine economy and could continue to adversely affect the country’s economy in the near future. On June 20, 2018, MSCI Inc., a leading provider of indexes and portfolio construction and risk management tools and services for global investors (“MSCI”), reclassified and promoted Argentina to emerging markets status after being dropped to frontier status in May 2009. The MSCI Argentina Index will be included in the MSCI Emerging Markets Index in May 2019. However, MSCI will continue to restrict the inclusion in the index to only foreign listings of Argentinian companies, such as American Depositary Receipts, as the feedback from international institutional investors stated that higher liquidity across the domestic market is needed before considering a shift from offshore to onshore listings. MSCI will reevaluate this decision as liquidity conditions on the BYMA continue to improve.

Most emerging economies have been affected by the change in the U.S. monetary policy, resulting in the sharp unwinding of speculative asset positions, depreciations and increased volatility in the value of their currencies and higher interest rates. The general appreciation of the U.S. dollar resulting from a more restrictive U.S. monetary policy contributed to the fall of the international price of raw materials, increasing the difficulties of emerging countries which are exporters of these products. There is global uncertainty about the degree of economic recovery in the United States, with no substantial positive signals from other developed countries and an increased risk of a general deceleration in developing countries, specifically China, which is the main importer of Argentine commodities. Moreover, the recent challenges faced by the European Union to stabilize certain of its member economies, such as Greece, have had international implications affecting the stability of global financial markets, which has hindered economies worldwide. The Eurozone finance ministers, at a meeting held in August 2015, agreed a third bailout deal for Greece, which required the approval of several countries such as Germany, one of its maincreditors.

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Although economic conditions vary from country to country, investors’ perception of the events occurring in one country may substantially affect capital flows into other countries. 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. Argentina could be adversely affected by negative economic or financial developments in other countries, which in turn may have an adverse effect on our financial condition and results of operations. Lower capital inflows and declining securities prices negatively affect the real economy of a country through higher interest rates or currency volatility. The Argentine economy was adversely impacted by the political and economic events that occurred in several emerging economies in the 1990s, including those in Mexico in 1994, the collapse of several Asian economies between 1997 and 1998, the economic crisis in Russia in 1998 and the Brazilian depreciation in January 1999.

Recently, the Argentine economy was affected by the devaluation of local currencies in emerging markets, such as the devaluation of the Turkish currency by 65%, the Brazilian currency by 27% and the Chilean currency by 12% as of the date of this annual report, among others.

Likewise, the outflow of flows to emerging markets also affected Argentina, causing a deterioration of its sovereing spread that reached 783 basis points on September 4, 2018, deteriorating the conditions to access new external financing. On September 21, 2018, the Argentine country risk reached 588 bps.

Argentina is affected by economic conditions of its major trade partners, such as Brazil, which devalued its currency in early February 2015, causing the Brazilian real to suffer the steepest depreciation in over a decade. Brazil, which is Argentina’s main trading partner, has experienced GDP contraction in recent years (3.5% in 2015 and 3.5% in 2016). Although Brazil’s economic outlook seems to be improving, a further deterioration of economic activity, a delay in Brazil’s expected economic recovery or a slower pace of economic improvement in Brazil may have a negative impact on Argentine exports and on the overall level of economic and industrial activity in Argentina, particularly with respect to the automotive industry. In February 2016, Standard & Poor’s downgraded Brazil’s credit rating to BB. In December 2015 and February 2016, Fitch Ratings and Moody’s, respectively, also downgraded Brazil’s credit ratings to BB+ and Ba2, respectively. In 2017, Brazil experienced a slight increase in its GDP, increasing by 1.0%. If the Brazilian economy’s current recovery stalls or once again deteriorates, the demand for Argentine exports may be adversely impacted.

Moreover, Argentina may be affected by other countries that have influence over world economic cycles, such as the United States or China. In particular, China, which is the main importer of Argentine commodities, saw the yuan depreciate since the end of 2015, which has adversely affected companies with substantial exposure to that country. Depreciation of the yuan continued during 2016, and Chinese economic growth slowed in 2016 and 2017. The slowdown of the Chinese economy and increased volatility of its financial markets could impact financial markets worldwide, which, in turn, could increase the cost and availability of financing both domestically and internationally for Argentine companies.Starting in April 2018, the U.S. imposed tariffs on steel and aluminum imports from China, as well as Canada and countries in the European Union. On July 6, 2018, the United States imposed 25% tariffs on US$34 billion worth of Chinese goods, which then led China to respond with similarly sized tariffs on United States’ products. On July 10, 2018, the Office of the U.S. Trade Representative (USTR) announced a 10% tax on a US$200 billion list of 5,745 Chinese products, implemented as of September 24, 2018. Also, on September 18, 2018, the Chinese government announced a 5% to 10% tax on a US$60 billion list of 5,207 American goods, implemented as of September 24, 2018. A new global economic and/or financial crisis or the effects of deterioration in the current international context, could affect the Argentine economy and, consequently, the results of our operations, financial condition and the trading price for our ADSs.If interest rates rise significantly in developed economies, including the United States, Argentina and other emerging market economies could find it more difficult and expensive to borrow capital and refinance existing debt, which would negatively affect their economic growth. In addition, if these developing countries, which are also Argentina’s trade partners, fall into a recession; the Argentine economy would be affected by a decrease in exports. All of these factors could have a negative impact on us, our business, operations, financial condition and prospects.

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In a non-binding referendum on the United Kingdom’s membership in the European Union on June 23, 2016, a majority of those who voted approved the United Kingdom’s withdrawal from the European Union. Any withdrawal by the United Kingdom from the European Union (referred to as “Brexit”) would occur after, or possible concurrently with, a process of negotiation regarding the future terms of the United Kingdom’s relationship with the European Union, which could result in the United Kingdom losing access to certain aspects of the single EU market and the global trade deals negotiated by the European Union on behalf of its members. Negotiations for the exit of the United Kingdom began in early 2017 and the probable date for the departure is March 2019. As a result of Brexit, London could cease to be the financial center of Europe and some banks have already announced their intention to transfer many jobs to continental Europe and Ireland and have indicated that Germany could replace London as the financial center of Europe. The possible negative consequences of Brexit include an economic crisis in the United Kingdom, a short-term recession and a decrease of investments in public services and foreign investment. The greatest impact of Brexit would be on the United Kingdom, however the impact may also be significant to the other member states.

As for Argentina, the consequences of Brexit are linked to the weakening of the pound and the euro, which has led to a significant appreciation of the U.S. dollar worldwide. An appreciation of the U.S. dollar and increased risk aversion could lead to a negative effect on the price of raw materials, which would be reflected in the products that Argentina exports to Europe. Another direct consequence of “Brexit” could be a decrease in prices of most commodities, a factor that could affect Argentina if prices stay low in the long term. Bilateral trade could also suffer, but would not be material, as the United Kingdom currently only represents approximately 1% of Argentina’s total imports and exports. In addition, it is possible that Brexit could complicate Argentina’s ability to issue additional debt in the international capital markets, as funding would be more expensive.

Donald Trump was elected president on November 8, 2016 and took office on January 20, 2017. The election of the new administration has generated volatility in the global capital markets. The new administration has implemented a comprehensive tax reform and has begun implementing more protectionist policies. The U.S. Federal Reserve recently increased the U.S. reference interest rates, which has created additional volatility in the U.S. and the international markets. Changes in social, political, regulatory, and economic conditions in the United States or in 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, which in turn could adversely affect our business, financial condition and results of operations. The effect of these protectionist policies in the global economy remains uncertain.

Global economic conditions may also result in depreciation of regional currencies and exchange rates, including the Peso, which would likely also cause volatility in Argentina. The effect of global economic conditions on Argentina could reduce exports and foreign direct investment, resulting in a decline in tax revenues and a restriction on access to the international capital markets, which could adversely affect our business, financial condition and results of operations. A new global economic and/or financial crisis or the effects of deterioration in the current international context, could affect the Argentine economy and, consequently, our results of operations, financial condition and the trading price for our ADSs.

A decline in the international prices for Argentina’s main commodity exports or appreciation of the peso against the U.S. dollar could affect the Argentine economy and adversely affect the foreign exchange market, and have an adverse effect on our business financial condition and results of operations.

  revenue and net income may be materially and adversely affected by continuing

 High commodity prices have contributed significantly to the increase in Argentine exports since the third quarter of 2002 as well as in government revenues from export taxes (withholdings). However, this reliance on the export of commodities, such as soy, has made the Argentine economy more vulnerable to fluctuations in their prices. Soybeans average monthly prices have decreased from US$/mt 684 in August 2012 to US$/mt 404 in July 2018. If international commodity prices decline, the Argentine Government’s revenues would decrease significantly which could adversely affect Argentina’s economic activity.

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In addition, adverse weather conditions can affect agricultural production, which accounts for a significant portion of Argentina’s export revenues. In 2018, Agentina suffered a severe drought, causing a year-on-year negative GDP growth of 4.2% in the second quarter of 2018, mainly as a result of the year-on-year decrease of 31.6% in agricultural production. These circumstances could have a negative impact on the levels of government revenues, available foreign exchange and the Argentine Government’s ability to service its sovereign debt, and could either generate recessionary or inflationary pressures, depending on the Argentine Government’s reaction. Either of these results would adversely impact Argentina’s economy growth and, therefore, our business, financial condition and results of operations.

A significant increase in the real appreciation of the peso could affect Argentina’s competitiveness, substantially affecting exports, and this in turn could prompt new recessionary pressures on the country’s economy and a new imbalance in the foreign exchange market, which could lead to a high degree of volatility in the exchange rate. More importantly, in the short term, a significant appreciation of the real exchange rate could substantially reduce Argentine public sector’s tax revenues in real terms, given the strong reliance on taxes on exports (withholdings). The occurrence of the foregoing could lead to higher inflation and potentially materially and adversely affect the Argentine economy, as well as our business, financial condition and results of operations.

Restrictions on the supply of energy could negatively affect Argentina’s economy.

As a result of prolonged recession and the forced conversion of energy tariffs into pesos and subsequent freeze of natural gas and electricity tariffs in Argentina, there has been a lack of investment in natural gas and electricity supply and transport capacity in Argentina in recent years. At the same time, demand for natural gas and electricity has increased substantially, driven by a recovery in economic conditions and price constraints, which prompted the Argentine Government to adopt a series of measures that have resulted in industry shortages and/or higher costs. In particular, Argentina has been importing natural gas to compensate for shortages in local production. In order to pay for natural gas imports the Argentine Government has frequently used Central Bank reserves given the absence of foreign direct investment. If the Argentine Government is unable to pay for imports of natural gas, economic activity, business and industries may be adversely affected.

The Argentine Government has taken a number of measures to alleviate the short-term impact of energy shortages on residential and industrial users. If these measures prove to be insufficient, or if the investment required to increase natural gas production and energy transportation capacity and generation over the medium- and long-term is not available, economic activity in Argentina could be curtailed, and with it our operations. As a first step of these measures, a series of tariff increases and subsidy reductions (primarily applicable to industries and high-income consumers) were implemented. On December 17, 2015, and after publication of Decree No. 134/2015, the Macri administration declared the National Electricity System Emergency until December 31, 2017 and ordered the Ministry of Energy and Mining to propose measures and guarantee the electrical supply. Ministry of Energy and Mining Resolution No. 06/2016 of January 2016 set new seasonal reference prices for power and energy on the Mercado Eléctronico Mayorista (MEM) for the period from February 1, 2016 to April 30, 2016 and set an objective to adjust the quality and security of electricity supply.

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In February 2016, the Argentine Government reviewed the schedule of electricity and gas tariffs and eliminated the subsidies of these public services, which would have resulted in increases of 500% or more in energy costs, except for low-income consumers. By correcting tariffs, modifying the regulatory framework and reducing the Argentine Government’s participation in the energy sector, the Argentine Government sought to correct distortions in the energy sector and make the necessary investments. In July 2016, a federal court in the city of La Plata suspended the increase in the gas tariff throughout the Province of Buenos Aires. On August 3, 2016, a federal court in San Martín suspended the increase in gas tariffs throughout the country until a public hearing was held to discuss the rate increase. The judgment was appealed to the Supreme Court, and on August 18, 2016, the Supreme Court ruled that the increase in the gas tariff of residential users could not be imposed without a public hearing. On September 16, 2016, the public hearing was held where it was agreed that the gas tariff would increase by approximately 200% in October 2016, with biannual increases through 2019.

As for other services, including electricity, a public hearing was held on October 28, 2016 to consider a proposed 31% tariff increase sought by energy distributors. Subsequently, the Argentine Government announced increases in electricity rates of between 60% and 148%. On March 31, 2017, the Ministry of Energy and Mining published a new tariff schedule with increases of approximately 24% for supply of natural gas by networks that had been partially regulated since April 1, 2017In addition, on November 17, 2017, a public hearing convened by the Minister of Energy and Mining was held to update the tariff schedule for natural gas and electricity. The new tariff schedule foresees a gradual reduction of subsidies, resulting in an increase, between December 2017 and February 2018, between 34% and 57% (depending on the province) for natural gas and 34% for electricity. In addition, on May 31, 2018, the Argentine Congress approved a law seeking to limit the increase in energy tariffs implemented by the Macri administration, which was subsequently vetoed by President Macri. On August 1, 2018, pursuant Resolution No. 208/2018 of the National Electricity Regulatory Board (ENRE), the Ministry of Energy published a new tariff schedule with increases in electricity rates.

Changes change in energy regulatory framework and the establishment of increased tariffs for the supply of gas and electricity could affect our cost structure and increase operating and public service costs. Moreover, the significant increase in the cost of energy in Argentina, could have an adverse effect on the Argentine economy, and therefore, on our business, financial condition and results of operations.

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. In Transparency International’s Corruption Perceptions Index survey, Argentina ranked 85 out of 180 in 2017, 95 out of 167 in 2016 and 106 out of 167 countries in 2015. In the World Bank’s “Doing Business 2017” report, Argentina ranked 116 out of 190 countries.

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 its ability to attract foreign investment, the Macri administration announced various measures aimed at strengthening Argentina’s institutions and reducing corruption. These measures include the signing of collaboration agreements with with the judicial Branch in corruption investigation, greater access to public information, the seizure of assets of officials prosecuted for corruption, the increase of the powers of the Argentine Anti-Corruption Office and the approval of a new public ethics law, among others. The Argentine Government’s ability to implement these initiatives remains uncertain since it would require the participation of the judiciary as well as the support of opposition legislators. We cannot guarantee that the implementation of these measures will be successful.

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As of the date of this annual report, a large-scale corruption investigation in Argentina has been announced by the Argentine government. The investigation related to a decade’s worth of payments to government officials from businessmen who had been awarded large government contracts. Since the scandal became public, Argentine authorities have raided high-profile businesses, and President Macri stated that he hoped the case would be a watershed moment in the fight against corruption in Argentina.

Corruption investigations in Argentina could have an impact on the development of the economy and investors’ confidence, which could adversely affect our business, financial condition and the results of our operations.

As of the date of this annual report, more than twenty Argentine businessmen and approximately fifteen former government officials are being investigated for bribery private state contractors. As a result of these investigations, several businessmen and former public officials have been prosecuted, including the former president of Argentina, Mrs. Cristina Fernández de Kirchner, who was prosecuted for illicit association and seized for the sum of Ps.4,000 million on September 17, 2018.

Depending on the results of such investigations and the time it takes to conclude them, the companies involved could face, among other consequences, a decrease in their credit rating, be subject to demands by their investors, as well as experiencing restrictions on financing through the capital market and have a reduction in their financial condition. These negative effects could hamper the ability of these companies to meet their financial obligations. As a result, the limitation on obtaining financing in the future for these companies could affect the carrying out projects or works currently in execution.

In addition, the effects of these investigations could affect the investment levels in infrastructure in Argentina, as well as the continuation, development and completion of public works and Public-Private Participation projects, which could ultimately lead to lower growth in the Argentine economy.

As of the date of this annual report, we have not estimated the impact that this investigation could have on the Argentine economy. Likewise, we cannot predict for how long corruption investigations could continue, what other companies might be involved, or how important the effects of these investigations might. In turn, the decrease in investors’ confidence, among other factors, could have a significant adverse impact on the development of the Argentine economy, which could adversely affect our business, financial condition and the results of our operations.

If Argentina’s implementation of laws relating to anti-money laundering and to combating the financing of terrorism (AML/CRT) are insufficient, Argentina may have difficulties in obtaining international financing and/or attracting foreign direct investments.

In October 2010, the Financial Action Task Force (“FATF”) issued a Mutual Evaluation Report (the “Mutual Report”) on Anti-Money Laundering and Combating the Financing of Terrorism in Argentina, including the evaluation of Argentina as of the time of the on-site visit which took place in November 2009. This report stated that since the latest evaluation, finalized in June 2004, Argentina had not made adequate progress in addressing a number of deficiencies identified at the time, and the FATF has since placed Argentina on an enhanced monitoring process. Moreover, in February 2011, Argentina, represented by the Minister of Justice and Human Rights, attended the FATF Plenary, in Paris, in order to present a preliminary action plan. FATF granted an extension to implement changes. In June 2011, Argentina made a high-level political commitment to work with the FATF to address its strategic AML/CFT deficiencies. In compliance with recommendations made by the FATF on money laundering prevention, on June 1, 2011 the Argentine Congress enacted Law No. 26,683. Under this law, money laundering is now a crime per se, and self-laundering money is also considered a crime. Additionally, in June 2012, the Plenary meeting of the FATF held in Rome highlighted the progress made by Argentina but also urged the country to make further progress regarding its AML/CFT deficiencies. Notwithstanding the improvements that Argentina made, in October 2012 the FATF determined that certain strategic AML/CFT deficiencies continued, and that Argentina would be subject to continued monitoring.

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Since October 2013, Argentina has taken steps towards improving its AML/CFT regime, including issuing new regulations to strengthen suspicious transaction reporting requirements and expanding the powers of the financial sector regulator to apply sanctions for AML/CFT deficiencies. Such progress has been recognized by the FATF. In this regard, the FATF (pursuant to its report dated June 27, 2014) concluded that Argentina had made significant progress in adopting measures to address AML/CFT deficiencies identified in the Mutual Report, and that Argentina had strengthened its legal and regulatory framework, including: (i) reforming and strengthening penalties for money laundering by enhancing the scope of reporting parties covered and transferring AML/CFT supervision to the Financial Information Unit (Unidad de Información Financiera or “UIF”) of the Ministry of Treasury; (ii) enhancing terrorist financing penalties, in particular by criminalizing the financing of terrorist acts, terrorists, and terrorist organizations; (iii) issuing, through the UIF, a series of resolutions concerning customer due diligence (CDD) and record-keeping requirements as well as other AML/CFT measures to be taken by reporting parties; and (iv) creating a framework to comply with United Nations Security Council Resolutions 1,267 and 1,373. As a result of such progress, the FATF Plenary concluded that Argentina had taken sufficient steps toward technical compliance with the core and key recommendations and should thus be removed from the monitoring process. In addition, on October 24, 2014, the FATF acknowledged Argentina’s significant progress in improving its AML/CFT regime and noted that Argentina had established the legal and regulatory framework to meet commitments in its action plan and would no longer be subject to the FATF’s AML/CFT compliance monitoring process, and concluded that Argentina would continue to work with the FATF and the Financial Action Task Force of Latin America (Grupo de Acción Financiera de América del Sur, or “GAFISUD”) to address any other issues identified in its Mutual Report.

In February 2016, the “National Coordination Program for the Prevention of Asset Laundering and the Financing of Terrorism” was created by Executive Decree No. 360/2016 as an instrument of the Ministry of Justice and Human Rights, charged with the duty to reorganize, coordinate and strengthen the national system for the prevention of money laundering and the financing of terrorism, taking into consideration the specific risks that might impact Argentina and the global emphasis on developing more effective compliance with international regulations and the standards of the FATF. In addition, relevant rules were modified to designate the Ministry of Justice and Human Rights as the coordinator at the national level of public and private agencies and entities, while the UIF coordinate activities that relate to financial matters.

Recently, in the context of the voluntary disclosure program under the Argentine tax amnesty, Law No. 27,260 and its regulatory decree No. 895/2016, clarified that the UIF has the power to communicate information to other public agencies that deal with intelligence and investigations if the UIF is in possession of evidence that crimes under the Anti-Money Laundering Law may have been committed. In addition, pursuant to the UIF Resolution No. 92/2016, reporting agents must adopt special risk management system to address the complying with the law as well as to report operations carried out under the tax amnesty.

Although Argentina has made significant improvements in its AML/CFT regulations, and is no longer subject to the FATF’s on-going global AML/CFT monitoring process, no assurance can be given that Argentina will continue to comply with AML/CFT international standards, or that Argentina will not be subject to compliance monitoring in the future, any of which could adversely affect Argentina’s ability to obtain financing from international markets and attract foreign investments.

Risks relating to our business

We are subject to risks inherent to the operation of shopping malls that may affect our profitability.

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

● 

decline in our 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 area where the shopping mall is located;

● 

the intrinsic attractiveness of the shopping mall;

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● 

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

● 

increasing competition from internet sales;

● 

the amount of rent collected from each tenant at our shopping malls;

● 

changes in consumer demand and availability of consumer credit (considering the limits imposed by the Central Bank to interest rates charged by financial institutions), both of which are highly sensitive to general macroeconomic conditions; and

● 

fluctuations in occupancy levels in our shopping malls.

An increase in our operating costs, 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. Moreover, the shopping mall business is closely related to consumer spending and affected by prevailing economic conditions. All of our shopping malls and commercial properties are located in Argentina, and, as a consequence, their business is vulnerable to recession and economic downturns in Argentina. For example, during the economic crisis in Argentina that began in 2001, consumer spending decreased significantly, and higher unemployment, political instability and high rates of inflation significantly reduced consumer spending and resulted in lower sales that led some tenants to shut down. Persistently poor economic conditions in Argentina in the future could result in a decline in discretionary consumer spending which will likely have a material adverse effect on the revenues from shopping mall activity and thus on our business and the value of our assets.

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

For the fiscal year ended June 30, 2018, 86% of our sales from leases and services provided by the Shopping Malls segment were derived from shopping malls in the City of Buenos Aires and the Greater Buenos Aires. In addition, all of our office buildings are located in the City of Buenos Aires and a substantial portion of our revenues in Argentina are derived from such properties. Although we own properties and may acquire or develop additional properties outside the City of Buenos Aires and the Greater Buenos Aires area, we expect to continue to depend to a large extent on economic conditions affecting those areas. Consequently, an economic downturn in those areas could have a material adverse effect on our financial condition and results of operations by reducing our rental income and adversely affect our ability to meet our debt obligations and fund our operations.

Our performance is subject to risks associated with our properties and with the real estate industry.

Our operating performance and the value of our real estate assets are subject to the risk that our properties may not be able to generate sufficient revenues to meet our operating expenses, including debt service and capital expenditures, our cash flow and ability to service our debt and to cover other expenses may be adversely affected. Events or conditions beyond our control that may adversely affect our operations or the value of our properties include:

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downturns in the national, regional and local economic climate;

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volatility and decline in discretionary consumer spending;

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competition from other shopping malls and office and commercial buildings;

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local real estate market conditions, such as oversupply or reduction in demand for retail, office, or other commercial space;

● 

decreases in consumption levels;

● 

changes in interest rates and availability of financing;

● 

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

● 

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

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● 

increased operating costs, including insurance expenses, employee expenses, utilities, real estate taxes and security costs;

● 

civil disturbances, earthquakes and other natural disasters, or terrorist acts or acts of war which may result in uninsured or underinsured losses;

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significant expenditures associated with each investment, 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, possibly decreasing the useful life of and revenue from property;

● 

changes in law or governmental regulations (such as those governing usage, zoning and real property taxes) or government action such as expropriation, confiscation or revocation of concessions; and

● 

judicial interpretation of the Civil and Commercial Code (in effect since August 1, 2015) which may be adverse to our interests.

If any one or more of the foregoing conditions were to affect our business, our financial condition and results of operations could be materially and adversely affected.

An adverse economic environment for real estate companies such as a credit crisis may adversely impact our results of operations and business prospects significantly.

The success of our business and profitability of our operations depend on continued investment in real estate and access to capital and debt financing. A prolonged crisis of confidence in real estate investments and lack of credit for acquisitions may constrain our growth. As part of our strategy, we intend to increase our properties portfolio though strategic acquisitions of core properties at favorable prices, where we believe we can bring the necessary expertise to enhance property values. In order to pursue acquisitions, we may need access to equity capital and/or debt financing. Any disruptions in the financial markets may adversely impact our ability to refinance existing debt and the availability and cost of credit in the near future. Any consideration of sales of existing properties or portfolio interests may be offset by lower property values. Our ability to make scheduled payments or to refinance our existing debt obligations depends on our operating and financial performance, which in turn is subject to prevailing economic conditions. If a recurrence of the disruptions in financial markets remains or arises in the future, there can be no assurances that government responses to such disruptions will restore investor confidence, stabilize the markets or increase liquidity and the availability of credit.

The loss of tenants could adversely affect the operating revenues and value of our properties.

Although no single tenant represents more than 3% of our revenue, if a significant number of tenants at our retail or office properties were to experience financial difficulties, including bankruptcy, insolvency or a general downturn of business, or if we failed to retain them, our business could be adversely affected. Further, our shopping malls typically have a significant “anchor” tenant, such as well-known department stores that generate consumer traffic at each mall. A decision by such tenants to cease operations at our shopping malls or our office buildings, as applicable, 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 with high consumer traffic may motivate other tenants to terminate or to not renew their leases, to seek rent relief and/or close their stores or otherwise adversely affect the occupancy rate at the property. Moreover, tenants at one or more properties might terminate their leases as a result of mergers, acquisitions, consolidations, dispositions or bankruptcies. The bankruptcy and/or closure of multiple stores, if we are not able to successfully re-lease the affected space, could have a material adverse effect on both the operating revenues and underlying value of the properties involved.

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Our revenue and net income may be materially and adversely affected by continuing inflation and any economic slowdown in Argentina.

Our business is mainly driven by consumer spending since a portion of our revenue from our shopping mall segment derives directly from the sales of our tenants. In addition, our tenants’ revenue relies mainly on the sales to costumers. As a result, our revenue and net income are impacted to a significant extent by economic conditions in Argentina, including the development in the textile industry and domestic consumption, which has suffered a significant low in 2018. The Argentine economy and level of consumer spending are influenced by many factors beyond our control, including consumer perception of current and future economic conditions, inflation, political uncertainty, level 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.

We may face risks associated with property acquisitions.

We have in the past acquired, and intend to acquire in the future, properties, including large properties that would increase the size of our company and potentially alter our capital structure. Although we believe that the acquisitions that we have completed in the past and that we expect to undertake in the future have, and will, enhance our future financial performance, the success of such transactions is subject to a number of uncertainties, including the risk that:

● 

we may not be able to obtain financing for acquisitions on favorable terms or at all;

● 

acquired properties may fail to perform as expected;

● 

the actual costs of repositioning or redeveloping acquired properties may be higher than our estimates; and

● 

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

If we acquire new properties, we may not be able to efficiently integrate acquired properties, particularly portfolios of properties, into our organization and to manage new properties in a way that allows us to realize cost savings and synergies, which could impair our results of operations.

Our future acquisitions may not be profitable.

We seek to acquire additional properties to the extent we manage to acquire them on favorable terms and conditions and they meet our investment criteria. Acquisitions of commercial properties entail general investment risks associated with any real estate investment, including:

● 

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

● 

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

● 

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

● 

our investigation of a property or building prior to its acquisition, and any representations we may receive from the seller of such building or property, may fail to reveal various liabilities, which could reduce the cash flow from the property or increase our acquisition cost.

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

Properties we acquire may subject us to unknown liabilities.

Properties that we acquire may be subject to unknown liabilities and we generally would have no recourse, or only limited recourse, to the former owners of the properties in respect thereof. Thus, if a liability were asserted against us based on ownership of an acquired property, we may be required to pay significant sums to settle it, which could adversely affect our financial results and cash flow. Unknown liabilities relating to acquired properties could include:

● 

liabilities for clean-up of undisclosed environmental contamination;

● 

liabilities related to changes in laws or in governmental regulations (such as those governing usage, zoning and real property taxes); and

● 

liabilities incurred in the ordinary course of business.

Our dependence on rental income may adversely affect our ability to meet our debt obligations.

A substantial part of our income is derived from rental income from real property. As a result, our performance depends on our ability to collect rent from tenants. Our income and funds for distribution would be negatively affected if a significant number of our tenants:

● 

delay lease commencements;

● 

decline to extend or renew leases upon expiration;

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fail to make rental payments when due; or

● 

close stores or declare bankruptcy.

Any of these actions could result in the termination of leases and the loss of related rental income. In addition, we cannot assure you that any tenant whose lease expires will renew that lease or that we will be able to re-lease space on economically advantageous terms or at all. The loss of rental revenues from a number of our tenants and our inability to replace such tenants may adversely affect our profitability and our ability to meet debt service and other financial obligations.

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

Real estate investments are relatively illiquid and this tends to limit our ability to vary our 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. 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 lien on the mortgaged property without payment of the associated debt. The foreclosure of a mortgage on a property or inability to sell a property could adversely affect our business.

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Some of the land we have purchased is not zoned for development purposes, and we may be unable to obtain, or may face delays in obtaining, the necessary zoning permits and other authorizations.

We own several plots of land which are not zoned for the type of projects we intend to develop. In addition, we do not yet have the required land-use, building, occupancy and other required governmental permits and authorizations for these properties. We cannot assure you that we will continue to be successful in our attempts to rezone land and to obtain all necessary permits and authorizations, or that rezoning efforts and permit requests will not be unreasonably delayed or rejected. Moreover, we may be affected by building moratorium and anti-growth legislation. If we are unable to obtain all of the governmental permits and authorizations we need to develop our present and future projects as planned, we may be forced to make unwanted modifications to such projects or abandon them altogether.

Our ability to grow will be limited if we cannot obtain additional financing.

We must maintain liquidity to fund our working capital, service our outstanding indebtedness and finance investment opportunities. Without sufficient liquidity, we could be forced to curtail our operations or we may not be able to pursue new business opportunities.

Our growth strategy is focused on the development and redevelopment of properties we already own and the acquisition and development of additional properties. As a result, we are 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. We cannot assure you that additional financing, refinancing or other capital will be available in the amounts we require or on favorable terms. Our access to debt or equity capital markets depends on a number of factors, including the market’s perception of risk in Argentina, of our growth potential, our ability to pay dividends, our financial condition, our credit rating and our current and potential future earnings. Depending on these factors, we could experience delays or difficulties in implementing our growth strategy on satisfactory terms or at all.

The capital and credit markets have been experiencing extreme volatility and disruption since the last credit crisis. If our current resources do not satisfy our liquidity requirements, we 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 our company or the industry generally. We may not be able to successfully obtain any necessary additional financing on favorable terms, or at all.

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. Furthermore, several governments enacted regulations limiting the operation of schools, cinemas and shopping malls. Even though the Argentine government only issued public service recommendations to the population regarding the risks involved in visiting crowded places, such as shopping malls, and did not issue specific regulations limiting access to public places, a significant number of consumers nonetheless changed their habits vis-à-vis shopping malls and shopping malls. Similarly, the zika virus pandemic may result in similar courses and outcomes. We cannot assure you that a new disease outbreak or health hazard (such as the Ebola outbreak in recent years) will not occur in the future, or that such an outbreak or health hazard would not significantly affect consumer and/or tourists activity. The recurrence of such a scenario could adversely affect our businesses and our results of operations.

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

Given that shopping malls are open to the public, with ample circulation of people, accidents, theft, robbery 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 and less violent, which may cause a reduction in the sales volume and operating income of our shopping malls.

Argentine Law governing leases imposes restrictions that limit our flexibility.

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

● 

a prohibition on including automatic price adjustment clauses based on inflation increases in lease agreements; 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 agreement requires a shorter term.

As a result of the foregoing, we are exposed to the risk of increases of inflation under our leases, and the exercise of rescission rights by our tenants could materially and adversely affect our business. We cannot assure you that our tenants will not exercise such right, especially if rent values stabilize or decline in the future or if economic conditions deteriorate.

In addition, on October 1, 2014, the Argentine Congress adopted a new Civil and Commercial Code which is in force since August 1, 2015. The Civil and Commercial Code requires that lease agreements provide for a minimum term of two years, and a maximum term of 20 years for residential leases and of 50 years for non-residential leases. Furthermore, the Civil and Commercial Code modifies the regime applicable to contractual provisions relating to foreign currency payment obligations by establishing that foreign currency payment obligations may be discharged in Pesos. This amends the prior legal framework, pursuant to which debtors could only discharge their foreign currency payment obligations by making payment in that currency. Although certain judicial decisions have held that this feature of the regulation can be set aside by the parties to an agreement, it is still too early to determine whether or not this is legally enforceable. Moreover, and regarding the new provisions for leases, there are no judicial decisions on the scope of this amendment and, in particular, in connection with the ability of the parties to any contract to set aside the new provision and enforce such agreements before an Argentine court.

We may be liable for certain defects in our buildings.

According to the Civil and Commercial Code, real estate developers (i.e., any person who sells real estate built by either themselves or by a third party contractor), builders, technical project managers and architects are liable in case of property damage—damages that compromise the structural integrity of the structure and/or defects that render the building no longer useful—for a period of three years from the date of possession of the property, including latent defects, even when those defects did not cause significant property damage.

In our real estate developments, we usually act as developers and sellers while construction is carried out by third-party contractors. Absent a specific claim, we cannot quantify the potential cost of any obligation that may arise as a result of a future claim, and we have not recorded provisions associated with them in our financial statements. If we were required to remedy any defects on completed works, our financial condition and results of operations could be adversely affected.

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Eviction proceedings in Argentina are difficult and time consuming.

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

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

We are subject to risks inherent to the operation of office buildings that may affect our profitability.

Office buildings are subject to various factors that affect their development, administration and profitability, including:

● 

a decrease in demand for office space;

● 

a deterioration in the financial condition of our tenants may result in defaults under leases due to bankruptcy, lack of liquidity or for other reasons;

● 

difficulties or delays renewing leases or re-leasing space;

● 

decreases in rents as a result of oversupply, particularly of newer buildings;

● 

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

● 

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

If we are unable to adequately address these factors, any one of them could adversely impact our business, which would have an adverse effect on our financial condition and results of operations.

Our investment in property development and management activities may be less profitable than we anticipate.

We are engaged in the development and management of shopping malls, office buildings and other rental properties, frequently through third-party contractors. Risks associated with our development and management activities include the following, among others:

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abandonment of development opportunities and renovation proposals;

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

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

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

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the unavailability of favorable financing alternatives in the private and public debt markets;

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

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

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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;

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

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construction may not be completed on schedule because of a number of factors, including weather, labor disruptions, construction delays or delays in receipt of zoning or other regulatory approvals, or man-made or natural disasters (such as fires, hurricanes, earthquakes or floods), resulting in increased debt service expense and construction costs;

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general changes in our tenants’ demand for rental properties; and

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we may incur capital expenditures that could result in considerable time consuming efforts and which may never be completed due to government restrictions.

In addition, we may face contractors’ claims for the enforcement of labor laws in Argentina (sections 30, 31, 32 under Law No. 20,744), which provide for joint and several liability. Many companies in Argentina hire personnel from third-party companies that provide outsourced services, and sign indemnity agreements in the event of labor claims from employees of such third company that may affect the liability of such hiring company. However, in recent years several courts have denied the existence of independence in those labor relationships and declared joint and several liabilities for both companies.

While our policies with respect to expansion, renovation and development activities are intended to limit some of the risks otherwise associated with such activities, we are 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 redevelopment projects and harm our operating results.

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

Our businesses activities include real estate developments. One of the main risks related to this activity corresponds to 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.

We face significant competitive pressure.

Our 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 industry is 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 extent that 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.

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All of our 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. We 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 our offices and other non-shopping mall rental properties are located in developed urban areas. There are many office buildings, shopping malls, retail and residential premises in the areas where our properties are located. This is a highly fragmented market, and the abundance of comparable properties in our vicinity may adversely affect our ability to rent or sell office space and other real estate and may affect the sale and lease price of our premises. In the future, both national and foreign companies may participate in Argentina’s real estate development market, competing with us for business opportunities.

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

We currently carry insurance policies that cover potential risks such as civil liability, fire, loss profit, floods, including extended coverage and losses from leases on all of our properties. Although we believe the policy specifications and insured limits of these policies are 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. Should an insured loss or a loss in excess of insured limits occur, we could lose all or a portion of the capital we have invested in a property, as well as the anticipated future revenue from the property. In such an event, we might nevertheless remain obligated for any mortgage debt or other financial obligations related to the property. We cannot assure you that material losses in excess of insurance proceeds will not occur in the future. If any of our properties were to experience a catastrophic loss, it could seriously disrupt our operations, delay revenue and result in large expenses to repair or rebuild the property. If any of our key employees were to die or become incapacitated, we could experience losses caused by a disruption in our operations which will not be covered by insurance, and this could have a material adverse effect on our financial condition and results of operations.

In addition, we cannot assure you that we 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.

An uninsured loss or a loss that exceeds policies on our properties could subject us to lost capital or revenue on those properties.

Under the terms and conditions of the leases currently in force on our properties, tenants are required to indemnify and hold us harmless from liabilities resulting from injury to persons, or property, on or off the premises, due to activities conducted on the properties, except for claims arising from our negligence or intentional misconduct or that of our agents. Tenants are generally required, at the tenant’s expense, to obtain and keep in full force during the term of the lease, liability and property damage insurance policies. In addition, we cannot ensure that our tenants will properly maintain their insurance policies or have the ability to pay the deductibles. Should a loss occur that is uninsured or in an amount exceeding the combined aggregate limits for the policies noted above, or in the event of a loss that is subject to a substantial deductible under an insurance policy, we could lose all or part of our capital invested in, and anticipated revenue from, one or more of the properties, which could have a material adverse effect on our operating results and financial condition.

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Demand for our premium properties may not be sufficient.

We have focused on development projects that cater to affluent individuals and have entered into property barter agreements pursuant to which we contribute our undeveloped properties to ventures with developers who will deliver us units at premium locations. At the time the developers return these properties to us, demand for premium residential units could be significantly lower. In such case, we would be unable to sell these residential units at the estimated prices or time frame, which could have an adverse effect on our financial condition and results of operations.

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

We have had, and expect to have, substantial liquidity and capital resource requirements to finance our business. As of June 30, 2018, our consolidated financial debt amounted to Ps.15,668 million, including accrued and unpaid interest and deferred financing costs. We cannot assure you that we will have sufficient cash flows and adequate financial capacity in the future.

The fact that we are leveraged may affect our ability to refinance existing debt or borrow additional funds to finance working capital requirements, acquisitions and capital expenditures. In addition, the recent disruptions in the global financial markets, including the bankruptcy and restructuring of major financial institutions, may adversely impact our ability to refinance existing debt and the availability and cost of credit in the future. In such conditions, access to equity and debt financing options may be restricted and it may be uncertain how long these 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.

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.

The recurrence of a credit crisis could have a negative impact on our major customers, which in turn could materially adversely affect our results of operations and liquidity.

The global credit crisis that began in 2008 had a significant negative impact on businesses around the world. The impact of a future credit crisis on our major tenants cannot be predicted and may be quite severe. A disruption in the ability of our significant tenants to access liquidity could cause serious disruptions or an overall deterioration of their businesses which could lead to a significant reduction in their future orders of their products and the inability or failure on their part to meet their payment obligations to us, any of which could have a material adverse effect on our results of operations and liquidity.

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The shift of consumers to purchasing goods over the Internet, where barriers to entry are low, may negatively affect sales at our shopping malls.

In recent years, internet retail sales have grown significantly in Argentina, even though the market share of such sales is still modest. The Internet enables manufacturers and retailers to sell directly to consumers, diminishing the importance of traditional distribution channels such as retail stores and shopping malls. We believe that our target consumers are increasingly using the Internet, from home, work or elsewhere, to shop electronically for retail goods, and this trend is likely to continue. Retailers at our properties face increasing competition from online sales and this could cause the termination or non-renewal of their lease agreements or a reduction in their gross sales, affecting our Percentage Rent (as defined below) 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.

Our business is subject to extensive regulation and additional regulations may be imposed in the future.

Our activities are subject to Argentine federal, state and municipal laws, and to regulations, authorizations and licenses required with respect to construction, zoning, use of the soil, environmental protection and historical patrimony, consumer protection, antitrust and other requirements, all of which affect our ability to acquire land, buildings and shopping malls, develop and build projects and negotiate with customers. In addition, companies in this industry are subject to increasing tax rates, the creation of new taxes and changes in the taxation regime. We are required to obtain licenses and authorizations with different governmental authorities in order to carry out our projects. Maintaining our licenses and authorizations can be a costly provision. In the case of non-compliance with such laws, regulations, licenses and authorizations, we may face fines, project shutdowns, and cancellation of licenses and revocation of authorizations.

In addition, public authorities may issue new and stricter standards, or enforce or construe existing laws and regulations in a more restrictive manner, which may force us to make expenditures to comply with such new rules. Development activities are also subject to risks relating to potential delays in obtaining or an inability to obtain all necessary zoning, environmental, land-use, development, building, occupancy and other required governmental permits and authorizations. Any such delays or failures to obtain such government approvals may have an adverse effect on our business.

In the past, the Argentine government imposed strict and burdensome regulations regarding leases in response to housing shortages, high rates of inflation and difficulties in accessing credit. Such regulations limited or prohibited increases on rental prices and prohibited eviction of tenants, even for failure to pay rent. Most of our leases provide that the tenants pay all costs and taxes related to their respective leased areas. In the event of a significant increase in the amount of such costs and taxes, the Argentine government may respond to political pressure to intervene by regulating this practice, thereby negatively affecting our rental income. We cannot assure you that the Argentine government will not impose similar or other regulations in the future. Changes in existing laws or the enactment of new laws governing the ownership, operation or leasing of properties in Argentina could negatively affect the Argentine real estate market and the rental market and materially and adversely affect our operations and profitability.

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We are dependent on our chairman, Eduardo Sergio Elsztain, our board of directors and our controlling shareholder IRSA.

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

Further, we believe that our success also depends, to a significant extent, on the continued success of IRSA which owns approximately 86.3% of our outstanding shares as of June 30, 2018. IRSA is engaged in a range of real estate, investment and other business activities, many of which are different from our business, including IRSA’s significant investments in Banco Hipotecario, an Argentine bank, and IDB Development Corporation, a large conglomerate in Israel engaged in a range of businesses including real estate, telecommunications, supermarkets, agribusiness and insurance. As a result, IRSA is exposed to certain important risks, as described in its consolidated financial statements and its filings with the SEC, which under certain circumstances could have a material adverse effect on its financial condition, results of operations and business prospects. We cannot assure you that IRSA will not be adversely affected by the risks that it faces (including those relating to its investments in Banco Hipotecario or IDB Development Corporation), and we believe that if IRSA were to be so affected, the market perception of the group of companies controlled by Eduardo Sergio Elsztain, including us, could be adversely affected as well.

Labor relations may negatively impact us.

As of June 30, 2018, 46.8% of our workforce was represented by unions under two separate collective bargaining agreements. Although we currently enjoy good relations with our employees and their unions, we cannot assure you that labor relations will continue to be positive or that deterioration in labor relations will not materially and adversely affect us.

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

As of June 30, 2018, we had fair value gains on investment properties of Ps.16,690 million. In particular, gains for the fiscal year ended June 30, 2018 accounted for 104,7% of our profit before tax for the respective fiscal year. Although the upward revaluation adjustments reflect unrealized capital gains on our investment properties during the relevant periods, the adjustments were not actual cash flow or profit generated from the sales or rental of our investment properties. Unless such investment properties are disposed of at similarly revalued amounts, we will not realize the actual cash flow. The amount of revaluation adjustments has been, and will continue to be, significantly affected by the prevailing property markets and will be subject to market fluctuations in those markets.

We cannot guarantee whether changes in market conditions will increase, maintain or decrease the fair value gains on our investment properties at historical levels or at all. In addition, the fair value of our investment properties may materially differ from the amount we receive from any actual sale of an investment property. If there is any material downward adjustment in the revaluation of our investment properties in the future or if our investment properties are disposed of at significantly lower prices than their valuation or appraised value, our business, results of operations and financial condition may be materially and adversely affected.

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Due to the currency mismatches between our revenues and liabilities, we have currency exposure.

As of June 30, 2018, the majority of our liabilities, such as our Series II and Series IV Notes, were denominated in U.S. dollars while our revenues are mainly denominated in Pesos. This currency gap exposes us to a risk of volatility in the rate of exchange between the Peso and the U.S. dollar, and our financial results are adversely affected when the U.S. dollar appreciates against the Peso. Any depreciation of the Peso against the U.S. dollar correspondingly increases the nominal amount of our debt in Pesos, which further adversely effects our results of operation and financial condition and may increase the collection risk of our leases and other receivables from our tenants, most of which generate Peso-denominated revenues.

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

We develop and acquire properties in joint ventures with other persons or entities when we believe circumstances warrant the use of such structures. For example, we currently own 50% of Quality Invest S.A. (“Quality Invest”), a joint venture that holds our investment in the Nobleza Piccardo plant. We could engage in a dispute with one or more of our joint venture partners that might affect our ability to operate a jointly-owned property. Moreover, our joint venture partners may, at any time, have business, economic or other objectives that are inconsistent with our objectives, including objectives that relate to the timing and terms of any sale or refinancing of a property. For example, the approval of certain of the other investors is required with respect to operating budgets and refinancing, encumbering, expanding or selling any of these properties. In some instances, our joint venture partners may have competing interests in our markets that could create conflicts of interest. If the objectives of our joint venture partners are inconsistent with our own objectives, we will not be able to act exclusively in our interests.

If one or more of the investors in any of our jointly owned properties were to experience financial difficulties, including bankruptcy, insolvency or a general downturn of business, there could be an adverse effect on the relevant property or properties and in turn, on our financial performance. Should a joint venture partner declare bankruptcy, we could be liable for our partner’s common share of joint venture liabilities.

Risks relating to the ADSs and common shares

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

The market prices of our common shares and the ADSs could decline as a result of sales by our existing shareholders of common shares or the ADSs in the market, or the perception that these sales could occur. These sales also might make it difficult for us to sell equity securities in the future at a time and at a price that we deem appropriate.

IRSA as of June 30, 2018, owned 94.61% of our common shares (or approximately 119,221,846 common shares, which may be exchanged for an aggregate of 29,805,461 ADSs). Sales of a large number of our common shares and/or ADSs would likely have an adverse effect on the market price of our common shares and the ADS.

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

We may issue additional common shares to finance future acquisitions or new projects or for other general corporate purposes, although there is no present intention to do so. Any such issuance could result in a dilution of your ownership stake and/or the perception of any such issuances could have an adverse impact on the market price of the ADSs.

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

There is less publicly available information about the issuers of securities listed on the Argentine stock exchanges than information publicly available about domestic issuers of listed securities in the United States and certain other countries. Although the ADSs are listed on the NASDAQ Global Market, as a foreign private issuer we are able to rely on home country governance requirements rather than relying on the NASDAQ corporate governance requirements. See “Item 16G. Corporate Governance—Compliance with NASDAQ listing Standards on Corporate Governance.” Additionally, as a foreign private issuer, we are exempt from certain rules under the Securities Exchange Act of 1934, as amended, or the “Exchange Act” including (i) the sections of the Exchange Act regulating the solicitation of proxies, consents or authorizations in respect of a security registered under the Exchange Act; (ii) the sections of the Exchange Act requiring insiders to file public reports of their stock ownership and trading activities and liability for insiders who profit from trades made in a short period of time; and (iii) the rules under the Exchange Act requiring the filing with the SEC of quarterly reports on Form 10-Q containing unaudited financial and other specified information, or current reports on Form 8-K, upon the occurrence of specified significant events. In addition, foreign private issuers are not required to file their annual report on Form 20-F until four months after the end of each fiscal year, while U.S. domestic issuers that are accelerated filers are required to file their annual report on Form 10-K within 75 days after the end of each fiscal year. Foreign private issuers are also exempt from the Regulation Fair Disclosure, aimed at preventing issuers from making selective disclosures of material information. As a result of the above, you may not have the same protections afforded to shareholders companies that are not foreign private issuers.

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

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

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

Based on the past and projected composition of our income and assets and the valuation of our assets, including goodwill, we do not believe we were a passive foreign investment company, or “PFIC,” for United States federal income tax purposes for the taxable year ending June 30, 2018, and do not currently expect to become a PFIC, although there can be no assurance in this regard. The determination of whether we are a PFIC is made annually. Accordingly, it is possible that we may be a PFIC in the current or any future taxable year due to changes in our asset or income composition or if our projections are not accurate. The volatility and instability of Argentina’s economic and financial system may substantially affect the composition of our income and assets and the accuracy of our projections. In addition, this determination is based on the interpretation of certain U.S. Treasury regulations relating to rental income, which regulations are potentially subject to different interpretation. If we become a PFIC, U.S. Holders (as defined in “Item 10. Additional Information—Taxation—United States taxation”) of our common shares or the ADSs will be subject to certain United States federal income tax rules that have negative consequences for U.S. Holders such as additional tax and an interest charge upon certain distributions by us or upon a sale or other disposition of our common shares or the ADSs at a gain, as well as reporting requirements. Please see “Item 10. Additional Information—Taxation—United States taxation—Passive foreign investment company” for a more detailed discussion of the consequences if we are deemed a PFIC. You should consult your own tax advisors regarding the application of the PFIC rules to your particular circumstances.

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

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

The Dividend Tax was repealed by Law No. 27,260, enacted on June 29, 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, 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 January 1, 2018 to December 31, 2019, and at a 13% rate on profits accrued in fiscal years starting January 1, 2020 and onwards. If dividends are distributed to Argentine corporate taxpayers (in general, entities organized or incorporated under Argentine law, certain traders and intermediaries, local branches of foreign entities, sole proprietorships and individuals carrying on certain commercial activities in Argentina), no dividend tax would apply.

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, 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.

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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, Law No. 27,430 and Decree 279/2018 maintain 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, or (iii) when the sale, exchange or other disposition of shares is made through an initial public offering and/or exchange of shares authorized by the CNV; and (b) depositary shares or depositary receipts issued abroad, when the underlying securities are shares (i) issued by Argentine companies, and (ii) with authorization of public offering. The exemptions will only apply to the extent the foreign beneficiaries reside in, or the funds used for the investment proceed from, jurisdictions considered as cooperating for purposes of fiscal transparency.

In case the exemption is not applicable and, to the extent foreign beneficiaries do not reside in, or the funds do not arise from, jurisdictions not considered as cooperative for purposes of fiscal transparency, the gain realized from the disposition of shares would be subject to Argentine income tax at a 15% rate on the net capital gain or at a 13.5% effective rate on the gross price. In case such foreign beneficiaries reside in, or the funds arise from, jurisdictions not considered as cooperative for purposes of fiscal transparency, a 35% tax rate on the net capital gain or at a 31.5% effective rate on the gross price should apply.

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

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

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

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Under Argentine law, shareholder rights may be fewer or less well defined than in other jurisdictions.

Our corporate affairs are governed by our by-laws and by Argentine corporate law, which differ from the legal principles that would apply if we were incorporated in a jurisdiction in the United States, such as the States of Delaware or New York, or in other jurisdictions outside Argentina. In addition, your rights or the rights of holders of our common shares to protect your or their interests in connection with actions by our board of directors may be fewer and less well defined under Argentine corporate law than under the laws of those other jurisdictions. Although insider trading and price manipulation are illegal under Argentine law, the Argentine securities markets are not as highly regulated or supervised as the U.S. securities markets or markets in some other jurisdictions. In addition, rules and policies against self-dealing and regarding the preservation of shareholder interests may be less well defined and enforced in Argentina than in the United States, putting holders of our common shares and ADSs at a potential disadvantage.

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 may impose 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 the Argentine government will not take measures in the future. In such a case, the ADS Depositary for the ADSs may hold the Pesos it cannot convert for the account of the ADS holders who have not been paid.

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.

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Our ability to pay dividends is limited by law and by certain agreements.

In accordance with Argentine corporate law, we may pay dividends in Pesos out of retained earnings, if any, to the extent set forth in our Audited 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 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.

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ITEM 4. Information on the Company

A. History and Development of the Company

General Information

Our legal name is “IRSA Propiedades Comerciales S.A.” Formerly, our legal name was Alto Palermo S.A., which was modified by vote of the special shareholders’ meeting (asamblea extraordinaria) held on February 5, 2015. We were organized and incorporated on August 29, 1889 under Argentine law as a stock corporation (sociedad anónima). Our bylaws were registered in the public registry of commerce of the City of Buenos Aires, currently named the Superintendence of Corporations (Inspección General de Justicia) on February 27, 1976 under number 323, on page 6, book 85 of the stock corporations volume. Pursuant to our bylaws, our term of duration expires on August 28, 2087. Our common shares are listed on the Bolsas y Mercados Argentinos S.A., or “ByMA,” and our ADSs are listed on the NASDAQ Global Market, both under the ticker “IRCP”. Our headquarters and principal executive offices are located at Moreno 877, 22 Floor, (C1091AAQ), Ciudad Autónoma de Buenos Aires, Argentina. Our telephone is (+54 11) 4344-4600. Our Depositary Agent for the ADS in the United States is Bank of New York Mellon whose address is, 101 Barclay Street, New York, New York 10286, and whose telephone number is (212) 815 2089. Our website is www.irsacp.com.ar. Information contained in or accessible through our website is not a part of this annual report. All references in this annual report to this or other internet sites are inactive textual references to these URLs, or “uniform resources locator” and are for your information reference only. We assume no responsibility for the information contained on such sites.

History

We were organized in 1889 under the name Sociedad Anónima Mercado de Abasto Proveedor (SAMAP), and, until 1984, we owned and operated the main fresh products market in the City of Buenos Aires. Our main asset during that period was the historic Mercado de Abasto building which served as the location of the market from 1889 to 1984. In July 1994, IRSA acquired a controlling interest in us and, subsequently, we concentrated on real estate operations. In April 1997, we merged with fourteen wholly owned subsidiaries, including Alto Palermo S.A., and subsequently changed our name to Alto Palermo S.A. Since then, we have continued to grow through a series of acquisitions and the development of our businesses.

Since 1996, we have expanded our real estate activities in the shopping mall segment, through the acquisition and development of the following shopping malls: Paseo Alcorta, Alto Palermo Shopping, Buenos Aires Design, Alto Avellaneda, Alto NOA, Abasto Shopping, Patio Bullrich, Mendoza Plaza Shopping, Alto Rosario, Córdoba Shopping Villa Cabrera, Dot Baires, Soleil Premium Outlet, La Ribera Shopping, Patio Olmos Shopping, Distrito Arcos and Alto Comahue Shopping.

On December 22, 2014, we acquired from IRSA, our controlling shareholder, 83,789 square meters of premium office space including the República Building, the Bouchard 710 building, the Della Paolera 265 building, the Intercontinental Plaza Building, the Suipacha 652 building and the land reserve “Intercontinental II” (the “Acquired Properties”) with the potential to develop up to 19,600 square meters, each located in the City of Buenos Aires. The acquisition was carried out as part of our strategy to expand our business of developing and operating commercial properties in Argentina and to create a unique and unified portfolio of rental properties consisting of the best office buildings in the City of Buenos Aires and the best shopping malls in Argentina. The total value of the transaction was US$308.0 million, based on third party appraisals.

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At a special shareholders’ meeting held on February 5, 2015, our shareholders resolved to change our legal name to IRSA Propiedades Comerciales S.A. As of June 30, 2018, our main shareholder is IRSA which owns 86.3% of our share capital outstanding. Our shares are listed on the ByMA and NASDAQ, under the symbol “IRCP”.

As of June 30, 2018, we own 16 shopping malls in Argentina, 15 of which are operated by us, totaling 344,025 square meters and 83,213 square meters of gross leasable in 7 premium office buildings of rental office property.

Significant acquisitions, dispositions and development of businesses

The following is a description of the most significant events in terms of acquisitions, dispositions, real estate barter transactions and other transactions which occurred during the years ended June 30, 2018, 2017 and 2016:

Fiscal year ended June 30, 2018

Acquisitions

Acquisition of La Arena

On February 20, 2018, we, through our subsidiary Ogden Argentina S.A. ("OASA"), which we indirectly controll through Entertainment Holdings S.A., acquired a 60% equity interest in La Arena S.A., which developed and operates the stadium known as "DIRECTV ARENA", located in Tortuguitas, in the Province of Buenos Aires. The price set for the transaction amounted to US$4.2 million, of which US$1.9 million were outstanding as of the date of this annual report.

Acquisition of plot of land La Plata

On March 22, 2018, we acquired, directly and indirectly, 100% of a plot of land of 78,614 square meters located in the city of La Plata, Province of Buenos Aires. The price of the transaction was US$7.5 million, which has been fully paid.

The operation was made through the purchase of 100% of the shares of common stock of Centro de Entretenimientos La Plata S.A. ("CELAP"), which owns 61.85% of the property, and the direct purchase of the remaining 38.15% of common stock from non-related third parties.

Acquisition of plot of land in Mendoza

On March 14, 2018, we acquired a 3,641 square meters plot of land adjacent to Mendoza Shopping, for a total amount of US$1.2 million. As of the date of this annual report, US$0.8 million were outstanding.

Dispositions

Sale of units in Intercontinental Building

We sold 851.8 square meters over to one floor of office and eight parking lots in the Intercontinental Plaza building. The total amount of the transaction was US$3 million, which was fully paid by the purchaser as of June 30, 2018.

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Fiscal year ended June 30, 2017

Acquisitions

Acquisition of control of EHSA

In July 2016, we acquired 20% of the shares of EHSA, in which we already owned 50%. In addition, we acquired a 1.25% interest in Entretenimiento Universal S.A. (“ENUSA”). The amount paid for the acquisition was Ps.53 million. As a result, we hold 70% of the voting stock of EHSA. EHSA owns 100% of the shares of OASA and 95% of the shares of ENUSA.

OASA owns 50% of the voting stock of La Rural S.A. (“LRSA”), which holds the right to commercially operate “Predio Ferial de Palermo” in Buenos Aires, and Sociedad Rural Argentina (“SRA”) holds the remaining 50%.

Purchase of Philips Building

On June 5, 2017, we acquired the Philips Building located in Saavedra, Buenos Aires, next to DOT Baires Shopping for US$29 million. The building has a GLA of 7,755 square meters and is intended for office development and lease. Furthermore, we signed a loan for use with the seller for a term of seven months and 15 days, which expired on January 19, 2018.

Catalinas Tower

On November 16, 2016, our parent company, IRSA entered into an agreement with DYCASA S.A. for the construction and development of Catalinas Tower within an initial term of 28 months. Completion is expected in March 2019. On April 6, 2016, we purchased from IRSA a portion of the units to be developed at this property.

Dispositions

Sale of units in Intercontinental Building

We sold 2,432 square meters over to three floors of office space and 24 parking lots in the Intercontinental Plaza building, where we continue to own 3,876 square meters profitable of the building. The total amount of the transaction was US$9 million, which was fully paid as of June 30, 2017.

Fiscal year ended as of June 30, 2016

Acquisitions

Office building to be constructed by IRSA

We acquired from IRSA 16,012 square meters over 14 floors and 142 parking spaces in a building that IRSA will built in the Catalina area in the City of Buenos Aires that we intend to use for long-term leasing. The building will have total GLA of 35,468 square meters over 30 office floors and 316 parking spaces in four undergrounds lots. Completition of the building is expected for fiscal year 2020.

The price of the transaction was established based on two components: a “determined” part corresponding to the incidence of land on the square meters acquired by us in an amount of Ps.455.7 million (approximately US$1,600/square meter + VAT) that was paid on the execution date of the purchase agreement and a second payment, equal to the real cost per square meter of the construction incurred by IRSA to be paid upon the completion of certain milestones. See “Item 7D. Related Party Transactions”

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Plot of land adjoining Shopping Alto Avellaneda

On December 30, 2015, we signed a purchase agreement to acquire a plot of land of approximately 3,822 square meters in Avellaneda, Province of Buenos Aires, for US$0.2 million that will be used for the expansion of Alto Avellaneda Shopping.

Dispositions

Units of Intercontinental Plaza building

On February 2, 2016, we conveyed title to 851 square meters corresponding to an office and 8 parking lots in the Intercontinental Plaza building to an unrelated party. We still hold 6,308 square meters of the building. The total amount of the transaction was Ps.41.5 million. The gross profit of the transaction amounts to Ps.20.1 million.

On September 10, 2015, we conveyed title to 5,963 square meters corresponding to 7 office floors, 56 parking lots and 3 storage units in the Intercontinental Plaza building to a unrelated party, with 7,159 square meters of the building being held by us. The total amount of the transaction was Ps.324.5 million, which has already been fully paid by the purchaser. The gross profit of the transaction amounted to Ps.155.8 million. The total sale price was US$37.5 million.

Capital Expenditures

Fiscal Year 2018

During the fiscal year ended June 30, 2018, we incurred capital expenditures of Ps.1,338.2 million, of which: (i) Ps.1,231.9 million was used in the acquisition of investment properties, mainly, in the offices segment; (ii) Ps.15.8 million was related to the acquisition of property, plant and equipment; and (iii) Ps.90.5 million was related to advanced payments.

Fiscal Year 2017

During the fiscal year ended June 30, 2017, we incurred capital expenditures of Ps.897.4 million, of which: (i) Ps.703.9 million was used in the acquisition of investment properties, principally the acquisition of Philips Building (Ps.469 million) and improvements of our offices and others segment; (ii) Ps.23.9 million was incurred for the acquisition of property, plant and equipment; and (iii) Ps.169.6 million was related to advanced payments.

Fiscal Year 2016

During the fiscal year ended June 30, 2016, we incurred capital expenditures of Ps.188.0 million, of which: (i) Ps.167.7 million was used to acquire investment properties, mainly, improvements to our shopping malls; (ii) Ps.13.7 million was incurred to acquire property, plant and equipment; and (iii) Ps.6.6 million were used in advance payments for the acquisition of general investments.

Recent Developments

Acquisition of Maltería Hudson

In July 2018, we announced the acquisition, of a property of 147,895 square meters of surface which includes a building of approximately 40,000 sqm known as “Maltería Hudson”, located in the intersection of Route 2 and Buenos Aires - La Plata highway, in the City of Hudson, Province of Buenos Aires. The price of the operation was set at the amount of US$ 7.0 million.

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Moreover, we entered into an agreement to buy the two adjoining properties to “La Maltería” of approximately 49,000 sqm and 57,000 sqm respectively, for a total amount of US$720,825.

In addition, we granted an option ta a non-related third party to buy from us between 15% to 30% of the outstanding shares of “La Maltería S.A.” at the acquisition price plus a certain interest for a six month period.

The purpose of this acquisition is the future development of a mixed-use project.

B. Business Overview

We own, develop and manage commercial real estate properties, which consist primarily of shopping malls and office buildings throughout Argentina. We are currently the largest owner and operator of shopping malls and one of the largest owners of office buildings and other commercial properties in Argentina in terms of gross leasable area and number of rental properties according to data published by the Argentine Chamber of Shopping Malls. Our common shares are listed on ByMA and our ADSs are listed on the NASDAQ Global Market, both under the ticker “IRCP.”

We operate our business through four principal business segments, namely “Shopping Malls,” “Offices,” “Sales and Developments” and “Others”:

● 

“Shopping Malls” includes the operation and development of shopping malls, through which we generate rental income and fees charged for services related to the lease of retail stores and other spaces. Our Shopping Malls segment includes highly diversified, multi-format assets with a particular focus on retailers that cater to middle- to high-income consumers.

● 

“Offices” includes the lease of offices and other rental properties and services related to these properties.

● 

“Sales and Developments” includes the sales of undeveloped parcels of land and properties, and activities related to the development and maintenance of such properties.

● 

“Others” includes the financing activities developed through our associated company Tarshop S.A., our residual consumer financing transactions and the operations developed by our subsidiary EHSA.

Shopping malls

We own 16 shopping malls of which we manage 15, with an aggregate 344,025 square meters of GLA as of June 30, 2018. Of the 16 shopping malls we own, seven are located in the City of Buenos Aires, two in the Greater Buenos Aires area, and the others in the provinces of Salta, Santa Fé, Mendoza, Córdoba and Neuquén. In addition, we operate La Ribera Shopping in the City of Santa Fé which we own through a joint venture, and own the historic real estate that houses the Patio Olmos shopping mall in the Province of Córdoba, which mall is operated by a third party.

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The following table shows selected information about our shopping malls as of June 30, 2018:

Shopping malls	Date ofacquisition/development	Location	GLA(sqm)(1)	Numberof stores	Occupancyrate(2)	Ourownershipinterest	Rental revenue
					(%)	(%)	(in thousands of Ps.)
Alto Palermo	Dec-97	City of Buenos Aires	18,648	136	99.5	100.0	612,231
Abasto Shopping(3)	Nov-99	City of Buenos Aires	36,796	170	99.1	100.0	619,216
Alto Avellaneda	Dec-97	Buenos Aires Province	38,422	132	98.9	100.0	425,835
Alcorta Shopping	Jun-97	City of Buenos Aires	15,746	114	99.8	100.0	295,145
Patio Bullrich	Oct-98	City of Buenos Aires	11,397	86	97.1	100.0	169,028
Buenos Aires Design(4)	Nov-97	City of Buenos Aires	13,735	62	96.1	53.68	63,257
Dot Baires Shopping	May-09	City of Buenos Aires	49,407	157	99.5	80.0	403,324
Soleil Premium Outlet	Jul-10	Buenos Aires Province	15,214	79	97.7	100.0	154,281
Distrito Arcos	Dec-14	City of Buenos Aires	14,169	68	99.7	90,0	158,452
Alto Noa Shopping	Mar-95	Salta	19,063	88	96.8	100.0	110,981
Alto Rosario Shopping(5)	Nov-04	Santa Fé	33,358	141	99.5	100.0	294,709
Mendoza Plaza Shopping	Dec-94	Mendoza	42,867	141	98.3	100.0	177,865
Córdoba Shopping	Dec-06	Córdoba	15,276	105	100.0	100.0	108,422
La Ribera Shopping(6)	Aug-11	Santa Fé	10,530	68	94.9	50.0	36,197
Alto Comahue	Mar-15	Neuquén	9,397	99	94.4	99.9	75,939
Patio Olmos(7)	Sep-07	Córdoba	—	—	—	—	—
Total			344,025	1,646	98.5		3,704,882

(1) Gross leasable area of each property. Excludes common areas and parking spaces.

(2) Calculated by dividing occupied square meters by leasable area.

(3) Excludes Museo de los Niños (3,732 square meters).

(4) Concession agreement is set to expire on November 2018. We plan to return the property to the City of Buenos Aires.

(5) Excludes Museo de los Niños (1,261 square meters).

(6) Owned through our joint venture Nuevo Puerto Santa Fe S.A.

(7) We own the historic building in the province of Cordoba where Patio Olmos shopping is located, which mall is operated by a third party.

The following table shows information about our expansions on current assets as of June 30, 2018:

Expansions	Ownership interest (%)	Surface(sqm)	Locations
Alto Rosario	100	2,000	Santa Fé
Mendoza Plaza - Sodimac Store + Falabella	100	12,800	Mendoza
Alto Comahue - Movie Theatres	99	2,200	Neuquén
Subtotal Current Expansions		17,000
Alto Palermo Adjoining Plot	100	4,000	City of Buenos Aires
Dot Adjoining Plot	80	16,765	City of Buenos Aires
Other future Expansions(1)		85,290
Subtotal Future Expansiones		106,055
Total Shopping Malls		123,055
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		153,055

(1) Includes Paseo Alcorta Shopping, Alto Avellaneda, Soleil Premium Outlet, Alto Noa Shopping, Alto Rosario, Mendoza Plaza Shopping, Córdoba Shopping and La Ribera Shopping.

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Offices and other properties

We own, develop and manage office buildings and other rental and investment properties throughout Argentina as part of our Offices and other properties segment.

Offices

As of June 30, 2018, we owned and managed seven office buildings located in the City of Buenos Aires with 83,213 square meters of total gross leasable area and a land reserve with potential for development of an additional 58,083 square meters of office space, in addition to our current projects under development (Catalinas and Polo Dot).

The following table shows selected information regarding our office buildings as of June 30, 2018:

	Date ofacquisition/development	GLA (sqm)(1)	Occupancy rate(2)	Ownership interest	Total rental income
			(%)	(%)	(in thousands of Ps.)
Offices
República Building	Dec-14	19,885	98.4	100	126,318
Bankboston Tower	Dec-14	14,873	85.6	100	86,825
Intercontinental Plaza(3)	Dec-14	2,979	100.0	100	20,435
Bouchard 710	Dec-14	15,014	100.0	100	121,129
Suipacha 652/64	Dec-14	11,465	86.2	100	33,631
Dot Building	Nov-06	11,242	100.0	80	63,913
Philips	Jun-17	7,755	69.8	100	16,313
Total Offices		83,213	92.3		468,564

(1) Corresponds to the total leasable surface area of each property. Excludes common areas and parking spaces.

(2) Calculated by dividing occupied square meters by total gross leasable area of the relevant property. Excludes common areas and parking spaces.

(3) We own 13.2% of the equity in the building which covers an area of 22,535 square meters of gross leasable area, meaning we own 2,979 square meters of gross leasable area.

Other Properties

We also own or receive income from other rental properties and from our land reserve. As of June 30, 2018, we owned other rental properties and land reserves with a total of 122,551 square meters of gross leasable area.

The following table shows selected information regarding our Other Properties as of June 30, 2018:

	Date ofacquisition/development	GLA(sqm)(1)	Occupancyrate(2)	Ownershipinterest	Total rental income
			(%)	(%)	(in thousands of Ps.)
Other Rental Properties
Nobleza Piccardo(3)	May-11	109,610	78.0	50	6,269
Subtotal Rental Properties		109,610	78.0		6,269
Land Reserves
Ferro	Nov-97	5,000	0.0	100	-
Dot Plot of Land Annex	Nov-06	3,881	100.0	80	8,226
Anchorena 665 (4)	Jan-09	3,374	15.0	100	(329)
Chanta IV	Jul-01	636	100.0	100	7,688
Intercontinental Plot of Land	Dec-14	50	100.0	100	188
Subtotal Land Reserves		12,941	39.2		15,773
Total Other Properties		122,551	88.2		22,042

(1) Corresponds to the total leasable surface area of each property. Excludes common areas and parking spaces.

(2) Calculated by dividing occupied square meters by total gross leasable area of the relevant property.

(3) Owned by Quality Invest S.A. in which we have a 50% equity stake.

(4) The negative income is related to an income of Ps.343 thousands less the adjustment for overaging of scheduled rent escalation contracts for Ps. 672 thousands.

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Other assets

We also have strategic investments in other businesses, which we believe complement our overall strategy and rental leasing operations. The following table shows a description of and our ownership interest in other assets as of June 30, 2018:

	Description	Ownership interestas of June 30, 2018 (%)
PH Office Park(1)	First stage of “Polo Dot,” for development of office tower over an existing building	80.0
La Rural(2)	Commercial operation at “Predio Ferial de Palermo” (Palermo exhibition mall)and Concession for the Exhibition and Convention Center of the City of Buenos Aires	50.0
DirecTv(3)	Commercial operation of the Directv Arena stadium located in Tortuguitas, Pilar, Province of Buenos Aires.	60.0
CONIL	Two functional units for which we will receive 1,389 m2 of retail store space in January and September 2018, through a barter agreement	100.0
TGLT(4)	Real estate company in which we own an equity interest	4.2
Avenida	E-commerce company	17.3
Tarshop S.A.(5)	Consumer finance company	20.0
Beruti(6)	36 residential apartments, 32 residential and 171 commercial parking spaces received through a barter agreement with TGLT, in exchange for a plot of land	100.0

(1) Owned by Panamerican Mall S.A.

(2) Joint venture 50% owned by us.

(3) Owned by OASA.

(4) This investment is recorded as a financial asset under our Financial Operations and Others business segment. 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, if all the holders exercised their conversion rights, their interest in TGLT would increase to 12.8% of its stock capital.

(5) Tarshop S.A. is one of our associates.

(6) Owned by IRSA CP.

As of June 30, 2018, our total assets were Ps.67,744 million (US$ 2,348 million), and our shareholders’ equity was Ps.37,963 million (US$ 1,316 million). Our operating income for the fiscal years ended June 30, 2018, 2017 and 2016 was Ps.19,785 million, Ps.5,621 million and Ps.19,038 million, respectively. For the fiscal ended June 30, 2018, revenues from our Shopping Malls segment and our Offices segment were Ps.3,665 million and Ps.492 million, respectively, representing 85.8% and 11.5%, respectively, of our total segment revenues for the fiscal year.

The following table sets forth certain operating and financial data by business segment for the fiscal years indicated:

	For the fiscal years endedJune 30,
	2018''	2017''	2016''
	(in millions of Ps.)''
Shopping Malls
Revenues	3,664.7	3,046.6	2,409.1
Operating income	14,060.1	4,258.0	17,905.0
Segment Adjusted EBITDA	2,748.2	2,207.3	1,793.3
Segment Net Operating Income	3,124.9	2,526.5	2,033.5
Offices
Revenues	492.1	401.8	284.1
Operating income	5,399.7	1,366.4	1,101.8
Segment Adjusted EBITDA	367.0	308.2	238.8
Segment Net Operating Income	406.1	346.4	263.5
Sales and Developments
Revenues	105.5	99.1	2.7
Operating income	1,071.4	221.5	389.7
Segment Adjusted EBITDA	93.1	94.1	137.6
Segment Net Operating Income	98.1	128.7	165.7
Others
Revenues	9.3	0.9	1.0
Operating income	28.8	12.5	(0.9)
Segment Adjusted EBITDA	(16.8)	12.5	(0.9)
Segment Net Operating Income	(12.4)	(2.1)	(0.9)

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The following chart illustrates a breakdown of our consolidated revenues by operating segment for the fiscal year ended June 30, 2018:

Revenues for the period ended June 30, 2018

(in millions of Ps.)

The following table sets forth the book value of our principal business segments as of June 30, 2018:

Fair value of investment properties	As of June 30, 2018
	(in millions of Ps.)
Shopping malls	40,467
Offices	12,778
Land reserves and properties under development and Others	2,434
Total	55,679

Gross leasable area

The following graphic illustrates our total gross leasable area growth over the years for both shopping malls and offices (in thousands of sqm).

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Strengths

We believe that our principal strengths include the following:

● 

Leader in commercial real estate in Argentina. Currently, we are the largest owner and operator of shopping malls based on data published by the Argentine Chamber of Shopping Malls and one of the largest owners of office buildings in Argentina measured by gross leasable area and number of rental properties. We own 16 shopping malls, of which we operate 15, with 344,025 square meters of total gross leasable area, and seven office buildings with 83,213 square meters of total gross leasable area, each as of June 30, 2018.

● 

Leading market share of shopping malls in the City of Buenos Aires. We have a leading market share of shopping malls in the City of Buenos Aires. As of June 30, 2018, we had a 67% share of the market for shopping malls in the City of Buenos Aires based on INDEC’s statistics.

● 

Strong relationships with tenants. We maintain long-standing relationships with over 1,000 corporate tenants and retail brands, some of which operate at a number of our shopping malls.

● 

Prime portfolio of shopping malls and office buildings. Our shopping malls are strategically located in prime locations and neighborhoods in the City of Buenos Aires and other key Argentine cities, enabling us to target well-known retailers who attract middle- and high-income consumers. Our office building portfolio is concentrated in the financial district of the City of Buenos Aires (Catalinas area) where average rents per square meter are the highest in the country, according to data published by Colliers International.

● 

Strong cash flow generation. Historically, even in periods of economic instability, our business has generated considerable and sustained cash from operations.

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Positioned for further growth. We believe we are well positioned to benefit from further development in Argentina’s business environment. We are currently developing an expansion project of our Alto Palermo shopping mall, as well as in two of our office buildings, Catalinas and “Polo Dot,” which we expect will become operational during fiscal year 2019 and 2020. We also have land reserve with potential for development of an additional 58,083 square meters of office space, in addition to our current projects under development (Catalinas and Polo Dot).

● 

Experienced and committed management team. IRSA was founded in 1994 by Eduardo Elsztain, who continues to be the chairman of our board of directors and who shares with other founding members the same long-term vision, which is to become the best-managed and most profitable commercial real estate company in Argentina. Our senior management team has considerable experience in real estate management and development, which are critical for our operational and strategic decision-making process.

Business strategy

We are a company engaged in acquisition, development and management of commercial properties, including shopping malls and offices and other rental properties in Argentina, we seek (i) to generate stable cash flows derived from operation of our rental properties and (ii) to increase the long-term value of our real estate assets. We aim to achieve these goals and maintain our leadership in the markets where we operate through the implementation of the following strategies.

Investment strategy

We seek to satisfy unmet demand for shopping venues in urban centers in Argentina while striving to enhance the shopping experience of our tenants’ customers. In addition, we look to benefit from unsatisfied demand for premium office buildings in the City of Buenos Aires. We intend to achieve these objectives by implementing the following key investment strategies:

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● 

Selectively develop and acquire shopping malls. We intend to develop new shopping malls with different business formats located in proximity to densely populated urban areas with attractive growth prospects, including the metropolitan area of Buenos Aires and cities in certain provinces of Argentina and possibly abroad. An example is our acquisition in 2010 of the first shopping mall ever to operate in Argentina, Soleil Factory, which we converted into the first premium outlet mall in the country. In 2014, we developed the first premium outlet in the City of Buenos Aires, an open space mall in the Palermo neighborhood called Distrito Arcos. Our company was a pioneer in the premium outlet mall segment, which had not been exploited in the country, while also diversifying its portfolio that targets different and evolving consumer styles and profiles. Both malls have been a great success in terms of sales and visitors. Our strategically located land reserve positions us to develop new shopping malls in areas we believe enable our malls to target consumers with attractive demographics. Furthermore, we seek to selectively acquire shopping malls that we believe can benefit from our know-how, tenant relationships, centralized management and leasing strategies, thereby enabling us to enter new markets and generate synergies within our existing portfolio.

● 

Purchase and develop premium office buildings or other commercial real estate. Since the Argentine economic crisis in 2001 and 2002, there has been limited investment in the development of high-quality office buildings which we believe has resulted in an unsatisfied demand for such properties, mainly in Buenos Aires, and especially from quality corporate tenants. We intend to purchase and develop premium office buildings in strategically located business districts in the City of Buenos Aires and other attractive locations as part of our strategy to become the leading property owner and manager of premium office buildings in Argentina.

● 

Continue to improve our properties. We consistently look for ways to improve our properties and make them more attractive for our tenants and their customers. For example, we have invested in the expansion of Alto Palermo Shopping and are re-styling the food courts at Alcorta Shopping and Patio Bullrich Shopping. In addition, we added technological improvements in our shopping malls such as automatic lights indicating parking space availability and automated parking payment in order to simplify and enhance the shopping experience of our tenants’ customers. We also continually look for ways to increase our lease renewal rates by collaborating with our tenants to improve the functionality of their leased space.

● 

Develop ancillary projects that complement our business. We seek to develop real estate and other commercial projects that complement our shopping mall operations, both commercial and residential, taking advantage of the positive impact that our commercial developments generate on the value of the properties and benefit from the flow of customers in the areas where we operate, like our development of offices at Polo Dot, located in the commercial complex adjacent to our Dot Baires shopping mall, with the goal of increasing the flow of customers in our shopping malls, the land swaps carried out in Córdoba, Rosario and Abasto or the recent acquisitions of mixed-use properties in places of great potential such as La Plata , Province of Buenos Aires.

Operational strategy

Our main operational goal is to maximize the profitability of our portfolio of properties. We seek to achieve this goal by implementing the following operational strategies:

● 

Strengthen and consolidate relationships with our tenants. Maintaining strong relationships with our tenants is critical to our continued success. We strive to maintain and strengthen our business relationships with the more than 1,000 corporate tenants and retail brands that currently operate at our properties. We continually seek to improve our shopping malls to keep them modern and attractive, enabling our tenants to offer their customers an excellent shopping experience while ensuring our rents per square meter remain competitive for our tenants. Additionally, we offer our tenants a broad complement of products and services, including administrative and marketing advice and activities designed to optimize and simplify their operations.

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● 

Seek an optimal tenant mix and attractive lease conditions. We endeavor to maintain high occupancy rates at our shopping malls by leasing to a diversified mix of credit-worthy tenants with renowned brands and solid reputations, which enable us to achieve stable and attractive rental income per square meter. We follow a similar strategy for tenant mix in our office properties, where the credit-worthiness of our corporate clients is critical to maintaining solid and stable cash-flows.

● 

Improve brand awareness and consumer/tenant loyalty. We strive to improve brand recognition and the loyalty of consumers and tenants with expansive marketing campaigns that include advertising, promotional events and various other initiatives aimed at highlighting a premium shopping experience, tailored to the preferences of the end-consumers at our shopping malls. We also seek to improve tenant and consumer loyalty by adding value to our properties through high-quality entertainment and food court offerings aimed at increasing shoppers’ visit frequency and duration.

● 

Improve operating margins. We seek to benefit from our economies of scale in order to profit from cost savings and improve our operating margins.

Our Shopping Malls

Overview

As of June 30, 2018, we own a majority interest in a portfolio of 16 shopping malls in Argentina, 15 of which are operated by us. Of our 16 shopping malls, seven are located in the City of Buenos Aires, two in the greater Buenos Aires area, and the rest 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 Fé, through a joint venture, and Alto Comahue in the City of Neuquén). On November 2018, we plan to return Buenos Aires Design to the City of Buenos Aires since the concession agreement under which we operate will expire.

The shopping malls we operate comprise, as of June 30, 2018, a total of 344,025 square meters (3,703,054 square feet) of gross leasable area. Total tenant sales in our shopping malls, as reported by retailers, were Ps.43,130 million for the fiscal year ended June 30, 2018 and Ps.34,426 million for fiscal year ended June 30, 2017, representing an increase of 25.3%. Tenant sales at our shopping malls are relevant to our revenues and profitability because they are one of the factors that determine the amount of rent that we charge our tenants. They also affect the tenants’ overall occupancy costs as a percentage of the tenant’s sales.

For the fiscal year ended June 30, 2018, our shopping malls welcomed 110 million visitors and compared to 106 million for the fiscal year ended June 30, 2017.

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The following graphic illustrates the total number of visitors at our shopping malls for the period from June 30, 2011-2018.

Total Number of Visitors Per Fiscal Year at our Shopping Malls

(in millions)

The following table sets forth total rental income for each of our shopping malls for the fiscal years indicated:

	For the fiscal years ended June 30, (1)
	2018	2017	2016
	(in thousands of Ps.)
Alto Palermo	612,231	507,048	413,815
Abasto Shopping	619,216	542,219	403,231
Alto Avellaneda	425,835	343,930	279,949
Alcorta Shopping	295,145	238,355	193,959
Patio Bullrich	169,028	145,803	123,395
Buenos Aires Design (2)	63,257	55,837	47,160
Dot Baires Shopping	403,324	332,968	271,411
Soleil Premium Outlet	154,281	115,468	84,615
Distrito Arcos	158,452	120,351	81,252
Alto Noa Shopping	110,981	88,515	75,724
Alto Rosario Shopping	294,709	247,190	189,335
Mendoza Plaza Shopping	177,865	148,239	124,118
Córdoba Shopping Villa Cabrera	108,422	87,752	70,302
La Ribera Shopping(3)	36,197	28,293	21,884
Alto Comahue	75,939	58,161	49,611
Total	3,704,882	3,060,134	2,429,763

(1) Includes Base Rent, Percentage Rent, Admission Rights, Fees, Parking, Commissions, Revenues from non-traditional advertising and Others. Does not include Patio Olmos.

(2) Concession agreement is set to expire on November 2018. We plan to return the property to the City of Buenos Aires.

(3) Through our joint venture Nuevo Puerto Santa Fé S.A.

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The following table sets forth our revenues from cumulative leases by revenue category for the fiscal years presented:

	For the fiscal year ended June 30,
	2018	2017	% Change
	(in thousands of Ps.)
Base Rent	2,053,569	1,685,900	21.8
Contingent Rent	733,969	637,323	15.2
Total Rent	2,787,538	2,323,223	20.0
Admission rights	344,245	262,489	31.1
Property Management Fees	58,781	47,697	23.2
Parking fees	236,323	192,750	22.6
Commissions	170,902	122,389	39.6
Non-traditional advertising	99,273	63,001	57.6
Others	7,820	48,588	(83.9)
Revenues before Expenses and Collective Promotion Fund	3,704,882	3,060,134	21.1
Expenses and Collective Promotion Fund	1,607,590	1,375,915	16.8
Total(1)	5,312,472	4,436,049	19.8

 (1) Does not include Patio Olmos.

Tenant retail sales

Total sales by our shopping mall tenants, as reported by retailers, increased 25.3%, to Ps.43,130 million for the fiscal year ended June 30, 2018 from Ps.34,426 million for fiscal year ended June 30, 2017. Tenant sales at our shopping malls are relevant to our revenues and profitability because they are one of the factors that determine the amount of rent that we charge our tenants. They also affect the tenants’ overall occupancy costs as a percentage of the tenant’s sales.

The following table sets forth the total retail sales of our shopping mall tenants for the fiscal years indicated:

	For the fiscal years ended June 30,
	2018	2017	2016
	(in millions of Ps.)
Alto Palermo	5,034	4,169	3,499
Abasto Shopping	5,674	4,604	4,043
Alto Avellaneda	5,459	4,344	3,776
Alcorta Shopping	2,754	2,207	1,899
Patio Bullrich	1,526	1,236	1,061
Buenos Aires Design (1)	701	537	414
Dot Baires Shopping	4,701	3,748	3,254
Soleil Premium Outlet	2,224	1,726	1,282
Distrito Arcos	1,831	1,455	962
Alto Noa Shopping	1,983	1,587	1,325
Alto Rosario Shopping	4,085	3,175	2,627
Mendoza Plaza Shopping	3,441	2,734	2,369
Córdoba Shopping Villa Cabrera	1,405	1,178	991
La Ribera Shopping(2)	1,030	771	634
Alto Comahue	1,282	954	717
Total	43,130	34,426	28,854

(1) Concession agreement is set to expire on November 2018. We plan to return the property to the City of Buenos Aires.

(2) Owned by Nuevo Puerto Santa Fé S.A., in which we are a joint venture partner.

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The following chart depicts aggregate gross sales for the fiscal years represented of our shopping mall tenants.

Aggregate Gross Sales per Fiscal Year

(in millions of Ps.)

Total sales by type of business

The following table sets forth the retail sales of our shopping mall tenants by type of business for the fiscal years indicated:

	For the fiscal years ended June 30
	2018	2017	2016
	(in millions of Ps.)
Anchor Store	2,477	1,875	1,590
Clothing and footwear	22,499	18,463	15,156
Entertainment	1,332	1,178	1,021
Home	1,210	957	784
Restaurant	4,746	3,671	2,723
Miscellaneous	5,089	3,963	3,368
Services	456	255	351
Electronic appliances	5,321	4,064	3,861
Total	43,130	34,426	28,854

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Occupancy rate

The following table sets forth the occupancy rate expressed as a percentage of gross leasable area of each of our shopping malls for the fiscal years indicated:

 

	As of June 30
	2018	2017	2016
	(%)
Alto Palermo	99.5	99.3	99.5
Abasto Shopping	99.1	96.8	99.8
Alto Avellaneda	98.9	99.3	100.0
Alcorta Shopping	99.8	98.1	89.1
Patio Bullrich	97.1	97.6	99.1
Buenos Aires Design	96.1	97.2	95.7
Dot Baires Shopping	99.5	99.9	100.0
Soleil Premium Outlet	97.7	100.0	100.0
Distrito Arcos	99.7	100.0	97.0
Alto Noa Shopping	96.8	99.4	100.0
Alto Rosario Shopping	99.5	99.6	100.0
Mendoza Plaza Shopping	98.3	97.1	95.2
Córdoba Shopping Villa Cabrera	100.0	98.1	99.2
La Ribera Shopping	94.9	97.6	99.3
Alto Comahue	94.4	96.4	96.6
Total	98.5	98.5	98.4

The following chart depicts the average occupancy rate for all our shopping malls for each fiscal year presented:

Shopping Malls—Occupancy rates (%) per fiscal year

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Rental price

The following table shows the annual average rental price per square meter for the fiscal years indicated(1):

	For the fiscal years endedJune 30,
	2018	2017	2016
	(in Ps.)
Abasto Shopping	16,828	14,736	9,964
Alto Palermo	32,831	26,765	21,819
Alto Avellaneda	11,083	9,537	7,801
Alcorta Shopping	18,744	15,267	12,217
Patio Bullrich	14,831	12,399	10,473
Buenos Aires Design	4,776	4,077	3,403
Dot Baires Shopping	8,385	6,727	5,468
Soleil Premium Outlet	10,141	7,583	6,048
Distrito Arcos	14,585	8,192	7,274
Alto Noa Shopping	5,822	4,644	3,977
Alto Rosario Shopping	8.835	7,772	6,299
Mendoza Plaza Shopping	4,149	3,458	2,952
Córdoba Shopping Villa Cabrera	7,098	5,682	4,512
La Ribera Shopping	3,444	2,814	2,222
Alto Comahue	11,694	5,956	5,017

(1) Corresponds to consolidated annual accumulated rental prices divided by gross leasable square meters. Does not include income from Patio Olmos.

Lease expirations

The following table sets forth the schedule of estimated lease expirations for our shopping malls for leases in effect as of June 30, 2018, assuming that none of our tenants exercise their option to renew or terminate their leases prior to expiration:

	As of June 30, 2018
Expiration(1)(2)	Number ofagreements/stores	Square metersdue to expire	Due toexpire(%)	Amount of leasepayments(in millions of Ps.)(3)	Agreements(%)
Vacant Stores	48	5,255	1.5%
As of June 30, 2018	498	102,841	29.9%	557.6	28.9%
As of June 30, 2019	404	81,323	23.6%	553.6	28.7%
As of June 30, 2020	454	109,046	31.7%	527.5	27.4%
As of June 30, 2021 and subsequent years	242	45,560	13.2%	289.1	15.0%
Total(2)	1,646	344,025	100.0%	1,927.8	100.0%

(1) Includes vacant stores as of June 30, 2018. A lease may be associated with one or more stores.

(2) Does not reflect our ownership interest in each property.

(3) Reflects the annual Base Rent of agreements due to expire as of June 30, 2018.

Five largest tenants of the portfolio

The five largest tenants of the portfolio (in terms of sales) conforms approximately 16% of their gross leasable area as of June 30, 2018 and represent approximately 9.2% of the annual basic rent for the fiscal year ending in that date.

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New leases and renewals

The following table shows certain information about our lease agreements as of June 30, 2018:

	Number ofagreements	Annualbase rentamount (in millions of Ps.)	Annualadmission rights amount (in millions of Ps.)	Average annual baserent per sqm (Ps.)		Number of non-renewedagreements (1)	Non-renewed agreements (1) annual base rent amount (in millions of Ps.)
Type of business				New andrenewed	Formeragreements
Clothing and footwear	307	31.3	92.2	9,783.7	7,448.4	645	1,031.1
Restaurant	55	5.2	12.7	11,754.9	8,270.7	155	177.6
Miscellaneous(2)	54	5.2	17.2	8,513.9	5,881.7	173	199.3
Home	26	4.2	6.7	2,690.5	1,748.4	116	162.2
Services	14	0.6	1.4	8,496.6	5,378.0	47	46.5
Entertainment	6	1.3	1.3	1,281.9	716.3	22	51.5
Anchor Store	2	0.8	0	1,259.0	119.1	4	32.2
Total	464	48.6	131.5	6,463.8	4,654.4	1,162	1,700.5

(1) Includes vacant stores as of June 30, 2018. 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 Argentine Civil and Commercial Code lease terms may not exceed 20 or 50 years, except for leases regulated by Law No. 25,248 which states leases on real property are not subject to term restrictions. Generally, terms of our lease agreements range from three to ten years.

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.

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 2% and 10% 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 10% on a semi-annually and cumulative basis from the seventh (7th) 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 may be able to enforce such clauses contained in our lease agreements.

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.

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We are responsible for providing each shopping mall rental unit 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 systems connections. 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 Common Promotional 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 and for removing any additions made to the rental unit when the lease expires. Furthermore, tenants are responsible for obtaining adequate insurance for their rental units, which must cover, among other things, damage caused by fire, glass breakage, theft, flood, civil liability and workers’ compensation.

Control Systems

We have computer systems equipped to monitor tenants’ sales (except stands) in all of our shopping malls. We also conduct regular audits of our tenants’ accounting sales records in all of our shopping malls. Almost every store in our shopping malls has a point of sale that is linked to our main server. We use 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 our shopping mall lease agreements require the tenant to have its point of sale system linked to our server.

Detailed information regarding our shopping malls

Set forth below is certain information regarding our shopping mall portfolio, including the five largest tenants at each shopping mall and certain key lease provisions.

Alto Palermo, City of Buenos Aires

Alto Palermo is a 136-store shopping mall that opened in 1990 in a well-established middle class and densely populated neighborhood named Palermo in the City of Buenos Aires. Alto Palermo is located at the intersection of Santa Fé and Coronel Díaz avenues, a few minutes from downtown Buenos Aires with nearby access from the Bulnes subway station. Alto Palermo has a total developed area of 65,029 square meters (including parking) that consists of 18,648 square meters of gross leasable area. Alto Palermo features a food court with 16 restaurant options. Alto Palermo is over four stories high and has a 642-car pay parking lot of approximately 30,000 square meters. Alto Palermo’s customers are middle-income individuals between the ages of 28 and 40.

During the fiscal year ended June 30, 2018, Alto Palermo generated tenant retail sales of approximately Ps.5,034 million, 20.7% higher than in fiscal 2017. Sales per square meter reached Ps.269,953 in fiscal 2018. Total rental income increased from Ps.507.0 million in fiscal 2017 to Ps.612.2 million in fiscal 2018, which represents annual revenues per gross leasable square meter of Ps.26,765 in fiscal year 2017 and Ps.32,831 in fiscal year 2018.

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As of June 30, 2018, Alto Palermo’s occupancy rate was 99.5%.

During the next fiscal year, we expect to launch the works of expansion of Alto Palermo shopping mall, the shopping mall with the highest sales per square meter in our portfolio, the Alto Palermo expansion project will add approximately 4,000 square meters of gross leasable area to the mall which has the highest sales per square meter in our shopping mall portfolio. The expansion requires moving the food court to a third level of the new building and turning it into an innovative format of gourmet space by using the space of an adjacent building we acquired in 2015. The demolition stage of the project was completed during the second quarter of fiscal 2017.

Alto Palermo’s tenant mix

The following table sets forth the tenant mix by type of business at Alto Palermo as of June 30, 2018:

Type of business (1)	Tenants Sales (In thousands of Ps.)	Tenants Sales  (%)	GLA (sqm)	GLA (% of total)
Clothes and footwear	3,382,226	67.2	11,284	60.5
Restaurant	515,504	10.2	2,847	15.3
Services	122,365	2.4	1,584	8.5
Miscellaneous	588,370	11.7	2,164	11.6
Home appliances	352,558	7.0	524	2.8
Home and decoration	72,792	1.4	245	1.3
Total	5,033,815	100	18,648	100.0

(1) Includes vacant stores as of June 30, 2018. Gross leasable area with respect to such vacant stores is included under the type of business of the last tenant to occupy such stores.

Alto Palermo’s revenues

The following table sets forth selected information relating to the revenue sources at Alto Palermo for the periods indicated:

	For the fiscal years endedJune 30,
	2018	2017	2016
	(in thousands of Ps.)
Base Rent	360,189	305,696	226,570
Contingent Rent(1)	68,542	63,553	67,376
Total rent	428,730	369,249	293,946
Non traditional publicity	23,860	13,582	13,970
Admission rights(2)	75,098	59,534	48,471
Management fees	7,950	6,475	5,142
Parking fees	43,150	37,085	29,983
Commissions	32,214	20,404	21,903
Other	1,228	720	400
Total(3)	612,231	507,048	413,815

(1) Contingent Rent is revenue based on a specific percentage of gross sales of our tenants.

(2) Admission rights are the fees required from tenants for entering into a lease agreement or a lease agreement renewal.

(3) Consolidated rents. Revenues relating to expenses and collective promotion fund are not included.

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Abasto Shopping, City of Buenos Aires

Opened in 1998, Abasto Shopping is a 170-store shopping mall located in downtown Buenos Aires with direct access from the Carlos Gardel subway station, six blocks from the Once railway terminal, near the highway to Ezeiza International Airport. The main structure is a landmark building which, between 1889 and 1984, was the primary fresh produce market in the City of Buenos Aires. We converted the property into a 116,646 square meter shopping mall (including parking and common areas) with approximately 36,796 square meters of gross leasable area or 40,528 square meters after including Museo de los Niños. Abasto Shopping is the fourth largest shopping mall in Argentina in terms of gross leasable area.

Abasto Shopping has a 26-restaurant food court, a 12-screen movie theatre complex with seating capacity for approximately 3,100 people, covering a surface area of 8,021 square meters, entertainment area and also houses the Museo de los Niños with a surface area of 3,732,8 square meters (the latter is not considered gross leasable area). The shopping mall is distributed over five stories and includes a parking lot for 1,180 vehicles with a surface area of approximately 41,000 square meters.

Abasto Shopping’s target consumers are middle-income individuals between the ages of 25 and 45 whom we believe represent a significant portion of the population in this area of the City of Buenos Aires.

During the fiscal year ended June 30, 2018, Abasto Shopping generated retail sales that totaled approximately Ps.5,674 million, representing for about Ps.154,198 per square meter, 23.2% higher than sales recorded in fiscal year 2017. Total rental income increased from Ps.542.2 million in the fiscal year ended June 30, 2017 to Ps.619.2 million for the fiscal year ended June 30, 2018, which represents annual income per gross leasable square meter of Ps.14,736 in fiscal year 2017 and Ps.16,828 in fiscal year 2018.

As of June 30, 2018, Abasto Shopping’s occupancy rate was 99.1%.

Abasto Shopping’s tenant mix

The following table sets forth the mix of tenants by type of business at Abasto Shopping as of June 30, 2018:

Type of business (1)	Tenants Sales (in thousands of Ps.)	Tenants Sales  (%)	GLA (sqm)	GLA (% of total)
Clothes and footwear	3,089,267	54.4	15,877	43.1
Entertainment	289,295	5.1	11,559	31.4
Restaurant	758,951	13.4	3,033	8.2
Home appliances	888,587	15.7	3,012	8.2
Miscellaneous	543,491	9.6	2,346	6.4
Home and decoration	79,415	1.4	583	1.6
Services	25,017	0.4	386	1.0
Total	5,674,023	100	36,796	100

(1) Includes vacant stores as of June 30, 2018. Gross leasable area with respect to such vacant stores is included under the type of business of the last tenant to occupy such stores.

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Abasto Shopping’s revenues

The following table sets forth selected information relating to the revenues of Abasto Shopping during the periods indicated:

	For the fiscal years endedJune 30
	2018	2017	2016
	(in thousands of Ps.)
Base Rent	351,002	276,326	205,899
Contingent Rent(1)	91,540	87,248	84,115
Total rent	442,543	363,574	290,014
Non traditional publicity	15,606	11,491	9,329
Admission rights(2)	64,500	49,426	38,561
Management fees	8,551	6,989	5,532
Parking fees	57,338	48,591	40,117
Commissions	29,574	22,509	19,088
Other	805	39,639	590
Total(3)	619,216	542,219	403,231

(1) Contingent Rent is the revenue based on a specific percentage of gross sales of our tenants.

(2) Admission rights are the fees required from tenants for entering into a lease agreement or a lease agreement renewal.

(3) Consolidated rents. Revenues relating to expenses and collective promotion fund are not included.

Alto Avellaneda, Greater Buenos Aires Area

Alto Avellaneda is a 132-store suburban shopping mall that opened in October 1995 and is located in the City of Avellaneda, which is on the southern border of the City of Buenos Aires. This shopping mall is located next to a railway terminal and is close to downtown Buenos Aires. Alto Avellaneda has a total developed area of 108,598.8 square meters (including parking) which consists of 38,422 square meters of gross leasable area. The shopping mall has a multiplex cinema with six screens, the first Walmart superstore in Argentina, an entertainment center, a food court with 22 restaurants and two anchor stores, Falabella, which opened on April 28, 2008 and Zara which opened on September 27, 2011. The shopping mall has a 2,400-car free parking lot consisting of 47,856 square meters. Walmart (not included in gross leaseable area) purchased the space it occupies, but it pays for its pro rata share of the common expenses of Alto Avellaneda’s parking lot. Alto Avellaneda Shopping’s target customers are of middle-income individuals between the ages of 25 and 40.

On December 30, 2015, we signed an agreement to acquire a plot of land of approximately 3,822 square meters located in Avellaneda, Province of Buenos Aires, for a potential expansion of the Alto Avellaneda shopping mall.

During fiscal 2018, Alto Avellaneda generated tenant retail sales of approximately Ps.5,459 million, which represents year-on-year growth of 25.7% compared to fiscal 2017. Sales per square meter as of June 30, 2018 were Ps.142,086. Total rental income increased from Ps.343.9 million for fiscal 2017 to Ps.425.8 million for fiscal 2018, which represents annual income per gross leasable square meter of Ps.9,537 in fiscal year 2017 and Ps.11,083 in fiscal year 2018.

As of June 30, 2018, Alto Avellaneda’s occupancy rate was 98.9%.

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Alto Avellaneda’s tenant mix

The following table sets forth the mix of tenants by type of business at Alto Avellaneda as of June 30, 2018:

Type of business (1)	Tenants Sales (In thousands of Ps.)	Tenants Sales  (%)	GLA (sqm)	GLA (% of total
Clothes and footwear	2,434,778	44.6	12,907	33.6
Department store	900,986	16.5	11,629	30.3
Entertainment	87,774	1.6	6,193	16.1
Miscellaneous	233,887	4.3	1,330	3.5
Home appliances	1,150,882	21.1	3,277	8.5
Restaurant	543,057	9.9	1,704	4.4
Services	22,770	0.4	896	2.3
Home and decoration	85,105	1.6	486	1.3
Total	5,459,239	100	38,422	100

(1) Includes vacant stores as of June 30, 2018. Gross leasable area with respect to such vacant stores is included under the type of business of the last tenant to occupy such stores.

Alto Avellaneda’s revenues

The following table sets forth selected information relating to revenues for Alto Avellaneda for the fiscal years indicated:

	For the fiscal years endedJune 30,
	2018	2017	2016
	(in thousands of Ps.)
Base Rent	264,333	219,715	162,068
Contingent Rent(1)	85,428	67,951	68,335
Total rent	349,761	287,666	230,404
Non traditional advertising	8,072	5,362	4,762
Admission rights(2)	38,725	30,086	24,920
Management fees	7,338	5,977	4,746
Commissions	21,339	14,365	14,755
Other	599	475	363
Total (3)	425,835	343,930	279,949

(1) Continget Rent is based on a specific percentage of gross sales of our tenants.

(2) Admission rights are the fees payable by our tenants for entering into a lease agreement or a lease agreement renewal.

(3) Consolidated rents. Does not include revenues relating to xpenses and our collective promotion fund.

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Alcorta Shopping, City of Buenos Aires

Alcorta Shopping is a 114-store shopping mall which opened in 1992, and is located in the residential area of Palermo Chico, one of the most exclusive areas in the City of Buenos Aires, a short drive from downtown Buenos Aires. Alcorta Shopping has a total developed area of approximately 87,553.8 square meters (including parking) that consists of 15,746 square meters of gross leasable area. Alcorta Shopping has a two-screen movie theater, a food court with 10 restaurants and a Carrefour hypermarket on the ground floor. Carrefour purchased the space it occupies but pays its pro rata share of the common charges of the shopping mall’s parking lot. The shopping mall is spread out over three levels and has a pay parking lot for 1,137 cars. Alcorta Shopping’s targeted clientele consists of high-income individuals between the ages of 30 and 45.

In recent years Alcorta Shopping has gained importance in the fashion and vanguard style in Argentina. It is a place chosen by emerging designers to promote and sell their new brands. A no less important fact is that 69% of our Alcorta Shopping customers are frequent or habitual customers.

During fiscal 2018, Alcorta Shopping generated tenant retail sales of approximately Ps.2,754 million, which represents fiscal year sales of approximately Ps.174,891 per square meter and a year-on-year growth of 24.8%. Total rental income increased from Ps.238.4 million for fiscal 2017 to Ps.295.1 million for fiscal 2018, which represents annual income per gross leasable square meter of Ps.15,267 in fiscal year 2017 and Ps.18,744 in fiscal year 2018.

As of June 30, 2018, Alcorta Shopping’s occupancy rate was 99.8%.

Alcorta Shopping’s tenant mix

The following table sets forth the mix of tenants by type of business at Alcorta Shopping as of June 30, 2018:

Type of business (1)	Tenants Sales (In thousands of Ps.)	Tenants Sales  (%)	GLA (sqm)	GLA (% of total)
Clothes and footwear	1,956,996	71.1	8,332	52.9
Entertainment	28,927	1.1	1,339	8.5
Services	79,570	2.9	2,320	14.7
Restaurant	187,562	6.8	931	5.9
Miscellaneous	273,175	9.9	1,225	7.8
Home and decoration	121,059	4.4	1,271	8.1
Home appliances	106,375	3.9	328	2.1
Total	2,753,664	100	15,746	100

(1) Includes vacant stores as of June 30, 2018. Gross leasable area with respect to such vacant stores is included under the type of business of the last tenant to occupy such stores.

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Alcorta Shopping’s revenues

The following table sets forth selected information relating to the revenues of Alcorta Shopping during the following fiscal years:

	For the fiscal years endedJune 30,
	2018	2017	2016
	(in thousands of Ps.)
Base Rent	163,356	139,965	100,170
Contingent Rent(1)	43,038	34,708	44,465
Total rent	206,394	174,674	144,635
Non traditional publicity	9,809	6,511	5,341
Admission rights(2)	37,508	25,994	20,042
Management fees	2,591	2,111	1,676
Parking fees	23,278	17,713	14,709
Commissions	16,226	11,156	7,258
Other	(662)	197	297
Total(3)	295,145	238,355	193,959

(1) Contingent Rent is based on a specific percentage of gross sales of our tenants.

(2) Admission rights are the fees payable by our tenants for entering into a lease agreement or a lease agreement renewal.

(3) Consolidated rents. Revenues relating to expenses and collective promotion fund are not included.

Patio Bullrich, City of Buenos Aires

Patio Bullrich is a 86-store shopping mall which opened in 1988 and the first shopping mall to launch operations in the City of Buenos Aires. Patio Bullrich is located in the Recoleta neighborhood, one of the most prosperous areas of the City of Buenos Aires. This district is a residential, cultural and tourist center that includes distinguished private homes, historical sites, museums, theatres and embassies. The shopping mall is located within walking distance of the most prestigious hotels of the City of Buenos Aires and the subway, bus and train systems. Additionally, the shopping mall is only 10 minutes by car from downtown Buenos Aires.

Patio Bullrich has a total developed area of 29,982 square meters (including parking) that consist of 11,397 square meters of gross leasable area and common areas covering 12,472 square meters. The shopping mall has a four-screen multiplex movie theater with 1,381 seats and a food court with 9 restaurants. The shopping mall is spread out over four levels and has a pay parking lot for 206 cars in an area consisting of approximately 4,600 square meters.

Patio Bullrich is one of the most successful shopping malls in Argentina in terms of sales per square meter. Its target consumers consist of high-income individuals over 40 years of age.

During fiscal 2018, Patio Bullrich generated tenant retail sales of approximately Ps.1,526 million, which represents annual sales of approximately Ps.133,935 per square meter and an increase of 23.6% compared to fiscal 2017. Total rental income increased from Ps.145.8 million for fiscal 2017 to Ps.169.0 million for fiscal 2018, which represents monthly revenues per gross leasable square meter of Ps.12,399 in fiscal year 2017 and Ps.14,831 in fiscal year 2018.

As of June 30, 2018, Patio Bullrich’s occupancy rate was 97.1%.

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Patio Bullrich’s tenant mix

The following table sets forth the tenant mix by type of business at Patio Bullrich as of June 30, 2018:

Type of business (1)	Tenants Sales (In thousands of Ps.)	Tenants Sales  (%)	GLA (sqm)	GLA (% of total)
Clothes and footwear	999,410	65.5	5,717	50.2
Miscellaneous	293,783	19.2	2,348	20.6
Entertainment	17,485	1.1	1,524	13.4
Services	28,380	1.9	922	8.1
Restaurant	171,321	11.2	731	6.4
Home and decoration	15,946	1.0	155	1.4
Total	1,526,325	100	11,397	100

(1) Includes vacant stores as of June 30, 2018. Gross leasable area with respect to such vacant stores is included under the type of business of the last tenant to occupy such stores.

Patio Bullrich’s revenues

The following table sets forth selected information relating to the revenues of Patio Bullrich during the fiscal years indicated:

	For the fiscal years endedJune 30,
	2018	2017	2016
	(in thousands of Ps.)
Base Rent	90,713	80,620	67,487
Contingent Rent(1)	19,896	16,994	15,750
Total rent	110,608	97,614	83,238
Non traditional publicity	3,958	2,759	2,033
Admission rights(2)	18,345	15,490	14,489
Management fees	6,271	5,107	4,056
Parking fees	22,370	17,897	14,480
Commissions	7,311	6,617	4,897
Other	164	318	203
Total(3)	169,028	145,803	123,395

(1) Contingent Rent is based on a specific percentage of gross sales of our tenants.

(2) Admission rights are the fees payable by our tenants for entering into a lease agreement or a lease agreement renewal.

(3) Consolidated rents. Revenues relating to expenses and collective promotion fund are not included.

Buenos Aires Design, City of Buenos Aires

Buenos Aires Design opened in 1993 and currently features 62 stores specialized in decoration and home appliances. We own a 53.7% interest in ERSA, the company which has the concession to operate Buenos Aires Design. ERSA’s other shareholder is Hope Funds S.A., which has a 46.3% interest.

As a result of a public auction, in February 1991, the City of Buenos Aires granted ERSA concession to use a plot of land in the Centro Cultural Recoleta for an initial period of 20 years, which was subsequently extended to November 18, 2018. During the fourth quarter of 2018 we started the process of vacating the stores in order to comply with the delivery of the property to the City Government in a timely manner.

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In June 1991, we entered into an agreement with the shareholders of ERSA providing for our administration of Buenos Aires Design for a monthly administration fee of 10% of the net expenditures of expenses.

Buenos Aires Design is located in an exclusive neighborhood named Recoleta in the City of Buenos Aires, near Libertador Avenue and downtown Buenos Aires. Buenos Aires Design is located in one of Buenos Aires’ most popular tourist attraction areas as many exclusive hotels and restaurants are located in this area due to its closeness to the National Museum of Fine Arts, the Museum of Modern Art and other popular cultural institutions.

Buenos Aires Design has a total developed area of 26,131 square meters (including parking) that consists of 13,735 square meters of gross leasable area. The shopping mall has eight restaurants anchored by the Hard Rock Cafe and a terrace that covers approximately 3,700 square meters. Buenos Aires Design is spread over two floors and has a 166-car pay parking lot. Buenos Aires Design’s target customers are upper-middle income individuals between the ages of 25 and 45.

During fiscal year 2018, Buenos Aires Design generated tenant retail sales of approximately Ps.700.9 million, which represents approximately Ps.51,033 per square meter. Total rental income increased from Ps.55.8 million for fiscal 2017 to Ps.63,3 million for fiscal 2018, which represents annual income per gross leasable square meter of Ps.4,077 in fiscal 2017 and Ps.4,776 in fiscal 2018.

As of June 30, 2018, Buenos Aires Design’s occupancy rate was 96.1%.

Buenos Aires Design’s tenant mix

The following table sets forth the mix of tenants by type of business at Buenos Aires Design as of June 30, 2018:

Type of business (1)	Tenants Sales (In thousands of Ps.)	Tenants Sales  (%)	GLA (sqm)	GLA (% of total)
Home and decoration	482,507	68.8	6,608	48.1
Restaurant	161,154	23.0	3,682	26.8
Miscellaneous	3,765	0.5	2,091	15.2
Home appliances	53,514	7.6	472	3.4
Clothes and footwear	—	0.0	882	6.4
Total	700,940	100	13,735	100

(1) Includes vacant stores as of June 30, 2018. Gross leasable area with respect to such vacant stores is included under the type of business of the last tenant to occupy such stores.

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Buenos Aires Design’s revenues

The following table sets forth selected information relating to the revenues of Buenos Aires Design during the periods indicated:

 

	For the fiscal years endedJune 30,
	2018	2017	2016
	(in thousands of Ps.)
Base Rent	35,260	31,328	27,257
Contingent Rent(1)	5,919	2,763	2,164
Total rent	41,178	34,091	29,421
Non traditional publicity	1,707	1,812	1,543
Admission rights(2)	3,268	3,862	3,585
Management fees	4,339	3,591	2,808
Parking fees	12,298	10,562	7,944
Commissions	358	1,800	1,777
Other	108	121	81
Total(3)	63,257	55,837	47,160

(1) Contingent Rent is based on a specific percentage of gross sales of our tenants.

(2) Admission rights are the fees payable by our tenants for entering into a lease agreement or a lease agreement renewal.

(3) Consolidated rents. It does not reflect our interest in Emprendimiento Recoleta S.A. Revenues relating to expenses and collective promotion fund are not included.

Dot Baires Shopping, City of Buenos Aires

Dot Baires Shopping opened in May 2009. It has four floors and three underground levels, covering a surface area of 173,000 square meters, of which 49,407 square meters constitutes gross leasable area, comprising 157 retail stores, a hypermarket, a ten-screen multiplex cinema and parking space for 2,042 vehiclesin a surface of approximately 75,000 square meters.

Dot Baires Shopping is located at the intersection of Avenida General Paz and the Panamerican Highway in the neighborhood of Saavedra in the City of Buenos Aires, and is the largest shopping mall in Buenos Aires in terms of square meters. As of June 30, 2018, we owned an 80% equity interest in Panamerican Mall S.A.

During the fiscal year ended June 30, 2018, Dot Baires Shopping generated tenant retail sales of approximately Ps.4,701 million, which represents an increase of 25.4% compared to fiscal 2017, and fiscal year sales of approximately Ps.95,153 per square meter in fiscal 2018. Total rental income increased from Ps.333.0 million in fiscal 2017 to Ps.403,3 million in fiscal 2018, which represents annual income per gross leasable square meter of Ps.6,727 in fiscal year 2017 and Ps.8,385 in fiscal year 2018.

As of June 30, 2018, Dot Baires Shopping’s occupancy rate was 99.5%.

The project under development called “Polo Dot” will consist of three office buildings (one of them may include a hotel) on land reserves we own and the expansion of Dot Baires Shopping by approximately 15,000 square meters of gross leasable area. In the first phase, we will develop an 11-floor office building expansion with an area of approximately 32,000 square meters. Construction had an advance grade of 74% at the close of this fiscal year and we estimate its opening for fiscal year 2019. The second stage of the project consists of two office hotel buildings that will add 38,400 square meters of GLA to the complex. For more information see “—Future developments.”

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Dot Baires Shopping’s tenant mix (1)

The following table sets forth the tenant mix in terms of types of business in Dot Baires Shopping as of June 30, 2018:

Type of business (1)	Tenants Sales (In thousands of Ps.)	Tenants Sales  (%)	GLA (sqm)	GLA (% of total)
Miscellaneous	917,171	19.5	15,206	30.8
Clothes and footwear	1,895,363	40.3	12,890	26.1
Department Store	797,346	17.0	8,087	16.4
Entertainment	140,891	3.0	7,135	14.4
Services	60,375	1.3	2,092	4.2
Restaurant	444,362	9.5	1,768	3.6
Home appliances	381,019	8.1	1,676	3.4
Home and decoration	64,782	1.4	553	1.1
Total	4,701,309	100	49,407	100

(1) Includes vacant stores as of June 30, 2018.

Dot Baires Shopping’s revenues

The following table sets forth selected information relating to the revenues of Dot Baires Shopping for the periods indicated:

	For the fiscal years endedJune 30,
	2018	2017	2016
	(in thousand of Ps.)
Base Rent	201,671	168,280	126,971
Contingent Rent(1)	77,799	68,647	67,556
Total rent	279,469	236,926	194,527
Non traditional publicity	13,465	8,558	7,648
Admission rights(2)	29,969	24,606	17,973
Management fees	5,182	4,221	3,352
Parking fees	59,133	46,509	37,127
Commissions	15,015	11,001	10,048
Other	1,090	1,146	737
Total(3)	403,324	332,968	271,411

(1) Contingent Rent is based on a specific percentage of gross sales of our tenants.

(2) Admission rights are the fees payable by our tenants for entering into a lease agreement or a lease agreement renewal.

(3) Consolidated rents. Revenues relating to expenses and collective promotion fund are not included.

Soleil Premium Outlet, greater Buenos Aires, province of Buenos Aires

In December 2007, we entered into an agreement with INC S.A., or “INCSA,” an unaffiliated company, for the acquisition of Soleil Premium Outlet. On July 1, 2010, we executed the final deed for partial conveyance of title and closing minutes with INCSA, whereby INCSA transferred to us the shopping mall’s going concern, which we started to operate on that date. The transaction was exclusive of any debt or credit prior to the transaction with respect to INCSA’s business, as well as the real property where a hypermarket currently operates located in the premises. On April 12, 2011, the Argentine Antitrust Authority (Comisión Nacional de Defensa de la Competencia), or “CNDC,” approved the transaction.

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As of April 2013, after a conversion of the shopping mall including a building reform and change in tenant mix accompanied by an advertising campaign and change of logo, it was re-launched as Soleil Premium Outlet. At present, it has a surface area of 47,525 square meters, 15,214 square meters of which are gross leasable area. It comprises 79 stores and 2,335 parking spaces. Soleil Premium Outlet is located in San Isidro, Province of Buenos Aires. Soleil Premium Outlet opened in Argentina more than 30 years ago and it was the first outlet mall in the country.

In 2016, an investment of more than Ps.26.2 million was made to build the new 1,180 square meters Nike Factory Store, an anchor sports store that sells clothing from other seasons, as well as the other stores of the shopping mall.

During the fiscal year 2018, Soleil Premium Outlet generated tenant retail sales of approximately Ps.2,224 million, which represents annual average sales for approximately Ps.146,199 per square meter and increase of 28.9%. Total rental income increased from Ps.115.5 million for fiscal 2017 to Ps.154.3 million for fiscal 2018, representing annual income per gross leasable square meter of Ps.7,583 in fiscal year 2017 and Ps.10,141 in fiscal year 2018.

As of June 30, 2018, Soleil Premium Outlet’s occupancy rate was 97.7%.

Soleil Premium Outlet’s tenant mix

The following table sets forth the tenant mix in terms of types of business in Soleil Premium Outlet as of June 30, 2018:

Type of business (1)	Tenants Sales (In thousands of Ps.)	Tenants Sales  (%)	GLA (sqm)	GLA (% of total)
Clothes and footwear	1,643,727	73.9	9,632	63.3
Entertainment	74,876	3.4	3,339	21.9
Restaurant	215,633	9.7	808	5.3
Home appliances	217,815	9.8	675	4.4
Services	52,321	2.4	342	2.2
Miscellaneous	12,631	0.6	291	1.9
Home and decoration	7,133	0.3	127	0.8
Total	2,224,136	100	15,214	100

(1) Includes vacant stores as of June 30, 2018.

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Soleil Premium Outlet’s revenues

The following table sets forth selected information relating to the revenues of Soleil Premium Outlet during the following periods:

 

	For the fiscal years endedJune 30,
	2018	2017	2016
	(in thousands of Ps.)
Base Rent	91,656	62,113	43,018
Contingent Rent(1)	39,599	36,496	28,911
Total rent	131,255	98,608	71,929
Non traditional publicity	2,384	1,134	1,579
Admission rights(2)	13,098	8,002	5,335
Management fees	1,602	1,305	1,076
Commissions	5,585	6,143	4,502
Other	358	277	194
Total(3)	154,281	115,468	84,615

(1) Contingent Rent is based on a specific percentage of gross sales of our tenants.

(2) Admission rights are the fees payable by our tenants for entering into a lease agreement or a lease agreement renewal.

(3) Consolidated rents. Revenues relating to expenses and collective promotion fund are not included.

Distrito Arcos, City of Buenos Aires

Distrito Arcos was opened on December 18, 2014. Distrito Arcos is a premium outlet located in the neighborhood of Palermo, City of Buenos Aires. It has 14,169 square meters of gross leasable area, comprised of 68 stores, 424 parking spaces and 35 selling stands.

During the fiscal year 2017, the second stage of the project was inaugurated, and six new stores were opened, including a fitness center, a fast food restaurant and various clothing stores. Three new accesses were added and an amphitheater with several entertainment and commercial proposals was also built.

During the fiscal year 2018, Distrito Arcos generated tenant retail sales that totaled approximately Ps.1,831 million, which represents an increase of 24.3% and sales per square meter were approximately Ps.129,197. Total rental income increased from Ps.120.4 million in fiscal 2017 to Ps.158,5 million in fiscal 2018, representing annual income per gross leasable square meter of Ps.8,192 in fiscal year 2017 and Ps.14,585 in fiscal 2018.

As of June 30, 2018, Distrito Arcos’ occupancy rate was 99.7%.

Distrito Arcos’ tenant mix

The following table sets forth the mix of tenants by type of business at Distrito Arcos as of June 30, 2018:

Type of business (1)	Tenants Sales (In thousands of Ps.)	Tenants Sales  (%)	GLA (sqm)	GLA (% of total)
Clothes and footwear	1,585,987	86.6	10,238	72.3
Miscellaneous	89,271	4.9	1,634	11.5
Services	26,160	1.4	1,569	11.1
Restaurant	129,173	7.1	728	5.1
Total	1,830,591	100	14,169	100

(1) Includes vacant stores as of June 30, 2018.

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Distrito Arcos’ revenues

The following table sets forth selected information relating to the revenues from Distrito Arcos during the following periods:

 

	For the fiscal yearsended June 30,
	2018	2017	2016
	(in thousands of Ps.)
Base Rent	70,112	50,879	34,943
Contingent Rent(1)	46,907	45,449	29,982
Total rent	117,019	96,328	64,926
Non traditional publicity	3,609	1,988	2,129
Admission rights(2)	9,175	5,253	3,219
Management fees	1,163	947	752
Parking fees	18,756	14,393	8,853
Commissions	8,254	964	1,011
Other	477	478	362
Total(3)	158,452	120,351	81,252

(1) Contingent Rent is the revenue based on a specific percentage of gross sales of our tenants.

(2) Admission rights are the fees required from tenants for entering into a lease agreement or a lease agreement renewal.

(3) Consolidated rents. Revenues relating to expenses and collective promotion fund are not included.

Alto NOA, City of Salta, Province of Salta

Alto Noa is a 88-store shopping mall that opened in 1994, located in the City of Salta, the capital of the Province of Salta, in the northwestern region of Argentina. The Province of Salta has a population of approximately 1.2 million with approximately 0.6 million people living in the City of Salta. Alto Noa has a total developed area of approximately 30,876 square meters (including parking) which consists of 19,063 square meters of gross leasable area. Alto Noa has a food court with 12 restaurants, a large entertainment center, a supermarket and a multiplex cinema with eight screens. Alto Noa occupies one floor and has a free parking lot that can accommodate 500 cars. Alto Noa’s target customers are middle-income individuals between the ages of 28 and 40.

During fiscal 2018, Alto Noa generated tenant retail sales of approximately Ps.1,983 million, which represents annual retail sales of approximately Ps.104,040 per square meter and an increase of 25.0% compared to fiscal 2017. Total rental income increased from Ps.88.5 million in fiscal 2017 to Ps.111.0 million in fiscal 2018, which represents annual income per gross leasable square meter of Ps.4,644 in fiscal year 2017 and Ps.5,822 in fiscal year 2018.

As of June 30, 2018, Alto NOA’s occupancy rate was 96.8%.

Alto NOA’s tenant mix

The following table sets forth the mix of tenants by type of business at Alto NOA:

Type of business (1)	Tenants Sales (In thousands of Ps.)	Tenants Sales  (%)	GLA (sqm)	GLA (% of total)
Entertainment	196,471	9.9	6,170	32.4
Miscellaneous	615,983	31.1	5,704	29.9
Clothes and footwear	592,236	29.9	4,149	21.8
Restaurant	326,448	16.5	1,214	6.4
Home appliances	215,707	10.9	1,128	5.9
Services	9,210	0.5	379	2.0
Home and decoration	27,263	1.4	319	1.7
Total	1,983,318	100	19,063	100

(1) Includes vacant stores as of June 30, 2018. Gross leasable area with respect to such vacant stores is included under the type of business of the last tenant to occupy such stores.

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Alto NOA’s revenues

The following table sets forth selected information relating to the revenues of Alto NOA during the periods indicated:

	For the fiscal years endedJune 30,
	2018	2017	2016
	(in thousands of Ps.)
Base Rent	62,993	47,457	37,712
Contingent Rent(1)	33,355	30,413	29,182
Total rent	96,348	77,870	66,895
Non traditional publicity	1,598	1,047	1,123
Admission rights(2)	7,172	4,888	3,862
Management fees	777	633	503
Commissions	4,596	3,604	3,093
Other	490	473	249
Total(3)	110,981	88,515	75,724

(1) Contingent Rent is on a specific percentage of gross sales of our tenants.

(2) Admission rights are the fees payable by our tenants for entering into a lease agreement or a lease agreement renewal.

(3) Consolidated rents. Revenues relating to expenses and collective promotion fund are not included.

Alto Rosario, City of Rosario, Province of Santa Fé

Alto Rosario is a 141-store shopping mall located in the City of Rosario, Province of Santa Fé, the third largest city in Argentina in terms of population. It has a total developed area of approximately 100,750 square meters which consists of 33,358 square meters of gross leasable area (excluding Museo de los Niños). Alto Rosario has a food court with 16 restaurants, a large entertainment center, a supermarket and a Showcase cinema with 14 state-of-the-art screens. Furthermore, during the fiscal year 2018, Zara opened a 2,900 square meters store which is the first of the interior and the biggest in Argentina. The shopping mall occupies one floor and has a free parking lot for 1,700 cars. Alto Rosario’s targeted consumers are middle-income individuals between the ages of 28 and 40.

During fiscal 2018, Alto Rosario generated tenant retail sales of approximately Ps.4,085 million, which represents an increase of 28.6% compared to fiscal 2017. Sales per square meter were approximately Ps.122,460 in fiscal 2018. Total rental income increased from Ps.247.2 million in fiscal 2017 to Ps.294.7 million in fiscal 2018, which represents annual income per gross leasable square meter of Ps.7,772 in fiscal year 2017 and Ps.8,835 in fiscal year 2018.

As of June 30, 2018, Alto Rosario’s occupancy rate was 99.5%.

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Alto Rosario’s tenant mix

The following table sets forth the tenant mix by type of business at Alto Rosario as of June 30, 2018:

 

Type of business (1)	Tenants Sales (In thousands of Ps.)	Tenants Sales  (%)	GLA (sqm)	GLA (% of total)
Clothes and footwear	2,116,804	51.8	14,409	43.2
Entertainment	186,627	4.6	10,245	30.7
Miscellaneous	429,063	10.5	3,823	11.5
Restaurant	498,589	12.2	2,152	6.5
Home appliances	716,763	17.5	1,528	4.6
Home and decoration	133,105	3.3	1,143	3.4
Services	4,055	0.1	58	0.2
Total	4,085,006	100	33,358	100

(1) Includes vacant stores as of June 30, 2018. Gross leasable area with respect to such vacant stores is included under the type of business of the last tenant to occupy such stores.

Alto Rosario’s revenues

The following table sets forth selected information relating to the revenues of Alto Rosario during the following periods:

	For the fiscal years endedJune 30,
	2018	2017	2016
	(in thousands of Ps.)
Base Rent	159,819	139,032	98,034
Contingent Rent(1)	82,229	70,267	62,657
Total rent	242,048	209,300	160,691
Non traditional publicity	5,309	2,936	3,146
Admission rights(2)	27,097	20,216	14,960
Management fees	3,077	2,506	1,990
Commissions	16,347	11,677	7,834
Other	831	556	713
Total(3)	294,709	247,190	189,335

(1) Contingent Rent is the revenue based on a specific percentage of gross sales of our tenants.

(2) Admission rights are the fees required from tenants for entering into a lease agreement or a lease agreement renewal.

(3) Consolidated rents. Revenues relating to expenses and collective promotion fund are not included.

Mendoza Plaza, City of Mendoza, Province of Mendoza

Mendoza Plaza is a 141-store and 62 stands shopping mall which opened in 1992 and is located in the district of Guaymallen, in the Province of Mendoza. The City of Mendoza is the fourth largest city in Argentina with a population of approximately 1.1 million. Mendoza Plaza Shopping consists of 42,867 square meters of GLA and has a multiplex cinema covering an area of approximately 3,659 square meters with ten screens, the Chilean department store Falabella, a food court with 18 restaurants, five restaurants on the street in the new sector called "Shopping District Food", an entertainment center and a supermarket, which is also a tenant. The shopping mall has two levels and offers free parking for up to 1,700 cars. Mendoza Plaza’s target consumers are middle-income individuals between the ages of 28 and 40.

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During fiscal 2018, Mendoza Plaza generated tenant retail sales of approximately Ps.3,441 million, which represents growth of 25.9% compared to fiscal 2017. Sales per square meter were approximately Ps.82,265 in fiscal 2018. Total rental income increased from Ps.148.2 million in fiscal 2017 to Ps.177.9 million in fiscal 2018, which represents annual income per gross leasable square meter of Ps.3,458 in fiscal year 2017 and Ps.4,149 in fiscal year 2018.

As of June 30, 2018, Mendoza Plaza’s occupancy rate was 98.3%.

Mendoza Plaza’s tenant mix

The following table sets forth the mix of tenants by type of business at Mendoza Plaza as of June 30, 2018:

Type of business (1)	Tenants Sales (In thousands of Ps.)	Tenants Sales  (%)	GLA (sqm)	GLA (% of total)
Entertainment	144,216	4.2	9,473	22.1
Miscellaneous	855,622	24.9	9,393	21.9
Department store	779,642	22.7	9,175	21.4
Clothes and footwear	626,693	18.2	7,450	17.4
Home appliances	656,444	19.1	2,890	6.7
Restaurant	317,119	9.2	2,890	6.7
Services	16,167	0.5	1,241	2.9
Home and decoration	44,820	1.3	355	0.8
Total	3,440,723	100	42,867	100

(1) Includes vacant stores as of June 30, 2018. Gross leasable area with respect to such vacant stores is included under the type of business of the last tenant to occupy such stores.

Mendoza Plaza’s revenues

The table sets forth selected information relating to the revenues of Mendoza Plaza during the periods indicated:

	For the fiscal years endedJune 30
	2018	2017	2016
	(in thousands of Ps.)
Base Rent	99,904	82,567	62,806
Contingent Rent(1)	54,308	42,784	43,619
Total rent	154,212	125,351	106,425
Non traditionalpublicity	4,036	2,390	2,620
Admission rights(2)	9,068	7,671	6,287
Management fees	4,524	3,414	2,663
Commissions fees	4,809	6,053	5,081
Other	1,217	3,359	1042
Total(3)	177,865	148,239	124,118

(1) Contingent Rent is based on a specific percentage of gross sales of our tenants.

(2) Admission rights are the fees payable by our tenants for entering into a lease agreement or a lease agreement renewal.

(3) Consolidated rents. Revenues relating to expenses and collective promotion fund are not included.

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Córdoba Shopping—Villa Cabrera, City of Córdoba

Córdoba Shopping Villa Cabrera covers a surface area of 35,000 square meters, with 15,276 square meters being gross leasable area. Córdoba Shopping has 105 commercial stores, a 12-screen multiplex cinema and parking lot for 1,500 vehicles, located in Villa Cabrera, City of Córdoba, Province of Córdoba.

During the fiscal year ended June 30, 2018, Córdoba Shopping generated tenant retail sales of approximately Ps.1,405 million, which represent growth of 19.3% compared to fiscal 2017. Sales per square meter were approximately Ps.91,956 in fiscal 2018. Total rental income increased from Ps.87.8 million in fiscal 2017 to Ps.108.4 million in fiscal 2018, which represents annual income per gross leasable square meter of Ps.5,682 in fiscal year 2017 and Ps.7,098 in fiscal year 2018.

As of June 30, 2018, Córdoba Shopping’s occupancy rate was 100%.

Córdoba Shopping—Villa Cabrera’s tenant mix

The following table sets forth the tenant mix in terms of types of business in Córdoba Shopping as of June 30, 2018:

Type of business (1)	Tenants Sales (In thousands of Ps.)	Tenants Sales  (%)	GLA (sqm)	GLA (% of total)
Clothes and footwear	913,076	65.0	6,308	41.3
Entertainment	53,207	3.8	5,842	38.2
Restaurant	146,740	10.4	964	6.3
Miscellaneous	113,945	8.1	805	5.3
Services	14,455	1.0	596	3.9
Home appliances	144,295	10.3	535	3.5
Home and decoration	18,997	1.4	226	1.5
Total	1,404,715	100	15,276	100

(1) Includes vacant stores as of June 30, 2018. Gross leasable area with respect to such vacant stores is included under the type of business of the last tenant to occupy such stores.

Revenues from Córdoba Shopping—Villa Cabrera

The following table sets forth selected information relating to the revenues of Córdoba Shopping during the periods indicated:

	For the fiscal years endedJune 30,
	2018	2017	2016
	(in thousands of Ps.)
Base Rent	54,605	41,202	30,920
Contingent Rent(1)	35,206	32,889	28,594
Total rent	89,811	74,091	59,514
Non traditional publicity	2,815	1,695	2,445
Admission rights(2)	7,334	4,799	3,590
Management fees	3,606	2,830	2,173
Commissions	4,368	3,947	2,253
Other	488	390	327
Total(3)	108,422	87,752	70,302

(1) Contingent Rent is the revenue based on a specific percentage of gross sales of our tenants.

(2) Admission rights are the fees required from tenants for entering into a lease agreement or a lease agreement renewal.

(3) Consolidated rents. Revenues relating to expenses and collective promotion fund are not included.

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La Ribera Shopping, City of Santa Fé, Province of Santa Fé

We own 50% of the shares of Nuevo Puerto Santa Fé S.A., or “NPSF,” which leases space in one of the buildings where it currently operates “La Ribera” shopping mall, which has a surface area of 47,506 square meters, comprising 68 retail stores and seven 2D- and 3D-screen multiplex cinemas. It also comprises a 510 square meter cultural center and 24,553 square meters in outdoor areas and free parking space. La Ribera’s gross leasable area is approximately 10,530 square meters.

La Ribera is strategically located within the port of the City of Santa Fé in the Province of Santa Fé, which has the largest development in terms of real estate in the City of Santa Fé, 27 kilometers away from the City of Paraná and 96 kilometers from the City of Rafaela; its range of influence represents a potential market of over one million people.

During the fiscal year 2018, La Ribera generated tenant retail sales that totaled approximately Ps.1,030 million, which represents an increase of 33.5% compared to fiscal 2017 and sales per square meter were approximately Ps.97,794. Total rental income increased from Ps.28.3 million in fiscal 2017 to Ps.36.2 million in fiscal 2018, representing annual income per gross leasable square meter of Ps.2,814 in fiscal year 2017 and Ps.3,444 in fiscal 2018.

As of June 30, 2018, La Ribera Shopping’s occupancy rate was 94.9%.

La Ribera Shopping’s tenant mix(1)

The following table sets forth the mix of tenants by type of business at La Ribera Shopping as of June 30, 2018:

Type of business (1)	Tenants Sales (In thousands of Ps.)	Tenants Sales  (%)	GLA (sqm)	GLA (% of total)
Clothes and footwear	423,358	41.1	3,708	35.2
Entertainment	116,924	11.4	3,323	31.6
Restaurant	197,649	19.2	1,806	17.2
Miscellaneous	162,743	15.8	766	7.3
Home appliances	108,980	10.6	739	7.0
Home and decoration	17,772	1.7	159	1.5
Services	2,343	0.2	29	0.3
Total	1,029,769	100.0	10,530	100

(1) Includes vacant stores as of June 30, 2018.

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La Ribera Shopping’s revenues

The following table sets forth selected information relating to the revenues of La Ribera Shopping during the fiscal years indicated:

 

	For the fiscal years endedJune 30 (4)
	2018	2017	2016
	(in thousands of Ps.)
Base Rent	15,313	11,441	8,122
Contingent Rent(1)	16,217	13,641	10,956
Total rent	31,530	25,082	19,079
Non traditional advertising	850	690	913
Admission rights(2)	825	556	342
Property Management fees	647	495	372
Commissions	2,223	1,414	1,104
Other	122	57	73
Total(3)	36,197	28,293	21,884

(1) Contingent Rent is the revenue based on a specific percentage of gross sales of our tenants.

(2) Admission rights are the fees required from tenants for entering into a lease agreement or a lease agreement renewal.

(3) Consolidated rents. Revenues relating to expenses and collective promotion fund are not included.

(4) It does not reflect our participation on each property.

Alto Comahue, City of Neuquén, Province of Neuquén

Alto Comahue, was inaugurated on March 17, 2015, and is located in the City of Neuquén, in the Patagonian region of Argentina. It covers 35,000 square meters and has 9,397 square meters of gross leasable area, approximately 1,066 roof-covered and open-air parking spaces and a large entertainment and leisure area. Alto Comahue offers 99 retail stores that house the most prestigious brands in Argentina, and will have a six-screen multiplex cinema and a theme restaurant. It is a three-story building consisting of a basement where the parking lot and service area are located; the ground floor consisting of 5,100 square meters for retail stores, and the first floor consisting of 1,000 square meters for restaurants with unique views of the city and 2,700 square meters of retail stores.

The development is part of a complex of mixed uses that is completed with a supermarket already in operation and two parcels of additional land. One parcel is for the development of a hotel and the other, which is 18,000 square meters, for future residential development.

During the fiscal year 2018, visitors to the mall generated total retail sales of approximately Ps.1,282.3 million, which represents an increase of 34.4%, representing sales per square meter of approximately Ps.136,460. Total rental income increased from Ps.58.2 million in fiscal 2017 to Ps.75,9 million in fiscal 2018, representing annual income per gross leasable square meter of Ps.5,956 in fiscal year 2017 and Ps.11,694 in fiscal 2018.

As of June 30, 2018, Alto Comahue’s occupancy rate was 94.4%.

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Alto Comahue’s tenant mix

The following table sets forth the mix of tenants by type of business at Alto Comahue as of June 30, 2018:

 

Type of business (1)	Tenants Sales (In thousands of Ps.)	Tenants Sales  (%)	GLA (sqm)	GLA (% of total)
Clothes and footwear	609,724	47.5	5,215	55.5
Miscellaneous	241,184	18.8	1,417	15.1
Restaurant	145,483	11.3	1,110	11.8
Home appliances	211,757	16.5	811	8.6
Services	38,814	3.0	361	3.8
Home and decoration	32,235	2.5	332	3.5
Entertainment	3,121	0.2	151	1.6
Total	1,282,318	100	9,397	100

(1) Includes vacant stores as of June 30, 2018.

Alto Comahue’s revenues

The following table sets forth selected information relating to the revenues derived from Alto Comahue during the following periods:

	For the fiscal yearsended June 30,
	2018	2017	2016
	(in thousands of Ps.)
Base Rent	32,645	29,281	29,437
Contingent Rent(1)	33,987	23,521	15,370
Total rent	66,632	52,801	44,807
Non traditional publicity	2,194	1,043	1,403
Admission rights(2)	2,764	2,106	1,897
Management fees	1,163	1,097	752
Commissions	2,682	732	408
Other	505	381	344
Total(3)	75,939	58,161	49,611

(1) Contingent Rent is the revenue based on a specific percentage of gross sales of our tenants.

(2) Admission rights are the fees required from tenants for entering into a lease agreement or a lease agreement renewal.

(3) Consolidated rents. Revenues relating to expenses and collective promotion fund are not included.

Administration and management of shopping malls

We manage and operate each of the shopping malls in which we have more than 50% ownership and in our joint venture in NPSF (La Ribera Shopping). We charge tenants a monthly management fee, which varies from shopping mall to shopping mall, depending on the cost of administration and maintenance of the common areas and the administration of contributions made by tenants to promotional fund efforts for the shopping mall. We charge a monthly management fee, paid prorated by the tenants, according to their particular lease rates. This management fee is a fixed amount in Alto Palermo, Alto Avellaneda, Abasto Shopping, Paseo Alcorta, Alto NOA, Dot Baires, Alto Rosario, Soleil Premium Outlet, Patio Bullrich, Distrito Arcos and Alto Comahue and a percentage of the common area maintenance expenses in Buenos Aires Design, Córdoba Shopping and Mendoza Plaza.

Our total revenues from management fees during fiscal 2018 were Ps.58,8 million, Ps.47.7 million during fiscal 2017 and Ps.37.6 million during fiscal 2016.

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Competition

Given that most of our shopping centers are located in densely populated areas, there are competing shopping centers within, or in close proximity to, our target areas. The number of shopping centers in a particular area could have a material effect on our ability to lease space in our shopping centers and on the 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 centers. Our principal competitor is Cencosud S.A. which owns and operates Unicenter Shopping and the Jumbo hypermarket chain, among others.

The following table shows certain information concerning the most significant owners and operators of shopping centers in Argentina.

Entity	Shopping malls	Location	GLA	Marketshare(1)
				(%)
IRSA CP	Alto Palermo	City of Buenos Aires	18,648	1.43
	Abasto Shopping(3)	City of Buenos Aires	36,796	2.83
	Alto Avellaneda(2)	Greater Buenos Aires, Province of Buenos Aires	38,422	2.96
	Alcorta Shopping(2)	City of Buenos Aires	15,746	1.21
	Patio Bullrich	City of Buenos Aires	11,397	0.88
	Buenos Aires Design(5)	City of Buenos Aires	13,735	1.06
	Dot Baires Shopping(4)	City of Buenos Aires	49,407	3.80
	Soleil (2)	Greater Buenos Aires, Province of Buenos Aires	15,214	1.17
	Distrito Arcos (6)	City of Buenos Aires	14,169	1.09
	Alto Noa(2)	Salta	19,063	1.47
	Alto Rosario(2) (3)	Santa Fe	33,358	2.57
	Mendoza Plaza(2)	Mendoza	42,867	3.30
	Córdoba Shopping(2)	Córdoba	15,276	1.18
	La Ribera Shopping(7)	Santa Fe	10,530	0.81
	Alto Comahue	Neuquén	9,397	0.72
Subtotal			344,025	26.47
Cencosud S.A.			277,203	21.33
Other operators			678,354	52.20
Total			1,299,582	100.00

(1) Corresponding to gross leaseable area in respect of total gross leaseable area. Market share is calculated dividing square meteres over total square meters.

(2) Includes supermarkets.

(3) Includes Museo de los Niños.

(4) We own 80% of the equity of PAMSA.

(5) Our effective participation in ERSA is 53.68%, which operates the concession related to this property.

(6) We own 90% of the equity of Arcos del Gourmeat S.A.

(7) We own 50% of the equity of Nuevo Puerto Santa Fe S.A.

Source: Argentine Chamber of Shopping Malls.

Our Offices segment

Overview

We own, develop and manage office buildings and other rental properties throughout Argentina. As of June 30, 2018, we owned and managed seven office buildings located in the City of Buenos Aires with an aggregate of 83,213 square meters (895,697 square feet) of gross leasable area, and a land reserve with the potential for development of an additional 58,400 square meters (624,306 square feet) of office space. Our Offices segment had a 92.3% occupancy rate as of June 30, 2018.

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The following table shows certain information regarding our office buildings, as of June 30, 2018:

	As of June 30,
	2018	2017	2016
Leasable area (square meters)	83,213	84,110	79,048
Occupancy of total portfolio (1)	92.3%	96.7%	98.6%
Rent in Ps./square meter (1)	754.6	411.0	386.0
Rent in US$/square meter (1)	26.1	24.70	25.90

(1) Fiscal year 2017 excludes the Phillips Building as there is a loan-for-use agreement signed with the selling party in effect until January 2018.

The following table shows certain information regarding our office buildings, as of June 30, 2018:

	Date ofacquisition/development	GLA (sqm)(1) Occupancy rate(2)	Ownership interest		Total rental incomefor the fiscal yearendedJune 30, 2018
			(%)	(%)	(in thousands of Ps.)
Offices
República Building	Dec-14	19,885	98.4	100	126,318
Bankboston Tower	Dec-14	14,873	85.6	100	86,825
Intercontinental Plaza(3)	Dec-14	2,979	100.0	100	20,435
Bouchard 710	Dec-14	15,014	100.0	100	121,129
Suipacha 652/64	Dec-14	11,465	86.2	100	33,631
Dot Building	Nov-06	11,242	100.0	80	63,913
Philips	Jun-17	7,755	69.8	100	16,313
Total Offices		83,213	92.3	N/A	468,564

(1) Corresponds to the total leasable surface area of each property. Excludes common areas and parking spaces.

(2) Calculated by dividing occupied square meters by total gross leasable area of the relevant property.

(3) We own 13.2% of the building which covers an area of 22,535 square meters of gross leasable area, meaning we own 2,979 square meters of gross leasable area.

Management of office buildings

We generally act 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.

Leases

We usually lease our offices and other rental properties by using contracts with an average term of three years, with the exception of a few contracts with terms of five years. These contracts are renewable for two or three years at the tenant’s option. Contracts for the rental of office buildings and other commercial properties are generally stated in U.S. dollars, and in accordance with Argentine law they are not subject to inflation adjustment. Rental rates for renewed periods are negotiated at market value.

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Occupancy rate

The following table shows the occupancy rate of our offices for fiscal years 2018, 2017 and 2016:

 

	Occupancy rate (1)
	As of June 30,
	2018	2017	2016
	(%)
Offices:
República Building	98.4	95.2	100.0
Bankboston Tower	85.6	100.0	100.0
Intercontinental Plaza	100.0	100.0	100.0
Bouchard 710	100.0	100.0	100.0
Suipacha 652/64	86.2	86.3	90.7
DOT Building	100.0	100.0	100.0
Philips	69.8	—	—
Total	92.3	96.7	98.6

(1) Leased square meters pursuant to lease agreements in effect as of June 30, 2018, 2017 and 2016 over gross leasable area of offices for the same periods.

The following table sets forth the annual income per square meter for our offices during the fiscal years indicated.

	Income per square meter (1)
	As of June 30,
	2018	2017	2016
	(Ps./sqm)
Intercontinental Plaza	5,970	4,853	4,291
Bouchard 710	8,068	5,692	4,539
Suipacha 652/64	2,933	2,617	1,961
Bankboston Tower	5,838	5,345	3,778
República Building	6,353	5,671	3,615
Dot Building	5,685	4,463	2,778
Philips	2,104	—	—
Other(2)	354	204	87

(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) Leasable square meters vary depending on availability for rent of land reserves (Ferro, Nobleza Piccardo, Dot Adjoining Plot, Intercontinental Plot, Anchorena 665 and Chanta IV).

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Lease expirations

We usually lease our office and other properties under lease agreements for average terms of three years, except for a few agreements which are entered into for five-year terms. Agreements are renewable for two or three years, at the tenant’s option. Rental payments are generally denominated in U.S. dollars. Pursuant to the Argentine laws, they are not subject to adjustment for inflation. Rental price for renewal periods are negotiated at market value.

The following table shows certain information about our lease agreements as of June 30, 2018:

 

Property	Number ofagreements (1)(5)	Annualrentalincome (Ps.)(2)	Rentalincomeper sqm (new and renewed)(Ps.)(3)	Previousrental income per sqm (Ps.)(3)	Number ofnon-renewedagreements	Non-renewed agreements annual base rentamount (Ps.)(4)
Intercontinental Building	—	—	—	—	3	13,197,994
Bouchard 710 Building	5	77,057,758	588	570	—	—
Della Paolera 265	1	8,055,709	538	498	1	1,523,898
República Building	6	51,509,863	581	578	—	—
Dot Building	2	15,357,876	553	515	—	—
Suipacha 664	1	7,884,678	332	332	—	—
Philips	5	26,373,106	406	—	—	—
Total	20	186,238,990	530	443	4	14,721,892

(1) Includes new and renewed agreements signed during fiscal 2018.

(2) Lease agreements denominated in U.S. dollars converted into Pesos at the exchange rate prevailing in the initial month of the agreement multiplied by 12 months.

(3) Monthly value.

(4) Agreements expressed in U.S. dollars converted into Pesos at the exchange rate prevailing in the last month of the agreement, multiplied by 12 months.

(5) Does not include agreements relating to parking spaces, antennas or terrace space.

The following table sets forth the schedule of estimated lease expirations for our offices and other properties for leases in effect as of June 30, 2018, assuming that none of our tenants exercise their option to renew or terminate their leases prior to expiration (most tenants have renewal clauses in their leases):

Expiration year	Number ofagreements dueto expire(1)	Square meters ofleases due toexpire (sqm) (3)	Square meter ofleases due toexpire(%)	Annual rentalincome amountof leases due toexpire(in millions ofPs.)(2)	Annual rentalincome amountof leases toexpire(%)
As of June 30, 2018	17	1,850	2	21.2	3
As of June 30, 2019	27	25,816	34	223.9	32
As of June 30, 2020	22	16,720	22	151.5	22
As of June 30, 2021 and thereafter	31	31,084	42	303.3	43
Total	97	75,470	100	699.9	100

(1) Includes offices with lease agreements that have not been renewed as of June 30, 2018. Does not include vacant square meters available for rent or square meters relating to parking spaces, easements or terraces. Does not include 1,353 square meters occupied by us.

(2) Annual rental income includes agreements relating to parking, antennas or terrace space.  For purpose of this calculation, the monthly rental payments owed under lease agreements denominated in U.S. dollars are converted into Pesos at the exchange rate as of June 30, 2018, and multiplied by 12 months.

(3) Not included square meters used by us.

A description of rental office properties is provided below:

Edificio República, City of Buenos Aires

This property was designed by renowned Architect César Pelli (who also designed the World Financial Center in New York and the Petronas Towers in Kuala Lumpur). It is a unique premium office building in downtown Buenos Aires with approximately 19,885 square meters of gross leasable area and 178 parking spaces. The main tenants are Estudio Beccar Varela, BASF Argentina S.A., ENAP Sipetrol Argentina S.A., Facebook Argentina S.R.L. and BACS Banco de Crédito y Securitización S.A., among others.

Torre BankBoston, City of Buenos Aires

The BankBoston Tower is a modern office building located at Carlos Maria Della Paolera 265 in the City of Buenos Aires. It was designed by architect César Pelli and has 27 floors and 60 parking spaces comprising over 31,670 square meters of gross leasable area. We have a 47% ownership interest in the building. At present, our main tenants include Exxon Mobile and Kimberly Clark de Argentina, among others.

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Intercontinental Plaza, City of Buenos Aires

Intercontinental Plaza is a modern 24 story building located next to the Intercontinental Hotel in the historic neighborhood of Monserrat in downtown in the City of Buenos Aires. We own 13.2% interest in the building which covers an area averaging 22,535 square meters of gross leasable area; meaning we own 2,979 square meters of gross leasable area in this building. The principal tenants include Cresud Sociedad Anónima Comercial, Inmobiliaria, Financiera y Agrícola, or “Cresud,” and IRSA, among others.

Bouchard 710, City of Buenos Aires

Bouchard 710 is an office building located in the Retiro district. The building is a 12 story tower, with an average area per floor of 1,251 square meters, with 165 units for car parking. On March 2017 it received the gold qualification in the leading certification by the US Green Building Council. Tenants are Sibille S.C. (KPMG) and Microsoft de Argentina S.A., Samsung Electronics Argentina S.A., Energy Consulting Services S.A. and Booking.com S.A., among others. It counts with approximately 15,014 square meters of gross leasable area.

Suipacha 652/64, City of Buenos Aires

Suipacha 652/64 is a 7 story office building located in the office district of the City of Buenos Aires. We own the entire building and 62 parking spaces. The building has unusually large floors, most measuring 1,580 square meters. The building’s principal tenants include Monitor de Medios Publicitarios S.A., Organización de Servicios Directos Empresarios (“OSDE”) and Tarshop S.A., among others. The building has 11,465 square meters of gross leasable area.

Dot Building, City of Buenos Aires

Panamerican Mall S.A., our subsidiary, developed an office building of 11,242 square meters of gross leasable area next to Dot Baires Shopping. This building was inaugurated in July 2010, and it signaled our arrival in the growing market in the Northern Area with respect to offices for rent. The building’s principal tenants include General Electric International Inc., Carrier, Boston Scientific Argentina S.A., Astrazeneca S.A. and Covidien S.A., among others.

Phillips Building, City of Buenos Aires

The historic Philips Building is adjacent to the Dot Baires Shopping Mall, front to General Paz Avenue in the City of Buenos Aires. The building has 4 floors of offices with a total gross leasable area of approximately 7,755 square meters and with construction capacity (FOT) of additional 20,000 square meters. The Company owns 100% of the building.

Competition

Virtually all of our office properties and other rental properties other than shopping malls are located in developed urban areas. There are many buildings, shopping malls, retail stores and residential units in the zones where our properties are located. It is a highly fragmented market and the abundant number of comparable properties in the vicinities may have an adverse impact on the ability to lease or sell office space and other properties and may have an adverse impact on the sale and rental price of properties. In general, barriers to entry in the office properties sector are much lower than in the shopping mall sector.

In the future, both domestic and foreign companies are likely to participate in the real estate market in Argentina, hence competing with us when it comes to business opportunities. In addition, in the future we may participate in development of a market for foreign real property, and we are likely to find well-established competitors.

In the premium office segment, we compete with other relevant market players, such as RAGHSA S.A., Consultatio, Pegasus, Grupo Madero Este, Grupo Werthein, Grupo Farallón and YAR Construcciones.

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Our Sales and Developments Segment

This segment includes trading properties units to be received under barter agreements in force and land reserves of our portfolio. As of June 30, 2018, we own plots and properties strategically located in the City of Buenos Aires and in the provinces of Argentina with potential to develop new projects.

The following table shows information about our land reserves as of June 30, 2018:

	Ownership Interest	Date of acquisition	Land surface	Buildable surface	GLA	Salable surface	Book Value
	(%)		(sqm)	(sqm)	(sqm)	(sqm)	(Ps. millions)
RESIDENTIAL - BARTER AGREEMENTS
Beruti (Astor Palermo) - BA City	100	Jun-08	—	—	—	—	151
CONIL - Güemes 836 – Mz. 99 & Güemes 902 – Mz. 95 & Commercial stores - Buenos Aires	100	Jul-96	—	—	847	—	46
Total Intangibles (Residential)			—	—	847	—	197
LAND RESERVES
Polo Dot U building - BA City	80	Jun-06	5,273	32,000	32,000	—	1,098
Catalinas - BA City	100	May-10	3,648	58,100	16,012	—	-
Subtotal Offices			8,921	90,100	48,012	—	1,098
Total under Development			8,921	90,100	48,012		1,098
UOM Luján - Buenos Aires	100	May-08	1,160,000	464,000	—	—	305
San Martin Plot (Ex Nobleza Piccardo) - Buenos Aires (4)	50	May-11	159,995	500,000	—	—	1,406
La Plata - Greater Buenos Aires	100	Mar-18	78,614	116,552	—	—	218
Subtotal Mixed-uses			1,398,609	1,080,552	—	—	1,930
Coto Abasto air space - BA City(2)	100	Sep-97	—	21,536	—	15,831	6
Córdoba Shopping Adjoining plots - Córdoba(2)	100	Jun-15	8,000	13,500	—	2,160	239
Neuquén - Residential plot - Neuquén(2)	100	Jun-99	13,000	18,000	—	18,000	16
Subtotal Residential			21,000	53,036	—	35,991	45
Caballito plot - BA City	100	Jan-99	23,791	68,000	30,000	—	376
Tucumán plot - Tucumán (3)	100	Mar-10	18,620	10,000	10,000	—	—
Paraná plot - Entre Ríos (3)	100	Aug-10	10,022	5,000	5,000	—	—
Subtotal Retail			52,433	83,000	45,000	—	376
Polo Dot - Offices 2 & 3 - BA City	80	Nov-06	12,800	44,957	33,485	—	1,582
Intercontinental Plaza II - BA City	100	Feb-98	6,135	19,598	19,598	—	351
Córdoba Shopping Adjoining plots - Córdoba(2)	100	Jun-15	2,800	5,000	5,000	—	15
Subtotal Offices			21,735	69,555	58,083	—	1,167
Total Future Developments			1,493,777	1,286,143	103,083	35,991	3,828
Another Land Reserves(1)			1,899		7,297	262	182
Total Land Reserves			1,504,597	1,376,243	158,392	36,253	5,329

(1) Includes Zealya 3102-3103, Chanta IV, Anchorena 665 and Condominios del Alto II

(2) These land reserves are classified as Property for Sale, 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) Through Quality Invest S.A.

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The following table shows information about our expansions on current assets as of June 30, 2018:

Expansions	Ownership interest	Surface	Locations
	(%)	(sqm)
Alto Rosario	100	2,000	Santa Fé
Mendoza Plaza - Sodimac Store + Falabella	100	12,800	Mendoza
Alto Comahue - Movie Theatres	99	2,200	Neuquén
Subtotal Current Expansions		17,000
Alto Palermo Adjoining Plot	100	4,000	BA City
Dot Adjoining Plot	80	16,765	BA City
Other future Expansions(1)		85,290
Subtotal Future Expansiones		106,055
Total Shopping Malls		123,055
Patio Bullrich - Offices / Hotel	100	10,000	BA City
Philips Building	100	20,000	BA City
Subtotal Future Expansions		30,000
Total Offices		30,000
Total Expansions		153,055

(1) Includes Alto Palermo, Paseo Alcorta, Alto Avellaneda, Soleil, Alto Noa, Alto Rosario, Mendoza, Córdoba y La Ribera Shopping

Description of the Properties:

Residential properties

Condominios del Alto II—City of Rosario, Province of Santa Fé

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 will include a swimming pool with solarium, a multiple use room, sauna, a gym with dressrooms and a laundry. As of June 30, 2018, the works in parcel H have been completed and all the units subject to the barter (42 apartments and 47 parking spaces) have been received, with 9 parking spaces available for sale.

Intangibles—units to be received under barter agreements

Beruti Plot of Land—City of Buenos Aires.

On October 13, 2010, we and TGLT entered into an exchange agreement in connection with a plot of land located at Beruti 3351/59 in the City of Buenos Aires for cash and 2,170 square meters in future residential apartments to be constructed by TGLT on the plot. In accordance with the terms of the agreement, TGLT will transfer to us (i) certain units to be determined, representing 17.33% of the aggregate surface of the residential space, (ii) a number of parking spaces to be determined, representing 15.82% of the aggregate surface of the parking spaces, (iii) all the commercial parking spots in the future building and (iv) the sum of US$10.7 million. To ensure performance of the obligations assumed by TGLT under the deed of sale, a mortgage was granted in our favor.

Finally, on December 30, 2016, we and TGLT signed the possession certificate for 36 residential apartments totaling 2,413 square meters, 32 residential parking spaces, and 171 commercial parking spaces. As of June 30, 2018, 3 apartments,15 residential parking spaces and 171 commercial parking spaces remain available for sale.

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Conil—Avellaneda, province of Buenos Aires.

These plots of land we own 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 the Company 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 US$0.7 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 was signed. In consideration for the delay and as compensation, we will receive 1 apartment (55.5 square meters) and 1 parking lot (14 square meters).

Projects under Development

Shopping Mall Expansions

During the next fiscal year, we will add approximately 17,000 sqm from current malls’ expansions. We will add soon 6 movie theatres in Alto Comahue of 2,200 sqm, an approximately 12,800 sqm Sodimac store in Mendoza Plaza Shopping while expanding its Falabella store and 2,000 sqm of expansion in Alto Rosario, where we have recently opened a big Zara store.

During the next fiscal year, we expect to launch the works of 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 4,000 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.

First Stage of Polo Dot

The project called “Polo Dot”, located in the commercial complex adjacent to our shopping mall Dot Baires, has experienced significant growth since our first investments in the area. The total project will consist in 3 office buildings (one of them could include a hotel) in land reserves owned by the Company and the expansion of the shopping mall by approximately 15,000 square meters of GLA. At a first stage, we are developing an 11-floor office building with an area of approximately 32,000 square meters on an existing building. The total estimated investment amounts to Ps.1,360 million and as of June 30, 2018, degree of progress was 74%.

Catalinas building

The building to be constructed 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. We acquired from IRSA certain units in the building representing approximately 45% of the value of the development and IRSA maintains the remaining 55%. On December 4, 2015, IRSA sold to Globant S.A. 4,896 square meters corresponding to four office floors. The price for the acquisition of these units was (i) Ps.180.3 million paid at signing of the purchase agreement; (ii) US$8.6 million is payable in 12 quarterly installments that started in June 2016; and (iii) the US$3.7 million balance is due when the property deed is transferred to us. We own 16,000 square meters consisting of 14 floors and 142 parking spaces in the building under construction. The total estimated investment under IRSA Propiedades Comerciales amounts to Ps.1,250 million and as of June 30, 2018, work progress was 16%.

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Mixed uses

Ex UOM—Luján, Province of Buenos Aires.

This 116-hectare plot of land is located at kilometer 62 Km of the West Highway, in the intersection with Route 5 and was originally purchased by Cresud. In May 2012, we acquired the property from Cresud. 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, negotiations are underway to change the zoning parameters, thus making the project feasible.

Ex Nobleza Piccardo Plant—San Martín, Province of Buenos Aires.

On May 31, 2011, Quality Invest S.A. executed the title deed pursuant to which we purchased from Nobleza Piccardo S.A.I.C. y F., or “Nobleza Piccardo” a plot of land of 159,996 square meters located in the District of San Martin, Province of Buenos Aires, currently intended for industrial purposes and suitable in terms of characteristics and scale for mixed-use developments. The price for the property was set at US$33 million, of which 30% was paid upon signing. For the remaining balance a mortgage was constituted in the first degree of privilege over the property in favor of Nobleza Piccardo. Capital plus interest, calculated at an annual rate of 7.5% over the outstanding balance, was paid in full in March 2013.

On May 16, 2012, the Municipality of San Martin granted a pre-feasibility permit for commercial use, entertainment, events, offices, etc., which would enable performance of a mixed-use development thereon.

Pursuant to Municipality Ordinance 11,706 enacted on December 30, 2014, a rezoning permit was obtained for the plot of land to be used mainly for commercial purposes, which considerably expanded the uses and potential buildable square meters through new urban indicators. On January 5, 2016, the Provincial Decree 1,835was published in the Official Gazette of the Province of Buenos Aires granting its approval, and the new urban and rezoning standards thus became effective.

As approved in the Ordinance, on January 20, 2015, EFESUL S.A. entered into a zoning agreement with the Municipality of San Martin (the “Urban Agreement”) which governs various issues related to applicable regulations and provides for a mandatory assignment of square meters in exchange for monetary contributions subject to fulfillment of certain administrative milestones of the rezoning process, the first of which (for Ps.20,000,000) was paid to the Municipality ten days after the execution of the aforementioned agreement.

Moreover, on June 27, 2016, the plot subdivision plan was filed with the Municipality, completing a significant milestone committed under the zoning agreement.

On June 28, 2017, Quality Invest S.A. signed an agreement with EFESUL S.A. (which owns 50% of Quality Invest S.A.) in order to assume the obligations that the latter had assumed with the Municipality of General San Martin within the framework of the aforementioned Urban Agreement. These agreement contemplates a donation, which will be paid based on the work progress that the Municipality develops on the property initially transferred by EFESUL S.A.

In addition, during July 2017, Quality Invest S.A. subscribed two addendums to the aforementioned Urban Development Agreement, which contemplate the following: 1) a new subdivision plan of the property will be presented within 120 days of the addendum signing and 2) the payment of the twelveth installment in cash was replaced by the sum of Ps.71 million payables in 18 equal and consecutive monthly installments.

On March 8, 2018, it was agreed with the renowned Gehl Firm (Denmark) - Urban Quality Consultant - the elaboration of a Master Plan, generating a modern concept of New Urban District of Mixed Uses. In addition, local consultants were also hired, such as: Guillermo Oliveto (Consultant W) in Market Analysis, Gastón Biggio (GUT) in naming and branding of the District, Colla & Colombo Consultants in Business Analysis and Alejandro Langlois in Vehicular Impact, among others. In this way, the Company has a clear sizing and positioning of the business.

Regarding the status of the project, we are working on the definition of the Master-Plan that includes a mix of uses (Residential, Commercial, etc.) in order to carry out a large-scale urban development contemplating more of 500,000 square meters. The regulations for this Master-Plan are framed in a zoning called the Main Commercial District (Distrito Comercial Principal), which entered into force in 2016 through the publication of the Provincial Decree of the Municipal Ordinance No.11,706.

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Córdoba Shopping Mall Project

We own 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, we will receive 2,160 square meters in apartments, parking spaces, shopping space, plus we will assume the management of permits, unifications and subdivisions in 3 plots. The consideration will be delivered by May 2021 for Torre I and by July 2023 for Torre II. The value of the barter was US$ 4 million.

Plot of Land La Plata

On March 22, 2018, we acquired, directly and indirectly, 100% of a plot of land of 78,614 square meters located in the city of La Plata, Province of Buenos Aires. The price of the transaction was US$7.5 million, which have been fully paid.

The operation was made through the purchase of 100% of the shares of common stock of CELAP, which owns 61.85% of the property and the direct purchase of the remaining 38.15% of shares of common stock from non-related third parties.

Residential

Coto Residential Project

We own 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 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.

In June 2016, a preliminary barter agreement was signed, pursuant to which we will receive 3,621 square meters in apartments plus a monetary payment of US$1 million. Such complex will have two towers: I and II. The consideration for Torre I will be delivered by June 2021, while the consideration for Torre II will be delivered by September 2022. The value of the preliminary agreement was set at US$7.5 million.

Neuquén Residential Plot—Neuquén, Province of Neuquén

Through Shopping Neuquén S.A., we own 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 in months to come.

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Retail

Caballito Plot—City of Buenos Aires

In November 1997, we acquired a property of approximately 23,791 square meters in the City of Buenos Aires, in the neighborhood of Caballito, one of the most densely populated of the city. During the fiscal year 2018, the Company decided to present a new project that may consist of four plots with a total surface area of 24,200 square meters and with a total covered area of ​142,500 square meters, and an open space of 14,300 square meters. The development may have mainly residential use, with buildings from 5 to 10 floors over the four plots, with 1,075 apartments of 1 to 4 rooms with a total covered area of ​​92,750 square meters.

Between the four plots, the project may include a commercial galleries of approximate 11,000 additional square meters, which would generate an outdoor walk through almost the entire extension of the property.

Construction permits have been approved for the four plots with the uses described above. However, the Company have not yet decided when lunching it.

Offices

Polo Dot 2nd and 2—3rd Stages—City of Buenos Aires

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

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 Hotel Intercontinental. 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.

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. IRSA CP indirectly holds a 35% interest in it.

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 Ps.66.5 million.

In addition, inmediatly after its acquisition, we sold 5% of the shares of EHSA to Mr. Diego Finkelstein, who already owned a 25% equity interest. The sale amount was fixed in the sum of Ps.13.45 million. As a result, we now hold 70% of the shares in EHSA and Mr. Diego Finkelstein holds the remaining 30%.

EHSA holds, both 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, a company that holds the right to commercially operate the emblematic “Predio Ferial de Palermo” in the City of Buenos Aires, 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—with casting vote on certain matters—and the general manager of LRSA.

Furthermore, ENUSA is mainly engaged in organizing entertainment events for trade fairs.

On August 4, 2017, a 15-year concession agreement 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. – 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 SRL20%; (c) OASA 55%; and (d) EUSA 20%.

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The shareholders of LRSA are Sociedad Rural Argentina, which is the owner of a 50% interest, and OASA, which holds the remaining 50% equity interest. 

OASA and EUSA are controlled companies of EHSA, whose shareholders are us, with a 70% interest, and Diego Finkelstein, who holds the remaining 30%.

Consequently, we indirectly hold a 50.0% 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.

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.During fiscal year 2018, we sold approximately 3.7 million ordinary shares of TGLT, reducing our stake from 9.5% to 4.2%.

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 US$22,225,000 (US$ 1 par value) due 2027. If all the holders exercised their conversion rights under such Notes, the company’s interest in TGLT would increase to 12.8% of its stock capital, up from 4.2%.

DirecTv Arena

DirecTv Arena is an indoor stadium with unique features intended for the performance of top-level international events, including sporting and events. The price set for the transaction amounted to US$ 4.2 million. In this way, we continue to expand, through OASA, which also owns a stake in LRSA and in the new Convention Center of the City of Buenos Aires, its exposure to the activity of fair events and entertainment, which could generate synergies with the business of shopping centers.

OASA, which is indirectly controlled by us in a 70%, has acquired a 60% stake of 'La Arena S.A.' which developed and operates the stadium known as 'DIRECTV ARENA', located at kilometer 35.5 of the Pilar branch, Tortuguitas, in the province of Buenos Aires.

Avenida (e-commerce)

We hold a 17.84% interest in Avenida. Avenida is an e-commerce company. Recently, two of Avenida`s principal investors, who decided not to inject any further funds in light of the significant losses recorded by them.

On January 20, 2017, Avenida issued shares of stock in a new round of investment seeking commitments for US$3.8 million. We made a US$460,000 contribution and capitalized a loan held with Avenida for US$229,515 increasing our stake in Avenida to 17.84%. In such round, Avenida set apart 385,103 shares to be allocated to an equity plan.

Moreover, we hold a warrant entitling us to purchase up to 3,976,225 additional preferred shares at a price of US$0.10 per share, exercisable until the earlier of the expiration of an 18-month term or the date a new equity security is issued, subject to certain conditions. If we exercise such warrants, our interest in Avenida’s stock capital would increase to 25%.

In this context, Avenida has changed its management team and its business model and strategy.

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Tarjeta Shopping (consumer finance)

Tarjeta Shopping S.A. is a company founded in 1995 that is dedicated to the issuance, processing and administration of credit cards, obtaining cash and consumer financing in stores. In 2010, Banco Hipotecario S.A. acquired an 80% of the company form us and the remaining 20% is held by us.

Insurance

We 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. We 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. 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. We also maintain liability insurance covering the liability of our directors and corporate officers.

Information technology

During fiscal year 2018, we signed a strategic agreement with Microsoft whose main objective is to enhance the experience of customers in our shopping malls and buildings, integrating the latest technological trends for a more personalized shopping experience, like payments from a cell phone, reserve parking in advance and other benefits that will be added. Also, during the year, it was finalized with the implementation of the first stage of SAP Real Estate, a system that will support the process of managing tenant contracts. This system is integrated to our SAP ERP, improving the integration, control and efficiency.

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 lease agreements. Since our shopping mall leases generally diverge from ordinary commercial lease agreements, 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 prohibition to include in lease agreements automatic price adjustment clauses based on indexes; and

● 

a minimum lease term of two 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 agreement requires a shorter term.

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Rent increases

There are contradictory court rulings regarding whether rents may be increased during the term of a lease agreement. For example, Section 10 of the Law No. 23,928, as amended by Public Emergency Law No. 25,561 prohibits a rent adjustment under leases subject to indexes, such as the consumer price index or the wholesale price index. Most of our lease agreements have rent increase clauses that are not based on any official index. As of the date of this annual report, 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 business and results of operations.

Lease term limits

Under the Argentine Civil and Commercial Code lease terms may not exceed twenty years (for residential purpose) or fifty years (all other purposes). Generally, terms in our lease agreements range from 3 to 10 years.

Rescission rights

The Argentine Civil and Commercial Code provides that tenants may terminate lease agreements 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 provided for a rule similar to the one described above, but established the obligation to give at least 60 days’ prior notice of exercise of the unilateral right to termination by the tenant. There are no court rulings yet with respect to the new regulations related to: (i) the 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 termination.

While current Argentine government policy discourages government regulation of lease agreements, there can be no assurance that additional regulations will not be imposed in the future by the Argentine Congress, including regulations similar to those previously in place. Furthermore, most of our leases provide that the tenants pay all costs and taxes related to the property in proportion to their respective leasable areas. In the event of a significant increase in the amount of such costs and taxes, the Argentine government may respond to political pressure to intervene by regulating this practice, thereby adversely affecting our rental income.

The Argentine Civil and Commercial Code enables the lessor to pursue what is known as an “executory proceeding” upon lessees’ failure to pay rent. In executory proceedings, debtors have fewer defenses available to prevent foreclosure, making these proceedings substantially shorter. In executory proceedings the origin of the debt is not under discussion; the trial focuses on the formalities of the debt instrument itself. The aforementioned code also permits special eviction proceedings, which are carried out in the same way as ordinary proceedings. The Argentine Civil and Commercial Code requires that a residential tenant receive at least 10 days’ prior notice when a landlord demands payment of the amounts due in the event of breach prior to eviction but does not impose any such requirement for other leases. However, court case backlog 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 for eviction.

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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 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 monitor regulatory compliance.

Buenos Aires Authorizations and Licenses Code

The Buenos Aires 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 to business establishments, and the rules and procedures these latter are obliged to follow. The General Bureau of Authorizations and Licenses (Dirección General de Habilitaciones y Permisos) is responsible for implementing and enforcing the Buenos Aires Authorizations and Licenses Code.

In other jurisdictions, our real estate activities are subject to similar municipal zoning, building, occupation and environmental regulations. These latter must adhere to federal standards. Additionally, in some jurisdictions we may be subject to the regulation concerning large commercial areas, which requires governmental approval of the location of certain commercial establishments. We believe that all of our real estate properties are in material compliance with all applicable 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 regarding, for example, that the purchase price for a property is paid in installments and the deed, which is not conveyed to the purchaser until the price has been paid in full. 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 is only 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 partition.

● 

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 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 with the Real Estate Registry will have title of 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.

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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. However, in such event the seller may exercise its rights 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 for the Disabled Law

The Protection for the Disabled Law No. 22,431, enacted on March 16, 1981, as amended, provides that in connection with the construction and remodeling of buildings, access by handicapped persons must be provided. In the construction of public buildings, entrances, transit pathways and adequate facilities for mobility impaired individuals is required.

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.

Other regulations

Consumer relationship, consumer or end-user protection

The Argentine Constitution expressly establishes in Article 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 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.

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 from the consumer to the seller in order to protect the consumers.

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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.

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 extend consumer protections to those who acquire or use goods or services, with or without consideration, for their own final use 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.

The Consumer Protection Law defines the suppliers of goods and services as those who produce, import, distribute or commercialize goods or supply services to consumers or users.

The Argentine Civil and Commercial Code defines a consumer agreement as an agreement that is entered into between a consumer or end user and an individual or legal entity that acts professionally or occasionally either with 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.

The Consumer Protection Law establishes joint and several liability of any producer, manufacturer, importer, distributor, supplier, seller and anyone who has placed its 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 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.

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 which requires that those who engage in commerce over the Internet (E-Business) 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, the Argentine Congress enacted a revised Consumer Protection Law through Law No. 26,993. This law, known as “Conflict Resolution in Consumer Relationships System,” provides 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), or “COPREC,” and the Consumer Relationship Audit, and a number of courts assigned to the resolution of conflicts between consumers and producers of goods and services (Fuero Judicial Nacional de Consumo). In order to file a claim, the amount claimed may 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. 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 claim 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.

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Antitrust Law

Law No. 25,156, 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 Ps.200.0 million, the respective concentration must be submitted for approval to the CNDC. The request for approval may be filed, either prior to the transaction or within a week after its completion.

When a request for approval is filed, the 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 Ps.20.0 million each are exempted from the administrative authorization. Notwithstanding the foregoing, when the transactions concerned during the prior 12-month period exceed in the aggregate Ps.20.0 million or Ps.60.0 million in the last 36 months, these transactions must be notified to the CNDC.

As our consolidated annual sales volume and our parent’s consolidated annual sales volume exceed Ps.200.0 million, we should give notice to the CNDC of any concentration provided for by the Antitrust Law.

Money laundering

Argentine Law No. 25,246, as amended by Laws Nos. 26,119, 26,268, 26,683 and 27,270, or the “Anti-Money Laundering Law,” categorizes money laundering as a crime, which is defined as the exchange, transfer, management, sale or any other use of money or other assets obtained through a crime, by a person who did not take part in such original crime, with the potential result that such original assets (or new assets resulting from such original assets) have the appearance of having been obtained through legitimate means. The law sets forth a minimum of Ps.300,000 for punishable offenses though crimes involving a lower amount are also prosecuted, but the prison sentence that may be imposed is reduced.

After the enactment of Law No. 26,683, money laundering was included in the Penal Code as an independent crime against economic and financial order and it was split from the title “Concealment” as originally disposed. Therefore, money laundering is a crime which may be prosecuted independently.

The Anti-Money Laundering Law created the Financial Information Unit, or “UIF,” is responsible for the analysis, treatment and procurement of information to prevent money laundering originating from, among others:

● 

Crimes related to the traffic and illegal commercialization of drugs (Law No. 23,737);

● 

Crimes related to arms traffic (Law No. 22,415);

● 

Crimes related to illegal association or terrorist association;

● 

Crimes committed by illegal associations organized to commit crimes for political or racial purposes;

● 

Crimes against Public Administration;

● 

Crimes of minor’s prostitution and child pornography; and

● 

Crimes related to terrorism financing.

The UIF analyzes the information received from entities that have the obligation to report suspicious activities or operations and, as the case may be, inform the Public Ministry to carry out the investigations that may be considered relevant or necessary.

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The anti-money laundering legal framework in Argentina also assigns information and control duties to certain private sector entities, such as banks, agents, non-profit organizations, stock exchanges, insurance companies, according to the regulations adopted by the UIF, and for financial entities, the Central Bank. These regulations apply to many Argentine companies, including us. These obligations consist mainly of: (i) maintaining internal policies and procedures aimed at money laundering prevention and financing of terrorism, especially through the application of the policy “know your client;” (ii) reporting any suspicious activity or operation and (iii) acting according to the Anti-Money Laundering Law with respect to the confidentiality of the information obtained from the clients. For that purpose, each entity involved must appoint an officer responsible for the monitoring and control under the Anti-Money Laundering Law.

On May 8, 2009, the CNV issued Resolution No. 554 which incorporated within the exchange market provisions designed to comply with money laundering prevention pursuant to Law No. 25,246, as amended and as required by the UIF. This resolution established that any entity subject to the supervision of CNV could only take part in securities transactions if they were ordered by parties that were registered or domiciled in jurisdictions not included in the list of tax havens detailed in Decree No. 1344/98. The resolution also provided that securities offerings by foreign issuers under the supervision of a regulator similar to the CNV, may be approved only if such regulator has signed a memorandum of understanding with the CNV regarding compliance with anti-money laundering principles.

On February 2, 2012, Resolution No. 554 was replaced by Resolution No. 602, which extended the instructions issued by UIF to the entities supervised by the CNV, including some payment mechanisms and control proceedings for the receipt from and the transfers of funds to registered or regulated entities or persons, fixing amounts and instruments to be used. Moreover, this resolution updated the reference to the Decree which referred to tax havens (No. 1,037).

As part of a more comprehensive modification of the rules that govern the scope of supervision of CNV, derived from the enactment of the revised Capital Markets Law and the CNV Rules, which established a new regime for the public offer of securities, CNV issued a revision of its rules to incorporate a new chapter of Anti-Money Laundering Laws including provisions related to the fulfillment of duties to be complied by “Agentes de Negociación,” “Agentes de Liquidación y Compensación,” “Agentes de Distribución y Colocación” and “Agentes de Administración de Productos de Inversión Colectiva,” each of which is considered mandatory under the terms of sections 4, 5 and 22 of article 20 of Law No. 25,246. Such agents are required to comply with Law No. 25,246 and its amendments, regulations enacted by UIF, including executive orders with reference to the decisions adopted by the United Nations Security Council in the fight against terrorism and to comply with the resolutions issued by the Ministry of Foreign Affairs, International Trade and Religion. Furthermore, “Agentes de Custodia de Productos de Inversión Colectiva (Sociedades Depositarias de Fondos Comunes de Inversión),” “Agentes de corretaje,” “Agentes de depósito colectivo” and listed companies with respect to contribution, irrevocable contributions or indebtedness made by a shareholder or a third person to become a shareholder in the future, are also reached by the resolution.

Each of these entities must send by internet (through the online application of CNV) their tax identification number. Additionally, in case of companies, the personal data of the “Compliance Officer” (both regular and alternate) must also be disclosed.

The CNV Rules provide that entities it regulates may only take action relating to public offerings of securities, stipulated, future or optional contracts of any nature and other instruments and financial products with registered, domiciled or domestic counterparties known to CNV or foreign counterparties in jurisdictions included on the list of cooperating countries provided in article 2º, subsection b) of Decree No. 589/2013.

Where a counterparty is not included in the referred list and is from a jurisdiction where it is regulated by an entity similar to CNV, validity of the transactions will be granted if the foreign regulator has signed a memorandum of understanding, cooperation and exchange of information with the CNV.

With the purpose of strengthening the requirements applicable to the grant of authorization to operate in the capital markets, additional requirements were established in connection with: (i) competence and capacity; (ii) moral integrity and honesty and (iii) solvency. Such requirements are subject to the appraisal of CNV and must be fulfilled by managers, directors, auditors and any other individual who performs duties or activities within the company.

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Pursuant to Decree 360/2016 dated February 16, 2016, the Argentine government created the National Coordination Program for Combating Money Laundering and Terrorist Financing within the purview of the Ministry of Justice and Human Rights. Its purpose is to rearrange, coordinate and strengthen the anti-money laundering and anti-terrorist financing system at the national level, in light of evolving risks that could impact Argentina and the global requirements to be met under the scope of the obligations and international recommendations of the United Nations and FATF standards.

Moreover, Law No. 27,260, which introduced certain tax modifications and a new regime for residents to disclose undeclared assets currently, due to the restrictions of the Ministry of Finance, the UIF is within its purview, established that the UIF would now be within the purview of the Ministry of Economy and Finances. Furthermore, Resolution 4/2017 was recently issued by UIF by which specific due diligence (commonly referred to as “know your client”) is required when local and foreign depositors open a bank account for financial investments.

On March 5, 2018, the UIF Resolution No. 21/2018 on guidelines for the management of risks of money laundering and financing of terrorism and on the minimum compliance to be adopted for the prevention of laundering was published in the Official Gazette. In line with UIF Resolution No. 30/17 addressed to the financial sector, UIF Resolution No. 21/2018 also moves from a formalistic compliance approach to a risk-based approach, in order to ensure that the measures implemented are commensurate with the risks identified. In this way, the obligated subjects must identify and evaluate their risks and, depending on this, adopt management and mitigation measures. In this framework, they are enabled to implement accredited technological platforms that allow carrying out procedures at a distance, without personal display of the documentation, without this conditioning the fulfillment of due diligence duties.

UIF Resolution No. 21/2018 provides that as of September 30, 2018, the obligors must have developed and documented the risk identification and assessment methodology and, as of December 31, 2018, they must have a technical report that reflects the results of the implementation of the risk identification and evaluation methodology. In this sense, as of March 31, 2019, they must have adjusted their policies and procedures and, in accordance with the results of the irrigation self-assessment performed, they must be included in the money laundering and terrorist financing prevention manual. Finally, as of September 30, 2018, the compliance of the information regimes will be deferred, starting from that date the obligation to inform on the terms and conditions contemplated therein.

Some other measures are applicable to listed companies or their shareholders or beneficial owners who had been convicted or sentenced in connection with money laundering and/or terrorist financing activities or appeared in the list published by the United Nation Security Council.

Credit Card Law

Law No. 25,065, as amended by Law No. 26,010 and Law No. 26,361, governs certain aspects of the business activity known as “credit card system.” Regulations impose minimum contract contents and approval thereof by the Argentine Ministry of Industry, as well as limitations on chargeable interest by users and commissions charged by the retail stores subject to the system. The Credit Card Law applies both to banking and non-banking cards, such as “Tarjeta Shopping,” issued by Tarshop S.A.. Pursuant to Communication “A” 5477 issued by the Central Bank, interest rates charged by non-financial entities may not exceed the interest rate published by the financial system for unsecured loans to individuals, as reported monthly by the Central Bank by more than 25%.

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Environmental Law

Our activities are subject to a number of 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 requires that the person or entity responsible assume the obligation to restore the subject property as provided by applicable law. The authorities must enforce 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 must establish minimum standards for environmental protection whereas Provincial and Municipal Governments must set specific standards and regulatory provisions.

On November 6, 2002, the Argentine Congress passed Law No. 25,675 to regulate the minimum standards for the achievement of a sustainable environment and the preservation and protection of biodiversity and to fix environmental policy goals. This law establishes the activities that are subject to an environmental impact assessment and sets forth certain requirements applicable thereto. In addition, such Law sets forth the duties and obligations triggered by any damage to the environment and provides for restoration of the environment to its former condition or, if that is not technically feasible, for payment of compensation in lieu thereof. This 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 reporting of 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 Argentine Civil and Commercial Code 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 or on the collective rights to environmental safety in general. For additional information see “Item 3. Key Information—Risk Factors—Risk Relating to Our Business—Our business is subject to extensive regulation and additional regulations may be imposed in the future.”

Environmental matters

We have consistently acted responsibly regarding 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 to be developed. Compliance with environmental laws may result in prior project delays or imposed additional requirements that may result in substantial costs, and curtail or infringe our commercial activities. Before purchasing land or carrying out an investment, we undertake or contract independent consultants to carry out an environmental assessment of the plot to identify possible environmental contingencies, as well as analyzing 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.

We intend to continue implementing plans for further improvement, following our trajectory of respect for the environment, compliance with the current regulations and optimizing the use of resources.

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C. Organizational Structure

The following table presents information relating to our ownership interest and the percentage of our consolidated total net revenues represented by our subsidiaries as of June 30, 2018:

Subsidiary	Activity	Country of incorporation	Ownership percentage	Voting power percentage (1)	Percentage of our total net revenues
Arcos del Gourmet S.A.	Real estate	Argentina	90.00%	90.00%	1.13%
Fibesa S.A.	Mandatary	Argentina	100.00%	100.00%	2.87%
Emprendimiento Recoleta S.A.	Real estate	Argentina	53.68%	53.68%	1.85%
Shopping Neuquén S.A.	Real estate	Argentina	99.95%	99.95%	0.57%
Panamerican Mall S.A.	Real estate	Argentina	80.00%	80.00%	10.92%
Torodur S.A.	Investments	Uruguay	100.00%	100.00%	0%
Centro de Entretenimientos La Plata S.A	Real estate	Argentina	100.00%	100.00%	0.15%
Entertaiment Holdings S.A.	Investment	Argentina	70.00%	70.00%	0%

(1) Percentage of equity interest has been rounded. It does not contemplate irrevocable capital contributions.

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Organizational chart

(1) Indirectly through EHSA.

(2) If all the holders exercised their Convertible Notes, our interest in TGLT would increase to 12.8% of its stock capital.

(3) If we exercise our warrant to purchase 3,976,225 prefered shares of Avenida, our equity interest would increase to 25%.

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D. Property, Plant and Equipment

Our properties include shopping malls, office buildings and land reserves for the construction of shopping malls or apartment buildings. All of our properties are located in Argentina. Also, for information about our future developments please see “Business Overview—Future Developments.”

 

The following table sets forth certain information about our owned investment properties:

Property	Location	Use	Encumbrance
Shopping center portfolio
Alto Palermo Shopping	City of Buenos Aires, Argentina	Shopping Malls	—
Abasto	City of Buenos Aires, Argentina	Shopping Malls	—
Alto Avellaneda	City of Avellaneda, Argentina	Shopping Malls	—
Alcorta Shopping	City of Buenos Aires, Argentina	Shopping Malls	—
Patio Bullrich	City of Buenos Aires, Argentina	Shopping Malls	—
Alto NOA	City of Salta, Argentina	Shopping Malls	—
Buenos Aires Design (1)	City of Buenos Aires, Argentina	Shopping Malls	—
Alto Rosario	City of Rosario, Argentina	Shopping Malls	—
Mendoza Plaza	City of Mendoza, Argentina	Shopping Malls	—
Córdoba Shopping (2)	City of Córdoba, Argentina	Shopping Malls	Antichresis
Dot Baires Shopping	City of Buenos Aires, Argentina	Shopping Malls	—
Soleil Premium Outlet	City of San Isidro, Argentina	Shopping Malls	—
Patio Olmos (3)	City of Córdoba, Argentina	Shopping Malls	—
Alto Comahue	City of Neuquén, Argentina	Shopping Malls	—
Distrito Arcos	City of Buenos Aires, Argentina	Shopping Malls	—
Ocampo parking space	City of Buenos Aires, Argentina	Shopping Malls	—
Office and Other rental properties portfolio
Abasto offices	City of Buenos Aires, Argentina	Rental Office	—
Dot building	City of Buenos Aires, Argentina	Rental Office	—
Anchorena 545 (Chanta IV)	City of Buenos Aires, Argentina	Rental Office	—
Anchorena 665	City of Buenos Aires, Argentina	Rental Office	—
Zelaya 3102	City of Buenos Aires, Argentina	Rental Office	—
Suipacha 664	City of Buenos Aires, Argentina	Rental Office	—
Bouchard 710	City of Buenos Aires, Argentina	Rental Office	—
Intercontinental Plaza building	City of Buenos Aires, Argentina	Rental Office	—
República building	City of Buenos Aires, Argentina	Rental Office	—
Bank Boston Tower	City of Buenos Aires, Argentina	Rental Office	—
Paseo del Sol	City of Buenos Aires, Argentina	Rental Office	—
Phillips building	City of Buenos Aires, Argentina	Rental Office	—
Undeveloped parcels of land
Building annexed to DOT	City of Buenos Aires, Argentina	Undeveloped parcels of land	—
Caballito – Ferro plot of land (4)	City of Buenos Aires, Argentina	Undeveloped parcels of land	—
Luján plot of land	City of Luján, Argentina	Undeveloped parcels of land	—
Intercontinental plot of land	City of Buenos Aires, Argentina	Undeveloped parcels of land	—
Annexed to Dot plot of land	City of Buenos Aires, Argentina	Undeveloped parcels of land	—
Mendoza plot of land	City of Mendoza, Argentina	Undeveloped parcels of land	—
Mendoza Av Este 2992 plot of land	City of Mendoza, Argentina	Undeveloped parcels of land	—
La Plata plot of land	City of La Plata, Argentina	Undeveloped parcels of land	—
Properties under development
PH Office Park	City of Buenos Aires, Argentina	Properties under development	—
Alto Palermo Shopping annex	City of Buenos Aires, Argentina	Rental Office	—
Phillips building	City of Buenos Aires, Argentina	Properties under development	—
Alto Avellaneda	City of Avellaneda, Argentina	Properties under development	—
Mendoza Plaza	City of Mendoza, Argentina	Properties under development	—
Alto Comahue	City of Neuquén, Argentina	Properties under development	—
EH UTE	City of Buenos Aires, Argentina	Properties under development	—
Others
Direct Tv Arena stadium	Province of Buenos Aires, Argentina	Other	—

(1) Concession agreement is set to expire on November 2018. We plan to return the property to the City of Buenos Aires.

(2) Included in Investment Properties is the cinema building located at Córdoba Shopping – Villa Cabrera, which is encumbered by a right of antichresis as a result of loan due to Empalme by NAI INTERNACIONAL II Inc. The total amount of the loan outstanding was Ps.9.6 million as of June 30, 2018.

(3) We lease this property to a shopping center operator under an operating lease that expires in 2032.

(4) We own a parcel of land with a surface area of 23,791 square meters in the “Caballito” neighborhood, one of the most densely populated neighborhoods in the City of Buenos Aires, which we purchased in November 1997. This land could be used to build a 30,000 square meter shopping mall that could include a hypermarket, a cinema complex and various leisure and entertainment areas.

Our executive office is located at Intercontinental Plaza building, located at 877 Moreno in Buenos Aires, while we own. We consider that all our facilities are appropriate for our current needs and suitable for their intended uses. 

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ITEM 4A. Unresolved staff comments

On May 14, 2018 and July 23, 2018, we received a comment letter from the staff of the SEC’s Division of Corporation Finance with respect to our Annual Report filed on October 10, 2017, requesting us to provide certain clarifications related to our calculations of the fair market value of our shopping malls and offices properties, among others. We filed responses on June 11, 2018 and August 15, 2018 and, on September 21, 2018, we received a subsequent letter from the staff requesting us to clarify certain responses from our letter filed on August 15, 2018. We submitted our response on October 19, 2018 and we are awaiting the SEC’s response. As of the date of the this Annual Report, we have not received confirmation from the staff of the Division of Corporation Finance of the SEC that its review process relating to our Annual Report filed on October 10, 2017 has been completed. If we receive additional comments from the staff, we intend to resolve such additional comments promptly.

ITEM 5.Operating and Financial Review and Prospects

A. Operating Results

The following management’s discussion and analysis of financial condition and results of operations should be read in conjunction with our Audited Financial Statements included in this annual report, as well as the information presented under “Item 3. Key Information—Selected consolidated financial data.” This management’s discussion and analysis of financial condition and results of operations contains forward-looking statements that involve risks, uncertainties and assumptions, some of which are discussed under “Item 3. Key Information—Risk Factors.” These forward-looking statements include, among others, those statements including the words “will,” “expects,” “anticipates,” “intends,” “believes” and similar language. The actual results may differ materially and adversely from those anticipated in these forward-looking statements as a result of many risk factors, including those set forth elsewhere in this annual report.

General

We prepare our Audited 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. On May 12, 2017, our Board of Directors resolved to change our accounting policy for measuring the value of our investment property from the cost model to the fair value model, as permitted under IAS 40. Accordingly, we retroactively recast our previously issued 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 statement on a report on Form 6-k dated May 26, 2017.

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 will be adjusted by applying a general price index and expressed in the measuring unit (the hyperinflationary currency) current at the end of the most recent reporting period. See “Risk Factors—Risks Relating to Argentina—The peso qualifies as a currency of a hyperinflationary economy under IAS 29. Accordingly, we will apply IAS 29 for periods ending after July 1, 2018 and our historical audited consolidated financial statements and other financial information will need to be restated.” We have not estimated yet the impact of the application of IAS 29 provisions in our audited consolidated financial statements.

Our Audited Consolidated Financial Statements included in this annual report were not restated into constant currency. For more information, see “Financial Information—Inflation.”

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Overview

We own, develop and manage commercial real estate properties, which consist primarily of shopping malls and office buildings throughout Argentina. We are currently the largest owner and operator of shopping malls and one of the largest owners of office buildings and other commercial properties in Argentina in terms of gross leasable area and number of rental properties according to data published by the Argentine Chamber of Shopping Malls.

We own 16 shopping malls of which we manage 15, with an aggregate 344,025 square meters of GLA as of June 30, 2018. Of the 16 shopping malls we own, seven are located in the City of Buenos Aires, two in the Greater Buenos Aires area, and the others in the provinces of Salta, Santa Fé, Mendoza, Córdoba and Neuquén. In addition, we operate La Ribera Shopping in the City of Santa Fé which we own through a joint venture, and own the historic real estate that houses the Patio Olmos shopping mall in the Province of Córdoba, which mall is operated by a third party.

As of June 30, 2018, we owned and managed seven office buildings located in the City of Buenos Aires with 83,213 square meters of total gross leasable area and a land reserve with potential for development of an additional 58,083 square meters of office space, in addition to our current projects under development (Catalinas and Polo Dot).

Factors affecting our results of operations

Effects of Argentine macroeconomic factors

All of our assets are located in Argentina, where we conduct our operations. Therefore, our financial condition and the results of our operations are significantly dependent upon economic conditions prevailing in Argentina. The table below shows Argentina’s GDP growth, inflation rates, dollar exchange rates and the appreciation (depreciation) of the Peso 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,
	2018	2017	2016
	(inter-annual data)
GDP growth	(4,2)%	2.7%	(3.4)%
Inflation (IPIM)(1)	44.1%	14.2%	26.7%
Inflation (CPI)	29.5%	21.9%	37.6%
Depreciation of the Peso against the U.S. dollar	(73.7)%	(10.6)%	(65.9)%
Average exchange rate per US$1.00(2)	Ps.28.8000	Ps.16.5800	Ps.14.9900

(1) IPIM is the wholesale price index as measured by the Argentine Ministry of Treasury.

(2) Represents average of the selling and buying exchange rate quoted by Banco de la Nación Argentina as of June 30, 2018. As of October 18, 2018, the exchange rate was 36.5500 per U.S. Dollar.

Sources: INDEC, Argentine Ministry of Treasury, Ministry of Treasury of the City of Buenos Aires, Banco de la Nación Argentina, and Central Bank.

Argentine GDP decreased 4.2% during our 2018 fiscal year, compared to an incrase of 2.7% in our fiscal year 2017. Shopping mall sales grew 31.2% in the fiscal 2018 compared to fiscal 2017. As of June 30, 2018, the unemployment rate was at 9.6% of the country’s economically active population compared to 8.7% as of June 30, 2017.

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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.

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,
2013	10.5%	13.5%
2014	15.0%	27.7%
2015	14.0%	13.6%
2016	37.6%(1)	26.7%
2017	21.9%	14.2%
2018	29.5%	44.1%

(1) Given the modifications to the system that INDEC uses to measure CPI, there is no data for any price variations from July 1, 2015 to June 30, 2016. For that reason, we present aggregate prices from January 1, 2016 to June 30, 2016, published by INDEC.

The current structure of Company’s lease contracts for shopping malls generally includes provisions that provide for payment of variable rent based on sales of the Company’s shopping mall tenants. Therefore, the projected cash flows for these properties generally are highly correlated with GDP growth and inflation rates.

Continuing increases in the rate of inflation are likely to have an adverse effect on our operations. Additionally, the minimum lease payments we receive from our shopping mall tenants are generally adjusted in accordance with the CER, an inflation index published by the Central Bank. 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.

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 below. 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 increases 10% on a semi-annually and cumulative basis from the seventh (7th) 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 regarding these adjustment provisions, there can be no assurance that we may be able to enforce such clauses contained in our lease agreements. See “Item 4. Information of the Company—Business Overview—Our Shopping Malls—Principal Terms of our Leases.”

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An increase in our operating costs caused by higher inflation could have a material adverse effect on us if our tenants are unable to pay higher rent due to the increase in expenses. Moreover, the shopping mall business is affected by consumer spending and by prevailing economic conditions that affect potential customers.

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, macreconomic conditions in Argentina, such as inflation, 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.

As reflected in the chart below, the nominal fair market value of the Company’s shopping mall properties as calculated in pesos has increased significantly mainly due to the increasing inflation in Argentina and the depreciation of the peso but, consequently, the value of such properties, as measured in U.S. dollars, have reflected lower increases or decreases in previous fiscal years.

(*) Offer exchange rate at the end of the period (Banco de la Nación Argentina).

Seasonality

Our 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.

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 rate fluctuations significantly increase the risk of default on our lease receivables. Foreign currency exchange restrictions that may be 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.

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.

The Argentine economy has experienced significant volatility in recent decades, characterized by periods of low or negative GDP growth, high rates of inflation and currency depreciation. Historically, the public in Argentina has resorted to investing in real estate assets to protect against currency depreciation and/or to protect savings. Real estate transactions in Argentina, and in particular, those involving office buildings and undeveloped land, have historically been priced in U.S. dollars and transacted in U.S. dollars or its peso equivalent at the exchange rate on the closing date of the transaction. Even in the inflationary context, prices in U.S. dollars for these real estate assets have generally remained stable and even appreciated at rates that have outpaced inflation. A significant depreciation or devaluation of the peso against the U.S. dollar would increase the value of the Company`s portfolio as measured in pesos. An appreciation of the peso against the U.S. dollar would have the opposite effect.

(*) Bid exchange rate at end of period (Banco de la Nación Argentina).

(**) FY 2015: Exchange Rate: Contado con Liquidacion –implicit exchange rate given by the price is Pesos of a stock listed in Buenos Aires and ADRs traded in New York. Sales offices: 95,005 GLA (fy15) vs 79,048 GLA (fy16).

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After several years of moderate inflation and variations in the nominal exchange rate, in fiscal year 2013 the peso depreciated approximately 32.5% against the U.S. dollar and 30.3% in fiscal year 2014, including depreciation of approximately 21.6% in the month of January 2014 alone. In fiscal year 2015, the peso depreciated 52.7% against the dollar with a 33% depreciation in the last weeks of December 2015 alone. During fiscal 2016, 2017 and fiscal 2018, the Peso depreciated against the U.S. dollar by approximately 65.9%, 10.6% and 73.3%, respectively, which caused an impact on the comparability of our results of operations for the year ended June 30, 2018 to our results of operations for the year ended June 30, 2017 and for the year ended June 30, 2017 to our results of operations for the year ended June 30, 2016, primarily in our revenues from office rentals, the changes in fair value of investment property and our net assets and liabilities denominated in foreign currency. Likewise, during the third quarter of 2018 the U.S. dollar to peso exchange rate increased approximately 27.7%, from Ps.28.85 at the end of the second quarter of 2018 to Ps.36.85 as of August 30, 2018, and an increase of 27.0% as of the date of this Annual Report, reaching Ps.36.65 as of October 18, 2018. The accumulated depreciation of the Peso since the beginning of the year 2018 and as of the date of this annual report reached 99.1%. The depreciation of the Peso affected our assets and liabilities denominated in foreign currency, as reflected in “financial results, net” in our consolidated statement of comprehensive income.

Factors affecting comparability of our results of operations

Acquisition of office buildings and land reserves from IRSA

On December 22, 2014, we acquired from IRSA, our controlling shareholder, 83,789 square meters of premium office space including the República Building, the Bouchard 710 building, the Della Paolera 265 building, the Intercontinental Plaza Building, the Suipacha 652 building and the land reserve “Intercontinental II” with potential to develop up to 19,600 square meters, each located in the City of Buenos Aires. The total purchase price of the transaction was US$308.0 million, which reflected the fair value of the office properties and land reserve and was based on appraisals from independent third-party appraisers.

On May 5, 2015, we sold 8,470 square meters consisting of nine floors of office space, 72 parking units and six storage units in the Intercontinental Plaza Building, for Ps.376.4 million, which generated a profit before tax of Ps.123.7 million. The revenues from these properties represented 4.6% of our income from sales, rents and services provided to our Offices and Others rental properties included in our Offices segment for fiscal 2015.

On September 10, 2015, we sold to an un-related party 5,963 square meters corresponding to a seven-story office space, 56 parking units and three storage units in the Intercontinental Plaza Building for Ps.324.5 million that resulted in profit before tax of Ps.155.9 million. The revenues from these properties represented 5.1% of our income from sales, rents and services provided to our Offices and Others rental properties included in our Offices segment for the six-month period ended December 31, 2015.

On December 27, 2016, we sold to an un-related party 1,795 square meters corresponding to two floors and 16 parking units in the Intercontinental Plaza Building, for US$6.0 million, which has been fully paid. Additionally, on May 30, 2017, we sold to an unrelated party the third floor of the intercontinental building and 8 parking spaces and a storage unit for US$3 million.

On June 13, 2018, we sold 852 square meters corresponding to one floor of office and 8 parking lots in the Intercontinental Plaza building for US$ 3 million, which was fully paid. As of June 30, 2018, we owned 2,979 square meters in this building. Contracts for the rental of office buildings and other commercial properties are generally stated in U.S. dollars and in accordance with Argentine law they are not subject to inflation adjustment.

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New shopping malls

During the fiscal years ended June 30, 2018, 2017 and 2016 we maintained the same portfolio of operating shopping malls. During fiscal 2015 we inaugurated two new shopping malls: (i) Distrito Arcos, located in the neighborhood of Palermo, City of Buenos Aires, in December 2014; and (ii) Alto Comahue, located in the City of Neuquén, Argentine Patagonian region, in March 2015. During the period from their respective opening dates through June 30, 2015, these two shopping malls generated revenues of Ps.22.9 million and Ps.11.7 million, respectively, which represented in aggregate 1.9% of the total revenues of our Shopping Malls segment for fiscal 2015.

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 commissioned from independent appraisers, is recorded in our consolidated statement of comprehensive income for the period during which revaluation occurs as a net increase or decrease in the fair value of the properties. 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, supply and demand of comparable properties, the rate of economic or GDP growth in Argentina and in particular in the provinces or regions in which our properties are located, any asset enhancement initiatives or improvements undertaken, prevailing interest rates, foreign exchange rates and rates of inflation at the time of the appraisal, and political and economic developments. For example, during the 2016 fiscal year, there was a 65.5% depreciation of the Peso from Ps.9.088 to US$1.00 as of June 30, 2015 to Ps.15.04 to US$1.00 as of June 30, 2016, during the 2017 fiscal year, there was a 10.6% depreciation of the Peso from Ps.15.04 to US$1.00 as of June 30, 2016 to Ps.16.63 to US$1.00 as of June 30, 2017, and during the 2018 fiscal year, there was a 74% depreciation of the Peso from Ps.16.63 yo US$1.00 as of June 30, 2017 to Ps.28.85 to US$1.00 as of June 30, 2018, which had a significant impact on the revaluation of investment properties for fiscal years 2016 and 2018. 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). Retail property markets have historically been cyclical and future cyclical changes may result in fluctuations in the fair value of our properties and adversely affect our financial condition and results of operations.

Our results of operations may be affected by foreign currency fluctuations and the inflation in Argentina. For more information see “—Effects of inflation” and “—Effects of foreign currency fluctuations.”

Business Segment Reporting

We must disclose segment information in accordance with IFRS 8, which requires that we report financial and descriptive information about our reportable segments. Operating segments are components of our business about which separate financial information is available that is evaluated regularly by our Executive committee, in order to allocate resources and assess performance. The discussion below should be read in conjunction with our disclosure provided in Note 6 of our Audited Consolidated Financial Statements incorporated by reference herein.

We operate our business through four principal business segment as further described below:

● 

“Shopping Malls” includes the operation and development of shopping malls, through which we generate rental income and fees charged for services related to the lease of retail stores and other spaces. Our Shopping Malls segment includes highly diversified, multi-format assets with a particular focus on retailers that cater to middle- to high-income consumers.

● 

“Offices” includes the lease of offices and other rental properties and services related to these properties.

● 

“Sales and Developments” includes the sales of undeveloped parcels of land and properties, and activities related to the development and maintenance of such properties.

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● 

“Others” includes the financing activities developed through our associated company Tarshop S.A., our residual consumer financing transactions and the operations developed by our subsidiary EHSA.

We introduced a change in the way the CODM evaluates performance for "offices and others" and "sales and developments" segments. For those investment properties sold in our offices and others segment, their change in fair value (or realized gain) is now shown as part of the sales and developments segment. The changes have affected (1) “offices and others” and “sales and developments” segments in the fiscal year ended June 30, 2017, which are related to the allocation of the realized changes in fair value of investment properties in “sales and developments” segment; and (2) “offices and others” and “financial operations and others” in the period ended March 31, 2018, changing the name of the latter to “Others” and adding the operations developed by our subsidiary EHSA. These changes have been retroactively effected for all periods presented in accordance with IFRS 8.

The following table sets forth certain operating and financial data by business segment for the fiscal years indicated:

	For the fiscal years endedJune 30,
	2018	2017	2016
	(in millions of Ps.)
Shopping Malls
Revenues	3,664.7	3,046.6	2,409.1
Operating income	14,060.1	4,258.0	17,905.0
Segment Adjusted EBITDA	2,748.2	2,207.3	1,793.3
Segment Net Operating Income	3,124.9	2,526.5	2,033.5
Offices
Revenues	492.1	401.8	284.1
Operating income	5,399.7	1,366.4	1,101.8
Segment Adjusted EBITDA	367.0	308.2	238.8
Segment Net Operating Income	406.1	346.4	263.5
Sales and Developments
Revenues	105.5	99.1	2.7
Operating income	1,071.4	221.5	389.7
Segment Adjusted EBITDA	93.1	94.1	137.6
Segment Net Operating Income	98.1	128.7	165.7
Others
Revenues	9.3	0.9	1.0
Operating income	28.8	12.5	(0.9)
Segment Adjusted EBITDA	(16.8)	12.5	(0.9)
Segment Net Operating Income	(12.4)	(2.1)	(0.9)

The average of the seller exchange rate for the fiscal year 2018, quoted by Banco de la Nación Argentina was Ps.19.4888.

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The table below presents a reconciliation of Adjusted Segment EBITDA, Consolidated Adjusted EBITDA, Consolidated EBITDA and the to profit for the period correspond at June 2018: 

		For the fiscal year ended June 30, 2018
	Shopping Malls	Offices	Sales and developments	Others	Total Urban properties and investments
			(in thousands of Ps.)
Segment profit before financing and taxation	14,060,096	5,399,664	1,071,352	48,954	20,580,066
Depreciation and amortization	28,223	9,747	1,170	—	39,140
Unrealized gain from fair value adjustment of investment properties	11,340,085	5,042,427	979,377	45,580	17,407,469
Share in profit of associates and joint ventures	—	—		20,171	20,171
Adjusted Segment EBITDA	2,748,234	366,984	93,146	(16,797)	3,191,566
Adjustment for expenses and collective promotion funds					(24,079)
Adjustment for share in profit (loss) of joint ventures					(125,626)
Share in profit (loss) of associates and joint ventures					118,768
Consolidated Adjusted EBITDA					3,160,630
Other financial results, net					(68,888)
Fair value gains of financial assets and liabilities at fair value through profit or loss					2,041,061
Gain/loss from derivative financial instruments					227,378
Foreign exchange differences, net					(5,993,197)
Share of profit of associates and joint ventures					639,525
Unrealized results due to the revaluation of the fair value of our investment properties					16,669,347
Consolidated EBITDA					16,675,856
Depreciation and amortization					(45,114)
Income tax expense					(286,506)
Interest expense					(928,218)
Interest income					240,005
Total profit for the year					15,656,023

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The table below presents a reconciliation of Adjusted Segment EBITDA, Consolidated Adjusted EBITDA, Consolidated EBITDA and the to profit for the period correspond at June 2017: 

		For the fiscal year ended June 30, 2017
	Shopping Malls	Offices	Sales and developments	Others	Total Urban properties and investments
			(in thousands of. Ps)
Segment profit before financing and taxation	4,257,978	1,366,379	221,504	26,182	5,872,044
Depreciation and amortization	17,433	6,409	625	—	24,467
Unrealized gain from fair value adjustment of investment properties	2,068,103	1,064,586	128,022	—	3,260,711
Share in profit of associates and joint ventures	—	—	—	13.677	13,678
Adjusted Segment EBITDA	2,207,308	308,202	94,107	12,505	2,622,122
Adjustment for expenses and collective promotion funds					(20,479)
Adjustment for share in profit (loss) of joint ventures					(73,923)
Share in profit (loss) of associates and joint ventures					53,438
Consolidated Adjusted EBITDA					2,581,158
Other financial results, net					(65,186)
Fair value gains of financial assets and liabilities at fair value through profit or loss					203,087
Gain from derivative financial instruments					81,105
Foreign exchange differences, net					(550,408)
Share of profit of associates and joint ventures					152,703
Unrealized results due to the revaluation of the fair value of our investment properties					3,068,248
Consolidated EBITDA					5,470,707
Depreciation and amortization					(28,540)
Income tax expense					(1,609,181)
Interest expense					(639,768)
Interest income					184,296
Total profit for the year					3,377,514

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The table below presents a reconciliation of Adjusted Segment EBITDA, Consolidated Adjusted EBITDA, Consolidated EBITDA and the to profit for the period correspond at June 2016: 

		For the fiscal year ended June 30, 2016
	Shopping Malls	Offices	Sales and developments	Others	Total Urban properties and investments
			(in thousands of Ps.)
Segment profit (loss) before financing and taxation	17,905,001	1,101,787	389,682	(11,934)	19,384,536
Depreciation and amortization	19,992	4,416	485	—	24,893
Unrealized gain from fair value adjustment of investment properties	16,131,702	867,413	252,570	—	17,251,685
Share in profit / (loss) of associates and joint ventures	—	—	—	(11,017)	(11,017)
Adjusted Segment EBITDA	1,793,292	238,790	137,597	(917)	2,168,761
Adjustment for expenses and collective promotion funds					(19,627)
Adjustment for share in profit (loss) of joint ventures					(124,213)
Share in profit (loss) of associates and joint ventures					116,510
Consolidated Adjusted EBITDA					2,141,431
Other financial results, net					(100,051)
Fair value gains of financial assets and liabilities at fair value through profit or loss					466,328
Gain from derivative financial instruments					1,248,374
Foreign exchange differences, net					(1,815,553)
Share of profit of associates and joint ventures					204,299
Unrealized results due to the revaluation of the fair value of our investment properties					16,919,859
Consolidated EBITDA					19,064,687
Depreciation and amortization					(22,944)
Income tax expense					(6,278,894)
Interest expense					(612,486)
Interest income					102,169
Total profit for theyear					12,252,532

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	For the fiscal year ended June 30, 2018
	Shopping Malls	Offices	Sales and developments	Others	Total Urban properties and investments
			(in thousands of Ps.)
Gross profit (loss)	3,334,866	443,689	86,837	(10,426)	3,854,966
Selling expenses	(238,170)	(47,362)	(10,635)	(1,955)	(298,122)
Net realized gain on changes in fair value of investment property	—	—	20,770	—	20,770
Depreciation and amortization	28,223	9,747	1,171	—	39,141
Segment NOI	3,124,919	406,074	98,143	(12,381)	3,616,755
Adjustment for expenses and collective promotion funds					(24,079)
Adjustment for share in profit (loss) of joint ventures					(15,155)
Adjustment for selling expenses					3,257
Consolidated NOI					3,580,778
Depreciation and amortization					(45,114)
Net realized gain on changes in fair value of investment property					(20,770)
Selling expenses					294,865
Gross profit for the year					3,809,759

	For the fiscal year ended June 30, 2017
	Shopping Malls	Offices	Sales and developments	Others	Total Urban properties and investments
			(in thousands of Ps.)
Gross profit	2,697,143	373,859	76,602	843	3,148,447
Selling expenses	(188,081)	(33,871)	(13,740)	(2,982)	(238,674)
Net realized gain on changes in fair value of investment property	—	—	65,165	—	65,165
Depreciation and amortization	17,433	6,409	625	—	24,467
Segment NOI	2,526,495	346,397	128,652	(2,139)	2,999,405
Adjustment for expenses and collective promotion funds					(20,479)
Adjustment for share in profit (loss) of joint ventures					(26,519)
Adjustment for selling expenses					2,146
Consolidated NOI					2,954,553
Depreciation and amortization					(28,540)
Net realized gain on changes in fair value of investment property					(65,165)
Selling expenses					236,528
Gross profit for the year					3,097,376

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	For the fiscal year ended June 30, 2016
	Shopping Malls	Offices	Sales and developments	Others	Total Urban properties and investments
			(in thousands of Ps.)
Gross profit (loss)	2,158,776	271,883	(3,041)	936	2,428,554
Selling expenses	(145,278)	(12,824)	(4,264)	(1,835)	(164,201)
Net realized gain on changes in fair value of investment property	—	—	172,544	—	172,544
Depreciation and amortization	19,992	4,416	485	—	24,893
Segment NOI	2,033,490	263,475	165,724	(899)	2,461,790
Adjustment for expenses and collective promotion funds					(19,627)
Adjustment for share in profit (loss) of joint ventures					(12,580)
Adjustment for selling expenses					1,980
Consolidated NOI					2,431,563
Depreciation and amortization					(22,944)
Net realized gain on changes in fair value of investment property					(172,544)
Selling expenses					162,221
Gross profit for the year					2,398,296

As explained in Note 6 to our Audited Financial Statements, the operating income from our joint ventures NPSF and Quality Invest S.A. are reported under the proportional consolidation method for segment reporting purposes. Under this method, income/loss generated by joint ventures is reported in the Consolidated Statements of Comprehensive Income line-by-line, rather than in a single item as required by IFRS.

 Management believes that the proportional consolidation method provides more useful information to assess the return of these businesses, because the assets and income or loss generated by consolidated operations are similar to that booked under the equity method. This is because under the proportional consolidation method revenues and expenses are reported separately, instead of offsetting and reporting them as a single item in the Consolidated Statements of Comprehensive Income. Therefore, the proportional consolidation method is used by our CODM, to assess and understand the impact on our results of operations of these businesses as a whole.

The operating results of our LRSA is accounted for under the equity method. Management believes that, in this case, the equity method provides more adequate information for this type of investment.

Our CODM evaluates performance of business segments based on segment profit, defined as profit or loss from operations before financing and taxation. The measurement principles for our segment reporting structure are based on the IFRS principles adopted in the preparation of our Audited Financial Statements, except our share of profit or loss of joint ventures as discussed above. Revenue generated and goods and services exchanged between segments are calculated on the basis of market prices. Intercompany transactions between segments, if any, are eliminated.

The following tables present a reconciliation between the total results of operations corresponding to segment information and the results of operations as per our consolidated statement of comprehensive income. The adjustments are related to the presentation of the results of joint ventures on an equity-accounted basis (as discussed above) under IFRS.

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	For the fiscal year ended June 30, 2018
	Totalsegmentreporting	Adjustment forexpenses andcollectivepromotionfund(1)	Adjustment forshare ofprofit/ (loss)of jointventures	Total as perstatement ofcomprehensiveincome
	(in thousands of Ps.)
Revenues	4,271,598	1,717,000	(39,391)	5,949,207
Costs	(416,632)	(1,747,051)	24,236	(2,139,447)
Gross profit (loss)	3,854,966	(30,051)	(15,155)	3,809,760
Changes in fair value of investment property	17,428,239	—	(738,122)	16,690,117
General and administrative expenses	(416,338)	—	1,096	(415,242)
Selling expenses	(298,122)	—	3,257	(294,865)
Other operating results, net	(8,850)	—	3,945	(4,905)
Profit (loss) from operations	20,559,895	(30,051)	(744,979)	19,784,865
Share of profit of associates and joint ventures	20,171	—	619,354	639,525
Segment profit (loss) before financing and taxation	20,580,066	(30,051)	(125,625)	20,424,390

	For the fiscal year ended June 30, 2017
	Totalsegmentreporting	Adjustment forexpenses andcollectivepromotionfund(1)	Adjustment forshare ofprofit/ (loss)of jointventures	Total as perstatement ofcomprehensiveincome
	(in thousands of Ps.)
Revenues	3,548,382	1,488,187	(39,407)	4,997,162
Costs	(399,935)	(1,512,738)	12,887	(1,889,786)
Gross profit (loss)	3,148,447	(24,551)	(26,520)	3,097,376
Changes in fair value of investment property	3,325,876	—	(192,463)	3,133,413
General and administrative expenses	(324,961)	—	2,785	(322,176)
Selling expenses	(238,674)	—	2,146	(236,528)
Other operating results, net	(52,322)	—	1,103	(51,219)
Profit (loss) from operations	5,858,366	(24,551)	(212,949)	5,620,866
Share of profit of associates and joint ventures	13,677	—	139,026	152,703
Segment profit (loss) before financing and taxation	5,872,043	(24,551)	(73,923)	5,773,569

	For the fiscal year ended June 30, 2016
	Totalsegmentreporting	Adjustment forexpenses andcollectivepromotionfund(1)	Adjustment forshare ofprofit/ (loss)of jointventures	Total as perstatement ofcomprehensiveincome
	(in thousands of Ps.)
Revenues	2,696,911	1,183,627	(22,038)	3,858,500
Costs	(268,357)	(1,201,305)	9,458	(1,460,204)
Gross profit (loss)	2,428,554	(17,678)	(12,580)	2,398,296
Changes in fair value of investment property	17,424,229	—	(331,826)	17,092,403
General and administrative expenses	(222,247)	—	667	(221,580)
Selling expenses	(164,201)	—	1,980	(162,221)
Other operating results, net	(70,782)	—	2,230	(68,552)
Profit from operations	19,395,553	(17,678)	(339,529)	19,038,346
Share of profit (loss) of associates and joint ventures	(11,017)	—	215,316	204,299
Segment profit (loss) before financing and taxation	19,384,536	(17,678)	(124,213)	19,242,645

(1) Our lease agreements require our tenants to contribute to a collective promotion fund, administered by us, that is used for promotional and marketing activities which are undertaken to draw consumer traffic to our shopping malls. Tenants’ contributions are generally calculated as a percentage of monthly rent accrued. Revenue so derived is also included under rental income and services segregated from advertising and promotion expenses. Collective promotion charges include common area maintenance expenses for items such as administration, security, operations, maintenance, cleaning and taxes.

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Critical accounting policies and estimates

Our Audited Financial Statements are prepared in accordance with IFRS as issued by the IASB. Note 2 to our Audited Financial Statements describes the most significant accounting policies, including our critical accounting policies, applied in the preparation of our financial statements.

In applying these policies, we are required to make judgements, estimates and assumptions about the carrying amount of assets and liabilities that are not readily apparent from other sources. The estimates and associated assumptions are based on historical experience and other factors that are considered relevant. Actual results may differ from these estimates. The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimate is revised if the revision affects only that period, or in the period of the revisions and future periods if the revision affects both current and future periods.

Property appraisals require a significant level of estimation uncertainty and appraisal of our investment properties is a central component of our business. In estimating fair value of our properties portfolio, we engaged a third party qualified commercial real estate appraisal and consulting firm to perform appraisals of our investment properties. Information about the valuation techniques and inputs used in determining the fair value of our property portfolio is also disclosed in Note 2 to our Audited Financial Statements.

Our investment properties comprise shopping malls, office buildings, other rental properties and land reserves. The main measurement differences resulting from the application of the fair value model to our investment properties as compared to the cost model were as follows:

● 

The reversal of depreciation expense of investment properties previously recorded in our financial statements under the cost model;

● 

Recognition of net gain from fair value adjustments of investments properties;

● 

The reversal of gain from disposal of investment properties;

● 

Increase in the depreciation expense of property, plant and equipment due to the transfers from investment properties to property, plant and equipment at a re-valued amount;

● 

Changes in the share of profit and loss of associates and joint ventures resulting from application of the same accounting policy as that issued by us;

● 

Impact in deferred income tax;

● 

The impact of fair value measurement of our investment properties on the transition date to IFRS was recognized in a special reserve not subject to distribution.

● 

Subsequent changes as a net gain from fair value adjustments of investment properties in the consolidated statement of Comprehensive Income and accumulated retain earnings.

125

The valuation of our portfolio of investment properties was made by independent qualified appraisers with relevant professional qualifications and experience in the segments of the investment properties appraised. Our finance department includes a team that reviews the appraisals received from the independent appraisers for financial reporting purposes that we refer to as the “review team.” At each fiscal year end, the review team: (i) verifies all assumptions relevant to the appraisal and the valuation report; (ii) assesses changes in the property valuations compared to valuations from prior periods; (iii) confers with the independent appraisers to verify the underlying bases on which the appraisals were undertaken; and (iv) provides the external appraiser with and validates that the external appraiser utilized all data inputs relevant to the valuation model such as lease contracts, amendments, etc. Our board of directors ultimately approves the fair value calculations for recording into the financial statements.

For appraisal purposes, our investment properties are appraised using either level 2 or level 3 appraisal methodologies, as defined in IFRS 13, in the fair value hierarchy. There were no transfers between levels during the fiscal year presented in this annual report. In the context of property appraisals, a level 1 appraisal method is based on quoted market value for the specified property; level 2 valuations include multiple inputs including directly attributable to the subject property or indirectly included from similar properties; and level 3 valuations rely on unobservable inputs including future projected cash flows, location of the property being appraised, and other factors.

We use different appraisal methods depending on the type of property being appraised.

The fair value of the Company's portfolio of shopping malls is determined by the income approach. Under the income approach, the Company uses a cash flow model discounted to present value. The Company determines expected cash flows relating to each shopping mall property and adjusts these cash flows using the appropriate discount rate. The Company projects each property's cash flows in pesos, which is the Company's functional currency, and these cash flows include the effects of estimated inflation rates for the projected period. It is important to point out that due to the current structure of the Company's lease contracts, generally shopping mall leases include provisions that provide for payment of variable rent based on sales of the Company's shopping mall tenants. Therefore, the projected cash flows for these properties generally are highly correlated with GDP growth and inflation rates. Due to the inestability of the Argentine economy there is no available long-term peso-denominated interest rate to discount the projected inflation-adjusted cash flows of the Company's shopping mall properties. Accordingly, for these purposes, the Company translates projected peso-denominated cash flows into U.S. dollars using a projected U.S. dollar-peso exchange rate for the period involved. Once the U.S. dollar-equivalent projected cash flows are determined, they are then discounted at a U.S. dollar denominated long-term interest rate, which is intended to reflect the Company's cost of capital. The present value so determined in U.S. dollars is then recorded in pesos in the Company's financial statements using the prevailing exchange rate at the balance sheet date. Although the present value of the Company's portfolio may remain stable or decrease in U.S. dollars, any depreciation or devaluation of the peso against the U.S. dollar would increase the value of the Company's investment properties as presented in pesos.

The discounted cash flow projections used to appraise our shopping mall properties were based on significant unobservable inputs including:

● 

Future rental cash inflows based on the location, type and quality of the properties and supported by the terms of any existing lease, and considering the estimations of the GDP and the estimated inflation rated given by external advisors.

● 

It was considered that all Shopping malls will grow with the same elasticity in relation to the evolution of the GDP and projected inflation.

● 

Cash flows from future investments, expansions, or improvements in shopping malls were not considered.

● 

Estimated vacancy rates taking into account current and future market conditions once the current leases expired.

126

● 

The projected cash flows were discounted using the Company’s WACC as the discount rate for each valuation date.

● 

The terminal value was determined on the basis of the growth rate and the discount rate.

● 

Cash flows for properties under concession agreements were projected until the due date of agreement.

Higher growth rates (considered in calculating terminal value of the discounted cash flow model) will increase valuations, while higher discount rates will have the opposite effect. All else equal, a 1% increase in growth rates in isolation would increase the value of the property portfolio (excluding joint ventures at equity value) by Ps.2,464 million as of June 30, 2017 and Ps.3,104 million as of June 30, 2018. A 1% decrease in growth rates would reduce the value of the property portfolio by Ps.1,794 million as of June 30, 2017 and Ps.2,307 million as of June 30, 2018. Similarly, a 1% decrease in discount rates would increase the value of our property portfolio by Ps.5,445 million as of June 30, 2017 and Ps.6,796 million as of June 30, 2018,while a 1% increase in the discount rates would decrease their value by Ps.3,948 million as of June 30, 2017 and Ps.5,046 million as of June 30, 2018. These inputs are inter-related as they are determined by market conditions. Any fluctuation in more than one input would magnify the impact on the valuation of our investment properties. The impact on the valuation will be mitigated by the interrelationship of two inputs in opposite directions, so that, for example, an increase in rent receipts may be offset by an increase in the discount rates used in calculating valuations when applying the discounted cash flow model.

The fair value of the Company’s portfolio of office buildings and undeveloped parcels of land is generally determined using the market approach. Under the market approach, the Company uses prices and other relevant information derived directly from publicly available information regarding comparable market transactions. As such, the Company fair values its portfolio by reference to the price per square meter achieved in recent sales of comparable properties, adjusted for the relevant asset’s relevant characteristics, such as location, size of the property, quality of the interior design, as necessary. There has always been an active market for sales of office properties and undeveloped land in Argentina. Note that, typically real estate transactions in Argentina are negotiated and prices are transacted in U.S. dollars. Therefore, the fair market value of our office buildings and undeveloped parcels measured in pesos is significantly affected by variations of the Peso-U.S. dollar exchange rate. 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.

It can be difficult to reliably determine the fair value of a property under development. In order to assess whether the fair value of such a property can be determined reliably, our management considered the following factors, among others:

● 

The provisions of the construction contract.

● 

The level of progress in construction of the project.

● 

Whether the project/property is standard (typical for the market) or customized for a specific use.

● 

The level of reliability of cash inflows after completion.

● 

The development risk specific to the property.

● 

Past experience with similar developments.

● 

Status of required construction permits.

127

All these factors were taken into account in order to consider the future cash flows of projects under development. Otherwise, we evaluate the projects under development as the sum of the fair value of the land and the capital expenditures invested in the project as of each reporting date.

We have applied these valuation methodologies consistently for all of the periods presented.

Results of operations for the fiscal years ended June 30, 2018 and 2017

Revenues

	Fiscal year ended June 30, 2018
	Incomestatement (1)	Expenses andcollectivepromotion fund	Interest injointventures	Information bysegment(2)
	(in millions of Ps.)
Shopping Malls	5,239.3	(1,607.7)	33.1	3,664.7
Offices	595.1	(109.3)	6.3	492.1
Sales and Developments	105.5	—	—	105.5
Others	9.3	—	—	9.3
Total revenues	5,949.2	(1,717.0)	39.4	4,271.6

(1) Includes Ps.4,232.2 million in revenues from sales, leases and services and Ps.1,717.0 million in income from the Expenses and Collective Promotion Fund.

(2) See Note 6 to our Audited Financial Statements.

	Fiscal year ended June 30, 2017
	Incomestatement (1)	Expenses andcollectivepromotion fund	Interest injointventures	Information bysegment(2)
	(in millions of Ps.)
Shopping Malls	4,396.3	(1,375.9)	26.2	3,046.6
Offices	500.8	(112.3)	13.2	401.8
Sales and Developments	99.1	—	—	99.1
Others	0.9	—	—	0.9
Total revenues	4,997.2	(1,488.2)	39.4	3,548.4

(1) Includes Ps.3,509.0 million in revenues from sales, leases and services and Ps.1,488.2 million in income from the Expenses and Collective Promotion Fund.

(2) See Note 6 to our Audited Financial Statements.

Revenues from sales, leases and services, expenses and collective promotion fund, as per the income statement, increased 19.1%, from Ps.4,997.2 million during fiscal year 2017 to Ps.5,949.2 million during fiscal year 2018.

Revenues from expenses and collective promotion fund increased 15.4%, from Ps.1,488.2 million (Ps.1,375.9 million generated by Shopping Malls segment and Ps.112.3 million to the Offices segment) during fiscal year 2017 to Ps.1,717.0 million (Ps.1,607.7 million generated by Shopping Malls segment and Ps.109.3 million by Offices segment) during fiscal year 2018.

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Revenues from our joint ventures were Ps.39.4 million in both fiscal years, (Ps.26.2 million generated by Shopping Malls segment and Ps.13.2 million by Offices segment during fiscal year 2017 and during fiscal year 2018, Ps.33.1 million generated by the Shopping Malls segment and Ps.6.3 million to the Offices segment).

Based on the information by segments, revenues increased by 20.4%, from Ps.3.548.4 million during fiscal year 2017 to Ps.4,271.6 million in fiscal year 2018. This increase was mainly attributable to: (i) a Ps.618.1 million increase in the revenues from the Shopping Malls segment (Ps.6.9 million of which originated in the results of our joint ventures); (ii) a Ps.90.3 million increase in the revenues from the Offices segment (which include a reduction of Ps.6.9 million originated in the results of our joint ventures); (iii) an increase of Ps.6.4 million in revenues from the Sales and Developments segment; and (iv) a Ps.8.4 million increase in revenues from the Others segment.

● Shopping Malls. Revenues from the Shopping Malls segment increased 20.3%, from Ps.3,046.6 million during fiscal year 2017 to Ps.3,664.7 million during fiscal year 2018, mainly attributable to: (i) a Ps.576.5 million increase in revenues from fixed and variable leases as a result of a 24.9% increase in the total sales of our tenants, up from Ps.34.4 million during fiscal year 2017 to Ps.43.0 million during fiscal year 2018; (ii) a Ps.81.7 million increase in the revenues from admission rights, (iii) a Ps.43.6 million increase in the revenues from parking fees; partially offset by (iv) a Ps.63.4 million decrease resulting from averaging of scheduled rent escalation.

● Offices. Revenues from the Offices segment increased Ps. 90.3 million, from Ps. 401.8 million in fiscal year 2017 to Ps. 492.1 million in fiscal year 2018, mainly as a result of the increase in the exchange rate from Ps. 16.63 as of June 30, 2017 to Ps. 28.85 as of June 30, 2018, as office leases are invoiced in dollars (but paid in Ps.).

● Sales and Developments. Revenues from the Sales and Developments segment increased Ps.6.4 million, up from Ps.99.1 million during fiscal year 2017 to Ps.105.5 million during fiscal year 2018. Such increase mainly resulted from the sales of floors in Beruti building and parking spaces in Rosario building and, since many of our sales are made in dollars, the devaluation of the Peso in fiscal year 2018.

● Others. Revenues from the Others segment increased Ps.8.4 million, up from Ps.0.9 million during fiscal year 2017 to Ps.9.3 million during fiscal year 2018, mainly due to revenues from La Arena a subsidiary that was adquired during the fiscal, which develops and operates the “Directv Arena”.

Costs

	Fiscal year ended June 30, 2018
	Incomestatement	Expenses andcollectivepromotion fund	Interest injointventures	Information bysegment(1)
	(in millions of Ps.)
Shopping Malls	(1,960.1)	1,635.6	(5.3)	(329.8)
Offices	(140.9)	111.4	(18.9)	(48.4)
Sales and Developments	(18.7)	—	—	(18.7)
Others	(19.8)	—	—	(19.8)
Total costs	(2,139.4)	1,747.1	(24.2)	(416.6)

(1) See Note 6 to our Audited Financial Statements.

129

	Fiscal year ended June 30, 2017
	Incomestatement	Expenses andcollectivepromotion fund	Interest injointventures	Information bysegment(1)
	(in millions of Ps.)
Shopping Malls	(1,744.7)	1,399.6	(4.4)	(349.4)
Offices	(132.5)	113.1	(8.5)	(27.9)
Sales and Developments	(22.5)	—	—	(22.5)
Others	—	—	—	—
Total costs	(1,899.8)	1,512.7	(12.9)	(399.9)

 (1) See Note 6 to our Audited Financial Statements.

Total costs, increased 12.6%, up from Ps.1,899.8 million during fiscal year 2017 to Ps.2,139.4 million during fiscal year 2018. Total costs as a percentage of total revenues decreased 38.0% during fiscal year 2017 to 36.0% during fiscal year 2018.

Costs from expenses and from collective promotion fund increased 15.5%, from Ps.1,512.7 million during fiscal year 2017 to Ps.1,747.1 million during fiscal year 2018. The variation was mainly due to an increase in expenses and collective promotion fund generated by Shopping Malls, which increased 16.9%, up from Ps.1,399.6 million during fiscal year 2017 to Ps.1,635.6 million during fiscal year 2018, mainly as a result of the inflation registered during the fiscal year 2018. The most important variation were the followings: (i) higher salaries, social security charges and other personnel expenses of Ps.103.4 million; (ii) an increase in maintenance, security, cleaning, repairs and related expenses of Ps.88.4 million (mostly attributable to increases in security and cleaning services and utility rates); and (iii) an increase in taxes, rates and contributions and other expenses of Ps.51.3 million, among other items. This was partially offset by lower expenses from the Offices segment, which decreased Ps.1.7 million, from Ps.113.1 million during fiscal year 2017 to Ps.111.4 million during fiscal year 2018, mainly due to a decrease in salaries, social security charges and other personnel expenses for Ps.2.6 million.

Costs from our joint ventures increased 87.6%, from Ps.12.9 million (Ps.4.4 million of which is attributable to the Shopping Malls segment and Ps.8.5 million to the Offices segment) during fiscal year 2017 to Ps.24.2 million (Ps.5.3 million of which is attributable to the Shopping Malls segment and Ps.18.9 million to the Offices segment) during fiscal year 2018.

Based on the information by segments, costs increased 4.2%, from Ps.399.9 million during fiscal year 2017 to Ps.416.6 million during fiscal year 2018. Total costs as a percentage of total revenues pursuant to the information by segments decreased from 11.3% during fiscal year 2017 to 9.8% during fiscal year 2018.

● 

Shopping Malls. The costs of our Shopping Malls segment decreased 5.6%, from Ps.349.4 million during fiscal year 2017 to Ps.329.8 million during fiscal year 2018, mainly generated by lower costs of leases and expenses for Ps.45.1 million due to the absorption of the deficit of the collective promotion fund. This was partially offset by, in each case, such increases were also affected by the inflation registered in fiscal year 2018: (i) an increase in salaries, social security charges and other personnel expenses of Ps.15.0 million; (ii) an increase in maintenance, security, cleaning, repairs and related expenses of Ps.8.5 million (mainly due to an increase in security and cleaning expenses and utility rates); and (iii) an increase in depreciation and amortization of Ps.4.0 million, among other items. The Shopping Malls segment costs, as a percentage of revenues from this segment, decreased from 11.5% during fiscal year 2017 to 9.0% during fiscal year 2018.

130

● 

Offices. The costs of the Offices segment increased 73.5%, from Ps.27.9 million during fiscal year 2017 to Ps.48.4 million during fiscal year 2018, mainly due to (i) an increase in leases and expenses of Ps.7.2 million; (ii) an increase in taxes, rates and contributions of Ps.3.8 million; (iii) an increase in maintenance, security, cleaning, repairs and related expenses of Ps.3.5 million, in each case, such increases were also affected by the inflation registered in fiscal year 2018; and (iv) an increase in fees and compensations for services of Ps.3.4 million. The costs of the Offices segment, as a percentage of the revenues from this segment, increased from 11.5% during fiscal year 2017 to 9.8% during fiscal year 2018.

● 

Sales and Developments. The costs of the Sales and Developments segment decreased from Ps.22.5 million in fiscal year 2017 to Ps.18.7 million in fiscal year 2018, mainly due to (i) lower cost of sales of properties for Ps.4.0 million; (ii) a decrease in fees and compensations for services of Ps.0.6 million, partially offset by (iii) an increase in taxes, rates and contributions of Ps.0.7 million, among other items. The costs of the Sales and Developments segment, as a percentage of the revenues from this segment, decreased from 22.7% during 2017 to 17.7% during fiscal year 2018.

● 

Others. The cost of the Others segment increased from zero during fiscal year 2017 to Ps.19.7 million during fiscal year 2018, mainly due to costs from La Arena S.A. The cost of the Others segment, as a percentage of revenues from this segment, increased 211.8% during fiscal year 2018.

Gross profit

	Fiscal year ended June 30, 2018
	Incomestatement	Expenses andcollectivepromotion fund	Interest injointventures	Information bysegment(1)
	(in millions of Ps.)
Shopping Malls	3,279.0	27.9	27.9	3,334.9
Offices	454.4	2.1	(12.7)	443.7
Sales and Developments	86.8	—	—	86.8
Others	(10.4)	—	—	(10.4)
Total gross profit	3,809.8	30.1	15.2	3,855.0

(1) See Note 6 to our Audited Financial Statements.

	Fiscal year ended June 30, 2017
	Incomestatement	Expenses andcollectivepromotion fund	Interest injointventures	Information bysegment(1)
	(in millions of Ps.)
Shopping Malls	2,651.6	23.7	21.8	2,697.1
Offices	368.3	0.9	4.7	373.9
Sales and Developments	76.6	—	—	76.6
Others	0.8	—	—	0.8
Total gross profit	3,097.4 24.6		26.5	3,148.4

(1) See Note 6 to our Audited Financial Statements.

Total consolidated gross profit, as per the income statement, increased 23.0%, from Ps.3,097.4 million during fiscal year 2017 to Ps.3,809.8 million during fiscal year 2018. Total consolidated gross profit as a percentage of total revenues increased from 62.0% in fiscal year 2017 to 64.0% in fiscal year 2018.

131

Gross profit from expenses and collective promotion fund increased a 22.4%, from Ps.24.6 million (Ps.23.7 million of which is attributable to the Shopping Malls segment and Ps.0.9 million to the Offices segment) during fiscal year 2017 to Ps.30.1 million (Ps.27.9 million of which is attributable to the Shopping Malls segment and Ps.2.1 million to the Offices segment) during fiscal year 2018.

Gross profit from our joint ventures decreased 42.6%, from Ps.26.5 million (Ps.21.8 million of which is attributable to the Shopping Malls segment and Ps.4.7 million to the Offices segment) during fiscal year 2017 to Ps.15.2 million (Ps.27.9 million of which is attributable to the Shopping Malls segment and Ps.12.7 million (loss) to the Offices segment) during fiscal year 2018.

Based on the information by segments, total gross profit increased 22.4%, from Ps.3,148.4 million during fiscal year 2017 to Ps.3,855.0 million during fiscal year 2018. Total gross profit as a percentage of total revenues went from 88.7% during fiscal year 2017 to 90.2% during fiscal year 2018.

● 

Shopping Malls. Gross profit from the Shopping Malls segment increased 23.6%, from Ps.2,697.1 million during fiscal year 2017 to Ps.3,334.9 million for fiscal year 2018, mainly as a result of an increase in total sales of our tenants due to the inflation registered in fiscal year 2018, giving rise to higher rental percentages under our lease agreements. Gross profit from our Shopping Malls segment as a percentage of revenues for the segment increased from 88.5% during fiscal year 2017 to 91.0% during fiscal year 2018.

● 

Offices. Gross profit from the Offices segment increased 18.7%, from Ps.373.9 million during fiscal year 2017 to Ps.443.7 million during fiscal year 2018. Gross profit from the Offices segment as a percentage of revenues from this segment decreased from 93.1% during fiscal year 2017 to 90.2% during fiscal year 2018, mainly as a result of a higher increase in this segment's costs against revenues as explained above for this year.

● 

Sales and Developments. Gross profit from the Sales and Developments segment experienced an increase of Ps.10.2 million, from a profit of Ps.76.6 million during fiscal year 2017 to a profit of Ps.86.8 million during fiscal year 2018. This increase mainly resulted from higher revenues from sales of the floors in Beruti building and parking spaces in Rosario building during fiscal year 2018. Gross profit from the Sales and Developments segment as a percentage of the revenues from this segment increased from 77.3% during fiscal year 2017 to 82.3% during fiscal year 2018, mainly as a result of higher sales during this fiscal year.

● 

Others. Gross profit from the Others segment experienced a significant variation during this fiscal year, from a profit of Ps.0.8 million during fiscal year 2017 to a loss of Ps.10.4 million during fiscal year 2018, mainly due to a higher increase in the costs of Ps.19.7 million of this segment compared to the revenues of Ps.8.4 million as explained above during this fiscal year.

Changes in fair value of investment properties

	Fiscal year ended June 30, 2018
	Incomestatement	Expenses andcollectivepromotion fund	Interest injointventures	Information bysegment(1)
	(in millions of Ps.)
Shopping Malls	11,268.9	—	71.1	11,340.1
Offices	4,375.4	—	667.0	5,042.4
Sales and Developments	1,000.1	—	—	1,000.1
Others	45.6	—	—	45.6
Total changes in fair value of investment properties	16,690.1	—	738.1	17,428.2

 (1) See Note 6 to our Audited Financial Statements.

132

	Fiscal year ended June 30, 2017
	Incomestatement	Expenses andcollectivepromotion fund	Interest injointventures	Information bysegment(1)
	(in millions of Ps.)
Shopping Malls	2,057.4	—	10.7	2,068.1
Offices	882.8	—	181.7	1,064.6
Sales and Developments	193.2	—	—	193.2
Others	—	—	—	—
Total changes in fair value of investment properties	3,133.4	—	192.5	3,325.9

 (1) See Note 6 to our Audited Financial Statements.

Net gain from changes in fair value of our combined portfolio of investment properties for the fiscal year ended June 30, 2018 was Ps.17,428.2 million (Ps.11,340.1 million from our Shopping Malls segment; Ps.5,042.4 million from the Offices segment; Ps.1,000.1 million from the Sales and Developments segment, and Ps.45.6 million from the Others segment). The net impact in the peso values of our properties was primarily a consequence of:

(i)

a 44 basis points increase in the discount rate applied in calculating the present value of projected cash flows used to estimate fair value of our shopping mall properties that resulted in a decrease in value of Ps.1,399.8 million, mainly as a result of an increase of cost of capital in Argentina;

(ii)

a net positive impact of Ps.7,760.1 million generated by an increase of Ps.7,012.3 million in the projected cash flows considering estimated inflation for the shopping malls DCF, a decrease of Ps.14,436.5 million due to the conversion into U.S. dollars of the projected cash flows considering estimated US$/Ps. exchange rates and a positive effect of Ps.15,184.3 million due to the conversion of the value in dollars of our shopping malls into pesos at the year-end exchange rate;

(iii)

our segments Offices and Sales and Developments, increased Ps.6,021.7 million in the value of our properties as measured in pesos, mainly as a result of  the Peso depreciated in fiscal year 2018 by approximately 73.5% against the U.S. dollar (from Ps.16.63 to Ps.28.85 to US$1.00). In addition, we recorded a realized fair value on disposal of office properties of Ps.20.8 million during the fiscal year ended June 30, 2018 compared to Ps.65.2 million in the comparable period in 2017, due to the sale of leasable offices and parking spaces at several buildings; and

(iv)

an additional positive effect of Ps.4,970.0 million due to the decrease in the income tax rate used in the methodology applied to value discounted cash flows; such amendment was set forth by the fiscal reform recently approved, where it was set forth that the income tax rate will be gradually reduced to 30% for fiscal periods beginning at January 1, 2018 through December 31, 2019, and to 25% for fiscal periods beginning at January 1, 2020 onwards.

133

General and administrative expenses

	Fiscal year ended June 30, 2018
	Incomestatement	Expenses andcollectivepromotion fund	Interest injointventures	Information bysegment(1)
	(in millions of Ps.)
Shopping Malls	(319.6)	—	(0.6)	(320.2)
Offices	(38.9)	—	(0.5)	(39.4)
Sales and Developments	(38.6)	—	—	(38.6)
Others	(18.1)	—	—	(18.1)
Total general and administrative expenses	(415.2)	—	(1.1)	(416.3)

(1) See Note 6 to our Audited Financial Statements.

	Fiscal year ended June 30, 2017
	Incomestatement	Expenses andcollectivepromotion fund	Interest injointventures	Information bysegment(1)
	(in millions of Ps.)
Shopping Malls	(259.2)	—	(2.3)	(261.5)
Offices	(31.0)	—	(0.5)	(31.5)
Sales and Developments	(30.5)	—	—	(30.5)
Others	(1.5)	—	—	(1.5)
Total general and administrative expenses	(322.2)	—	(2.8)	(325.0)

(1) See Note 6 to our Audited Financial Statements.

Administrative expenses, as per the income statement, increased 28.9%, from Ps.322.2 million during fiscal year 2017 to Ps.415.2 million during fiscal year 2018. Total administrative expenses as a percentage of total revenues increased slightly from 6.4% during fiscal year 2017 to 7.0% during fiscal year 2018.

Administrative expenses from our joint ventures decreased from Ps.2.8 million (Ps.2.3 million generated by Shopping Malls segment and Ps.0.5 million to the Offices segment) during fiscal year 2017 to Ps.1.1 million (Ps.0.6 million generated by Shopping Malls segment and Ps.0.5 million by the Offices segment) during fiscal year 2018.

134

Based on the information by segment, administrative expenses increased by 28.1%, from Ps.325.0 million during fiscal year 2017 to Ps.416.3 million during fiscal year 2018, mainly as a result of: (i) a Ps.58.7 million increase in administrative expenses of our Shopping Malls segment, (ii) a Ps.7.9 million increase in administrative expenses of our Offices segment, (iii) a Ps.8.1 million increase in administrative expenses of our Sales and Developments segment, and (iv) a Ps.16.6 million increase in administrative expenses of our Others segment. Administrative expenses, pursuant to the information by segments, as a percentage of total revenues, increased from 9.2% during fiscal year 2017 to 9.7% during fiscal year 2018.

● 

Shopping Malls. Administrative expenses of Shopping Malls increased 22.5%, from Ps.261.5 million during fiscal year 2017 to Ps.320.2 million during fiscal year 2018, mainly due to: (i) an increase of Ps.26.7 million in directors’ fees; (ii) a Ps.15.0 million increase in salaries, social security charges and other personnel expenses; (iii) an increase of Ps.8.4 million in maintenance, repair and service expenses and employees’ travel expenses, and (iv) a Ps.4.4 million increase in amortizations. Administrative expenses of Shopping Malls as a percentage of revenues from such segment increased from 8.6% during fiscal year 2017 to 8.7% during fiscal year 2018.

● 

Offices. Administrative expenses of the Offices segment increased Ps.7.9 million, from Ps.31.5 million during fiscal year 2017 to Ps.39.4 million during fiscal year 2018, mainly as a result of: (i) an increase of Ps.3.1 million in directors’ fees; (ii) a Ps.1.9 million increase in salaries, social security charges and other personnel expenses; and (iii) a Ps.1.1 million increase in banking expenses. Administrative expenses of the Offices segment as a percentage of revenues from this segment increased from 7.8% during fiscal year 2017 to 8.0% during fiscal year 2018.

● 

Sales and Developments. Administrative expenses of the Sales and Developments segment increased from Ps.8.1 million, from Ps.30.5 million during fiscal year 2017 to Ps.38.6 million during fiscal year 2018, mainly as a result of: (i) an increase of Ps.3.1 million in directors’ fees; (ii) a Ps.1.9 million increase in salaries, social security charges and other personnel expenses; and (ii) an increase of Ps.1.1 million in banking expenses, among other items. Administrative expenses of the Sales and Developments segment as a percentage of revenues from this segment rose from 30.7% during fiscal year 2017 to 36.5% during fiscal year 2018.

● 

Others. Administrative expenses of the Others segment experienced a strong variation, from Ps.1.5 million during fiscal year 2017 to Ps.18.1 million during fiscal year 2018, mainly due to expenses of La Arena , related to the operation of the “DIRECTV ARENA”.

Selling expenses

	Fiscal year ended June 30, 2018
	Incomestatement	Expenses andcollectivepromotion fund	Interest injointventures	Information bysegment(1)
	(in millions of Ps.)
Shopping Malls	(235.9)	—	(2.3)	(238.2)
Offices	(46.4)	—	(1.0)	(47.4)
Sales and Developments	(10.6)	—	—	(10.6)
Others	(2.0)	—	—	(2.0)
Total selling expenses	(294.9)	—	(3.3)	(298.1)

(1) See Note 6 to our Audited Financial Statements.

135

	Fiscal year ended June 30, 2017
	Incomestatement	Expenses andcollectivepromotion fund	Interest injointventures	Information bysegment(1)
	(in millions of Ps.)
Shopping Malls	(186.5)	—	(1.6)	(188.1)
Offices	(33.3)	—	(0.6)	(33.9)
Sales and Developments	(13.7)	—	—	(13.7)
Others	(3.0)	—	—	(3.0)
Total selling expenses	(236.5)	—	(2.1)	(238.7)

(1) See Note 6 to our Audited Financial Statements.

Selling expenses, increased 24.7%, from Ps.236.5 million during fiscal year 2017 to Ps.294.9 million during fiscal year 2018. Selling expenses as a percentage of total revenues increased from 4.7% during fiscal year 2017 to 5.0% during fiscal year 2018.

Selling expenses from our joint ventures showed an increase, from Ps. 2.1 million during fiscal year 2017 (Ps. 1.6 million of which is attributable to the Shopping Malls segment and Ps. 0.6 million to the Offices segment) to Ps. 3.3 million during fiscal year 2018 (Ps. 2.3 million of which is attributable to the Shopping Malls segment and Ps. 1.0 million to the Offices segment).

Based on information by segment Selling expenses increased 24.9%, from Ps. 238.7 million during fiscal year 2017 to Ps. 298.1 million during fiscal year 2018. This increase was mainly attributable to: (i) a Ps.50.1 million increase in selling expenses of the Shopping Malls segment; (ii) higher selling expenses of Ps.13.5 million from the Offices segment, partially offset by (iii) lower selling expenses of Ps.3.1 million from the Sales and Developments segment, and (iv) a Ps.1.0 million decrease in selling expenses from the Others segment. Selling expenses (taking into account selling expenses derived from our joint ventures and inter-segment eliminations) as a percentage of total revenues increased from 6.7% during fiscal year 2017 to 7.0% during fiscal year 2018.

136

● Shopping Malls. Selling expenses from the Shopping Malls segment increased 26.6%, from Ps.188.1 million during fiscal year 2017 to Ps.238.2 million during fiscal year 2018, mainly as a result of: (i) an increase in taxes, rates and contributions of Ps.28.1 million, mainly generated by higher turnover taxes; and (ii) a Ps.21.7 million increase in loan losses charges. Selling expenses as a percentage of revenues from the Shopping Malls segment rose from 6.2% during fiscal year 2017 to 6.5% during fiscal year 2018.

● Offices. Selling expenses from the Offices segment increased Ps.13.5 million, from Ps.33.9 million during fiscal year 2017 to Ps.47.4 million during fiscal year 2018, mainly as a result of (i) an increase in loan losses charges of Ps.11.2 million; and (ii) an increase in taxes, rates and contributions of Ps.2.6 million, mainly generated by higher turnover taxes. Selling expenses from the Offices segment as a percentage of the revenues from such segment increased from 8.4% during fiscal year 2017 to 9.6% during fiscal year 2018.

● Sales and Developments. Selling expenses from our Sales and Developments segment decreased Ps.3.1 million, from Ps.13.7 million during fiscal year 2017 to Ps.10.6 million during fiscal year 2018, mainly due to: (i) a decrease in taxes, rates and contributions of Ps.4.2 million, partially offset by: (ii) an increase in fees and compensations for services of Ps.1.7 million.

● Others. Selling expenses from the Others segment decreased Ps.1.0 million, from Ps.3.0 million during fiscal year 2017 to Ps.2.0 million during fiscal year 2018, mainly as a result of lower loan losses related to the consumer financing residual activity.

Other operating results, net

	Fiscal year ended June 30, 2018
	Incomestatement	Expenses andcollectivepromotion fund	Interest injointventures	Information bysegment (1)
	(in millions of Ps.)
Shopping Malls	(52.5)	—	(3.9)	(56.5)
Offices	0.3	—	—	0.3
Sales and Developments	33.6	—	—	33.6
Others	13.7	—	—	13.7
Total other operating results, net	(4.9)	—	(3.9)	(8.9)

(1) See Note 6 to our Audited Financial Statements.

137

	Fiscal year ended June 30, 2017
	Incomestatement	Expenses andcollectivepromotion fund	Interest injointventures	Information bysegment (1)
	(in millions of Ps.)
Shopping Malls	(56.3)	—	(1.4)	(57.7)
Offices	(7.2)	—	0.5	(6.7)
Sales and Developments	(3.9)	—	(0.2)	(4.1)
Others	16.2	—	—	16.2
Total other operating results, net	(51.2)	—	(1.1)	(52.3)

(1) See Note 6 to our Audited Financial Statements.

Other operating results, net, decreased Ps.46.3 million, from a Ps.51.2 million loss during fiscal year 2017 to a Ps.4.9 million loss during fiscal year 2018. Other operating results, net as a percentage of total revenues declined from (1.0)% during fiscal year 2017 to (0.1)% during fiscal year 2018.

Other operating results, net from our joint ventures increased Ps.2.8 million, from Ps.1.1 million (Ps.1.4 million of which were allocated to the Shopping Malls segment, Ps.0.2 million to the Sales and Developments segment and Ps.0.5 million (profit) to the Offices segment) during fiscal year 2017 to Ps.3.9 million (which were allocated to the Shopping Malls segment) during fiscal year 2018.

Based on information by segment, other operating results, net declined from a loss of Ps.52.3 million during fiscal year 2017 to a loss of Ps.8.9 million during fiscal year 2018, mainly as a result of (i) a higher charge of Ps.37.7 million in other operating results, net from the Sales and Developments segment; (ii) a lower loss of Ps.7.0 million in other operating results, net from the Offices segment; (iii) a lower loss of Ps.1.2 million in other operating results, net from the Shopping Malls segment, partially offset by: (iv) a lower profit of Ps.2.5 million in other operating results, net from the Others segment. Other operating results, net as a percentage of revenues declined from 1.5% during fiscal year 2017 to 0.2% during fiscal year 2018.

● 

Shopping Malls. Other operating results, net from the Shopping Malls segment decreased 2.2%, from a loss of Ps.57.7 million during fiscal year 2017 to a loss of Ps.56.5 million during fiscal year 2018, mainly as a result of: (i) a lower charge for donations of Ps.20.9 million, partially offset by (ii) a higher charge for lawsuits and contingencies of Ps.12.1 million; and (iii) a higher charge for directors fees of Ps.5.8 million. Other operating results, net from this segment as a percentage of the revenues from this segment decreased from 1.9% during fiscal year 2017 to 1.5% during fiscal year 2018.

● 

Offices. Other operating results, net from the Offices segment went from a loss of Ps.6.7 million during fiscal year 2017 to a profit of Ps.0.3 million during fiscal year 2018, mainly attributable to: (i) a higher charge of Ps.2.7 million in directors fees and; (ii) a lower charge for donations of Ps.1.8 million. Other operating results, net from this segment as a percentage of the revenues from this segment decreased from 1.7% during fiscal year 2017 to 0.1% during fiscal year 2018.

● 

Sales and Developments. Other operating results, net from the Sales and Developments segment changed from a loss of Ps.4.1 million during fiscal year 2017 to a profit of Ps.33.6 million during fiscal year 2018, attributable to: (i) a higher profit due to the sale of the second floor in the Intercontinental Building for Ps.34.7 million; and (ii) a lower loss for donations of Ps.1.9 million. Other operating results, net from this segment as a percentage of the revenues from this segment decreased from 4.1% during fiscal year 2017 to 31.8% during fiscal year 2018.

● 

Others. Other operating results, net from the Others segment decreased from Ps.2.5 million, from a profit of Ps.16.2 million during fiscal year 2017 to a profit of Ps.13.7 million during fiscal year 2018, due to an increase in the royalty withLRSA, offset by the revaluation of the equity interest held befor the bussinnes combination of EHSA during fiscal year 2017.

138

Profit from operations

	Fiscal year ended June 30, 2018
	Incomestatement	Expenses andcollectivepromotion fund	Interest in jointventures	Information bysegment (1)
	(in millions of Ps.)
Shopping Malls	13,939.9	28.0	92.2	14,060.1
Offices	4,744.7	2.1	652.8	5,399.7
Sales and Developments	1,071.5	—	—	1,071.4
Others	28.9	—	—	28.8
Total profit from operations	19,784.9	30.1	745.0	20,559.9

(1) See Note 6 to our Audited Financial Statements.

	Fiscal year ended June 30, 2017
	Incomestatement	Expenses andcollectivepromotion fund	Interest in jointventures	Information bysegment (1)
	(in millions of Ps.)
Shopping Malls	4,207.0	23.7	27.2	4,258.0
Offices	1,179.6	0.8	185.8	1,366.4
Sales and Developments	221.7	—	(0.2)	221.5
Others	12.5	—	—	12.5
Total profit from operations	5,620.9	24.6	212.9	5,858.4

(1) See Note 6 to our Audited Financial Statements.

Total profit from operations, increased 252.0%, from Ps.5,620.9 million during fiscal year 2017 to Ps.19,784.9 million during fiscal year 2018. Total operating income as a percentage of total revenues increased from 112.5% during fiscal year 2017 to 332.6% during fiscal year 2018.

Operating income from our joint ventures increased 249.9%, from Ps.212.9 million (Ps.185.8 million of which is attributable to the Offices segment, Ps.27.2 million to the Shopping Malls segment and Ps.0.2 million (loss) to the Sales and Developments segment) during fiscal year 2017 to Ps.745.0 million (Ps.652.8 million of which is attributable to the Offices segment and Ps.92.2 million to the Shopping Malls segment) during fiscal year 2018.

Based on the information by segment operating income increased 250.9%, from Ps.5,858.4 million during fiscal year 2017 to Ps.20,559.9 million during fiscal year 2018, mainly as a result of: (i) an increase in operating income from the Shopping Malls segment of Ps.9,802.1 million; (ii) an increase in operating income from the Offices segment of Ps.4,033.3 million, (iii) an increase in operating income from the Sales and Developments segment of Ps.849.9 million; and (iv) an increase in income from the Others segment of Ps.16.3 million. Total operating income (taking into account our joint ventures, inter-segment eliminations and eliminations for costs from expenses and collective promotion fund from the shopping malls and offices segments) as a percentage of total revenues increased from 165.1% during fiscal year 2017 to 481.3% during fiscal year 2018.

●

Shopping Malls. Operating income from the Shopping Malls segment increased 230.2% during fiscal year 2018, from Ps.4,258.0 million during fiscal year 2017 to Ps.14,060.1 million during fiscal year 2018. Operating income from the Shopping Malls segment as a percentage of the revenues from such segment increased from 139.8% during fiscal year 2017 to 383.7% during fiscal year 2018.

139

●

Offices. Operating income from the Offices segment increased Ps.4,033.3 million, from Ps.1,366.4 million during fiscal year 2017 to Ps.5,399.7 million during fiscal year 2018. Operating income from the Offices segment, as a percentage of the revenues from such segment, increased from 340.1% during fiscal year 2017 to 1,097.3% during fiscal year 2018.

●

Sales and Developments. Operating income from the Sales and Developments segment increased Ps.849.8 million, from Ps.221.5 million during fiscal year 2017 to Ps.1,071.4 million during fiscal year 2018.

●

Others. Operating income from the Others segment increased from Ps.12.5 million during fiscal year 2017 to Ps.28.8 million during fiscal year 2018.

Share of profit of associates and joint ventures

The share of profit of associates and joint ventures increased by Ps.486.8 million, from a profit of Ps.152.7 million during fiscal year 2017 to a profit of Ps.639.5 million during fiscal year 2018. This variation was mainly due to (i) a higher profit of Ps.422.3 million generated by our Offices segment; (ii) a higher profit of Ps.58.1 million generated by our Shopping Malls segment, and (iii) a higher profit of Ps.6.5 million from our Others segment.

●

Shopping Malls. The share of profit of associates and joint ventures from the Shopping Malls segment increased by Ps.58.1 million, from a profit of Ps.20.4 million during fiscal year 2017 to a profit of Ps.78.4 million during fiscal year 2018, mainly generated by our interest in NPSF.

●

Offices. The share of profit of associates and joint ventures from the Offices segment increased by Ps.422.3 million, from a profit of Ps.118.7 million during fiscal year 2017 to a profit of Ps.540.9 million during fiscal year 2018, mainly generated by our interest in Quality Invest S.A.

●

Others. The share of profit (loss) of associates and joint ventures from the Others segment increased by Ps.6.5 million, from a profit of Ps.13.7 million during fiscal year 2017 to a profit of Ps.20.2 million during fiscal year 2018, mainly generated by a higher profit from our investment in LRSA.

Financial results, net

Financial results, net increased 469.6%, from a loss of Ps.786.9 million during fiscal year 2017 to a loss of Ps. 4,481.9 million during fiscal year 2018.

Finance income increased by Ps.445.7 million, from Ps.242.4 million during fiscal year 2017 to Ps.688.2 million during fiscal year 2018, mainly as a result of: (i) a Ps.365.5 million increase in foreign exchange gains due to the impact of a higher Peso depreciation during fiscal year 2018 on our U.S. Dollar-denominated net assets compared to a lower depreciation during fiscal year 2017 (the Peso/Dollar exchange rate increased 73.9% during fiscal year 2018, from Ps.16.40 as of June 30, 2017 to Ps.28.40 as of June 30, 2018, while during fiscal year 2017, it increased 10.6% compared to fiscal year 2016, from Ps.14.94 as of June 30, 2016 to Ps.16.53 as of June 30, 2017), and (ii) a net increase of Ps.55.7 million in interest income, mainly generated by default interest payable by clients, and from government securities.

Financial expenses increased by 466.4%, from Ps. 1,313.3 million during fiscal year 2017 to Ps. 7,438.5 million during fiscal year 2018, mainly as a result of: (i) a Ps. 5,808.3 million increase in foreign exchange losses due to the impact of a higher Peso depreciation during fiscal year 2018 on our U.S. Dollar-denominated debt as compared to a lower depreciation during fiscal year 2017 (the Peso/Dollar exchange rate increased 73.9% during fiscal year 2018, from Ps. 16.63 as of June 30, 2017 to Ps. 28.85 as of June 30, 2018, while during fiscal year 2017, it increased 10.6% compared to fiscal year 2016, from Ps. 15.04 as of June 30, 2016 to Ps. 16.63 as of June 30, 2017).

140

Income from other financial results increased by Ps. 1,984.4 million, from a Ps. 284.0 million gain during fiscal year 2017 to a Ps. 2,268.4 million gain during fiscal year 2018, mainly as a result of: (i) a Ps. 1,838.0 million increase in revenues generated by the valuation of financial assets at fair value, mainly revenues from government securities and Letes linked to the U.S. dollar and (ii) a Ps. 146.3 million increase in revenues from derivative financial instruments (mainly due to the higher number of agreements executed in fiscal year 2018 as compared to fiscal year 2017).

Income tax expense

Income tax expense decreased 82.2%, from a Ps.1,609.2 million loss during fiscal year 2017 to a Ps.286.5 million loss during fiscal year 2018, mainly due to a decrease in income before income tax at the prevailing tax rate and the change in fair value.

The income tax is mainly composed by: (i) current tax wich decreased from a loss of Ps.510.1 million in 2017 to Ps.137.7 million in 2018 mainly due to the exchange difference attributable to the depreciation of the Peso against the U.S. dollar; and (ii) deferred tax which decreased from Ps.1,099.1 million in 2017 to Ps.149.8 million in 2018, mainly due to the change in the tax rate due to the tax reform.

In determining the income tax charge, we apply the deferred tax method, recognizing the temporary differences between the book value, the valuation of assets and liabilities for tax purposes and the application of tax loss carryforwards. For this reason, the amount shown as income tax reflects not only the amount payable but also the recognition of the tax on the taxable income as booked.

Total profit for the year

As a result of the factors described above, the income for the year 2018 increased 363.5%, from a profit of Ps.3,377.5 million during fiscal year 2017 to a profit of Ps.15,656.0 million during fiscal year 2018. Income attributable to our parent company's shareholders increased 363.1%, from Ps.3,260.5 million during fiscal year 2017 to Ps.15,099.9 million during fiscal year 2018. Income attributable to the non-controlling interest increased 375.1%, from Ps.117.0 million during fiscal year 2017 to Ps.556.1 million during fiscal year 2018.

Results of operations for the fiscal years ended June 30, 2017 and 2016

Revenues

	Fiscal year ended June 30, 2017
	Incomestatement (2)	Expenses andcollectivepromotion fund	Interest injointventures	Information bysegment(1)
	(in millions of Ps.)
Shopping Malls	4,396.3	(1,375.9)	26.2	3,046.6
Offices	500.8	(112.3)	13.2	401.8
Sales and Developments	99.1	—	—	99.1
Others	0.9	—	—	0.9
Total revenues	4,997.2	(1,488.2)	39.4	3,548.4

(1) See Note 6 to our Audited Financial Statements.

(2) Includes Ps.3,509.0 million in revenues from sales, leases and services and Ps.1,488.2 million in income from the Expenses and Collective Promotion Fund.

141

	Fiscal year ended June 30, 2016
	Incomestatement (2)	Expenses andcollectivepromotion fund	Interest injointventures	Information bysegment(1)
	(in millions of Ps.)
Shopping Malls	3,490.5	(1,101.3)	19.9	2,409.1
Offices	364.3	(82.4)	2.2	284.1
Sales and Developments	2.7	—	—	2.7
Others	1.0	—	—	1.0
Total revenues	3,858.5	(1,183.6)	22.0	2,696.9

(1) See Note 6 to our Audited Financial Statements.

(2) Includes Ps.2,674.9 million in revenues from sales, leases and services and Ps.1,183.6 million in income from the Expenses and Collective Promotion Fund.

Total revenues from sales, leases and services increased 29.5%, from Ps.3,858.5 million during fiscal year 2016 to Ps.4,997.2 million during fiscal year 2017.

Revenues from the Expenses and Collective Promotion Fund increased 25.7%, from Ps.1,183.6 million (Ps.1,101.3 million of which was generated by the Shopping Malls segment and Ps.82.4 million by the Offices segment) during fiscal year 2016 to Ps.1,488.2 million (Ps.1,375.9 million of which was generated by the Shopping Malls segment and Ps.112.3 million by the Offices segment) during fiscal year 2017.

Revenues from our joint ventures increased 79.1%, from Ps.22.0 million (Ps.19.9 million of which was generated by the Shopping Malls segment and Ps.2.2 million by the Offices segment) during fiscal year 2016 to Ps.39.4 million (Ps.26.2 million of which was generated by the Shopping Malls segment and Ps.13.2 million by the Offices segment) during fiscal year 2017.

Based on the information by segment, revenues increased 31.6%, from Ps.2,696.9 million during fiscal year 2016 to Ps.3,548.4 million during fiscal year 2017. This increase was mainly attributable to: (i) a Ps.637.5 million increase in revenues from the Shopping Malls segment (Ps.6.3 million of which was generated by our joint ventures); (ii) a Ps.117.7 million increase in the revenues from the Offices segment (Ps.11.0 million of which was generated by our joint ventures); and (iii) an increase of Ps.96.5 million in revenues from the Sales and Developments segment; partially offset by (iv) a Ps.0.1 million decrease in revenues from the Others segment.

● 

Shopping malls. Revenues from the Shopping Malls segment increased 26.5%, from Ps.2,409.1 million during fiscal year 2016 to Ps.3,046.6 million during fiscal year 2017, mainly attributable to: (i) a Ps.408.5 million increase in revenues from fixed and variable lease payments as a result of a 19.4% increase in our tenants’ gross sales, from Ps.28.8 million during fiscal year 2016 to Ps.34.4 million during fiscal year 2017; (ii) a Ps.55.0 million increase in revenues from admission rights; (iii) a Ps.39.5 million increase in revenues from parking charges; and (iv) a Ps.134.5 million increase in revenues from commissions, among other items.

● 

Offices. Revenues from the Offices segment increased Ps.117.7 million, from Ps.284.1 million in fiscal year 2016 to Ps.401.8 million in fiscal year 2017. This variation mainly resulted from: (i) an increase in revenues at Quality, generated by a new contract with Cladd Industria Textil Argentina S.A; and (ii) the depreciation of the Argentine Peso against the U.S. Dollar from an exchange rate of Ps.15.04 as of June 30, 2016 to Ps.16.63 per Dollar as of June 30 2017.

● 

Sales and developments. Revenues from the Sales and Developments segment often change significantly from fiscal year to fiscal year due to the non-recurrence of different sale transactions carried out by us. Revenues from the Sales and Developments segment increased Ps.96.4 million, from Ps.2.7 million during fiscal year 2016 to Ps.99.1 million during fiscal year 2017, mainly due to the sales of units and parking spaces at our Beruti property.

142

● Others. Revenues from the Others segment did not change significantly from Ps.1.0 million during fiscal year 2016 to Ps.0.9 million during fiscal year 2017.

Costs

	Fiscal year ended June 30, 2017
	Incomestatement	Expenses andcollectivepromotion fund	Interest injointventures	Information bysegment(1)
	(in millions of Ps.)
Shopping Malls	(1,744.7)	1,399.6	(4.4)	(349.4)
Offices	(132.5)	113.1	(8.5)	(27.9)
Sales and Developments	(22.5)	—	—	(22.5)
Others	—	—	—	—
Total costs	(1,899.8)	1,512.7	(12.9)	(399.9)

(1) See Note 6 to our Audited Financial Statements.

	Fiscal year ended June 30, 2016
	Incomestatement	Expenses andcollectivepromotion fund	Interest injointventures	Information bysegment(1)
	(in millions of Ps.)
Shopping Malls	(1,366.3)	1,118.9	(2.9)	(250.3)
Offices	(88.1)	82.4	(6.6)	(12.3)
Sales and Developments	(5.7)	—	—	(5.7)
Others	(0.1)	—	—	(0.1)
Total costs	(1,460.2)	1,201.3	(9.5)	(268.4)

(1) See Note 6 to our Audited Financial Statements.

Total costs increased 30.1%, from Ps.1,460.2 million during fiscal year 2016 to Ps.1,899.8 million during fiscal year 2017. Total costs as a percentage of total revenues increased from 37.8% during fiscal year 2016 compared to 38.0% during fiscal year 2017.

Costs from the expenses and collective promotion fund increased 25.9%, from Ps.1,201.3 million during fiscal year 2016 to Ps.1,512.7 million during fiscal year 2017, mainly due to an increase in the expenses and collective promotion fund generated by the Shopping Malls segment, which increased 25.1%, from Ps.1,118.9 million during fiscal year 2016 to Ps.1,399.6 million during fiscal year 2017, as a result of: (i) an increase of Ps.142.6 million in maintenance, security, repairs and related expenses (mainly due to an increase in security and cleaning expenses and utility rates); (ii) an increase of Ps.109.9 million in salaries, social security charges and other personnel expenses; and (iii) an increase of Ps.36.2 million in taxes, rates and contributions among other items. Additionally the increase is related to a Ps.30.7 million increase in expenses from the Offices segment, from Ps.82.4 million during fiscal year 2016 to Ps.113.1 million during fiscal year 2017, as a result of: (x) an increase of Ps.21.5 million in maintenance, security, repairs and related expenses; (y) an increase of Ps.6.1 million in salaries, social security charges and other personnel expenses and; (z) an increase of Ps.3.5 million in taxes, rates and contributions.

Costs from our joint ventures increased 35.8%, from Ps.9.5 million (Ps.2.9 million of which was attributable to the Shopping Malls segment and Ps.6.6 million to the Offices segment) during fiscal year 2016 to Ps.12.9 million (Ps.4.4 million of which was attributable to the Shopping Malls segment and Ps.8.5 million to the Offices segment) during fiscal year 2017.

143

Based on the information by segment, costs increased 49.0%, from Ps.268.4 million during fiscal year 2016 to Ps.399.9 million during fiscal year 2017. Total costs as a percentage of total revenues pursuant to the information by segments increased from 10.0% during fiscal year 2016 to 11.3% during fiscal year 2017.

● 

Shopping malls. Costs attributable to the Shopping Malls segment increased 39.6%, from Ps.250.3 million during fiscal year 2016 to Ps.349.4 million during fiscal year 2017, mainly as a result of: (i) an increase of Ps.41.2 million in costs resulting from the rents and expenses; (ii) an increase of Ps.30.1 million in maintenance, security, repairs and related expenses; (iii) an increase of Ps.22.9 million in salaries, social security charges and other personnel expenses; and (iv) an increase of Ps.2.8 million in fees and payments for services. Costs attributable to the Shopping Malls segment, as a percentage of revenues from this segment, increased 10.4% during fiscal year 2016 to 11.5% during fiscal year 2017.

● 

Offices. Costs of the Offices segment increased 127.7%, from Ps.12.3 million during fiscal year 2016 to Ps.27.9 million during fiscal year 2017, mainly due to: (i) an increase of Ps.2.8 million in taxes, rates and contributions; and (ii) an increase of Ps.2.6 million in maintenance, repairs and services. The costs of the Offices segment, as a percentage of revenues from this segment, increased from 4.3% during fiscal year 2016 to 6.9% during fiscal year 2017.

● 

Sales and developments. The costs of the Sales and Developments segment increased from Ps.5.7 million during fiscal year 2016 to Ps.22.5 million during fiscal year 2017 mainly due to (i) an increase in costs related to sales of properties of Ps 11.5 million; and (ii) an increase of Ps.3.8 million in maintenance, security, repairs and related expenses. The costs of the Sales and Developments segment, as a percentage of the revenues from this segment decreased from 213.5% during 2016 to 22.7% during fiscal year 2017.

● 

Others. The costs of the Others segment were generally unchanged during the fiscal year 2017 as compared to fiscal year 2016.

Gross profit

	Fiscal year ended June 30, 2017
	Incomestatement	Expenses andcollectivepromotion fund	Interest injointventures	Information bysegment(1)
	(in millions of Ps.)
Shopping Malls	2,651.6	23.7	21.8	2,697.1
Offices	368.3	0.9	4.7	373.9
Sales and Developments	76.6	—	—	76.6
Others	0.8	—	—	0.8
Total gross profit	3,097.4	24.6	26.5	3,148.4

(1) See Note 6 to our Audited Financial Statements.

144

	Fiscal year ended June 30, 2016
	Incomestatement	Expenses andcollectivepromotion fund	Interest injointventures	Information bysegment(1)
	(in millions of Ps.)
Shopping Malls	2,124.2	17.7	17.0	2,158.8
Offices	276.2	—	(4.4)	271.9
Sales and Developments	(3.0)	—	—	(3.0)
Others	0.9	—	—	0.9
Total gross profit	2,398.3	17.7	12.6	2,428.6

(1) See Note 6 to our Audited Financial Statements.

Gross profit increased 29.1%, from Ps.2,398.3 million during fiscal year 2016 to Ps.3,097.4 million during fiscal year 2017. Consolidated gross profit as a percentage of total revenues decreased slightly from 62.2% during fiscal year 2016 to 62.0% during fiscal year 2017.

Gross profit from the expenses and collective promotion fund increased 39.0%, from Ps.17.7 million (attributable to the Shopping Malls segment) during fiscal year 2016 to Ps.24.6 million (of which Ps.23.7 million was attributable to the Shopping Malls segment and Ps.0.9 million to the Offices segment) during fiscal year 2017.

Gross profit from joint ventures increased 110.3%, from Ps.12.6 million (of which a gain of Ps.17.0 million was attributable to the Shopping Malls segment and a loss of Ps.4.4 million to the Offices segment) during fiscal year 2016 to Ps.26.5 million (of which Ps.21.8 million was attributable to our Shopping Malls segment and Ps.4.7 million to the Offices segment) during fiscal year 2017.

Based on the information by segment, gross profit increased 29.6%, from Ps.2,428.6 million during fiscal year 2016 to Ps.3,148.4 million during fiscal year 2017. Total gross profit as a percentage of revenues decreased from 90.1% during fiscal year 2016 to 88.7% during fiscal year 2017.

● 

Shopping malls. Gross profit from the Shopping Malls segment increased 24.9%, from Ps.2,158.8 million for fiscal year 2016 to Ps.2,697.1 million for fiscal year 2017, mainly as a result of an increase in total gross sales of our tenants that generated higher rental payments under our lease agreements. Gross profit from our Shopping Malls segment as a percentage of revenues for the segment experienced a slight decrease from 89.6% during fiscal year 2016 to 88.5% during fiscal year 2017.

● 

Offices. Gross profit from the Offices segment increased 37.5%, from Ps.271.9 million during fiscal year 2016 to Ps.373.9 million during fiscal year 2017. Gross profit from the Offices segment as a percentage of revenues from this segment decreased from 95.7% during fiscal year 2016 to 93.1% during fiscal year 2017, mainly as a result of increased costs in relation to revenues from this segment.

● 

Sales and developments. Gross profit from the Sales and Developments segment increased Ps.79.6 million, from a loss of Ps.3.0 million during fiscal year 2016 a profit of Ps.76.6 million during fiscal year 2017, mainly because of the sales of units and parking spaces at Beruti property during fiscal year 2017. Gross profit from the Sales and Developments segment as a percentage of revenues from this segment increased from a loss of 113.5% during fiscal year 2016 to a gain of 77.3% during fiscal year 2017.

● 

Others. Gross profit from the Others segment did not change significantly, decreasing from Ps.0.9 million during fiscal year 2016 to Ps.0.8 million during fiscal year 2017.

145

Changes in fair value of investment properties

	Fiscal year ended June 30, 2017
	Incomestatement	Expenses andcollectivepromotion fund	Interest injointventures	Information bysegment(1)
	(in millions of Ps.)
Shopping Malls	2,057.4	—	10.7	2,068.1
Offices	882.8	—	181.7	1,064.6
Sales and Developments	193.2	—	—	193.2
Total changes in fair value of investment properties	3,133.4	—	192.5	3,325.9

(1) See Note 6 to our Audited Financial Statements.

	Fiscal year ended June 30, 2016
	Incomestatement	Expenses andcollectivepromotion fund	Interest injointventures	Information bysegment(1)
	(in millions of Ps.)
Shopping Malls  .	16,048.7	—	83.0	16,131.7
Offices	618.6	—	248.8	867,4
Sales and Developments	425.1	—	—	425,1
Total changes in fair value of investment properties	17,092.4	—	331.8	17,424.2

(1) See Note 6 to our Audited Financial Statements.

Net gain from changes in fair value of our combined portfolio of investment properties for fiscal year 2017 was Ps.3,325.9 million (Ps.2,068.1 million for Shopping Malls; Ps.1,064.6 million for Offices; and Ps.193.2 million for Sales and Developments). The significant increase in the value of our investment properties as measured in Pesos was primarily due to:

(i)

a 16 basis points decrease in the discount rate applied in calculating the present value of the projected cash flows used to estimate the fair value of our shopping mall properties that resulted in an increase in value of Ps.725.6 million, mainly as a result of a decrease in cost of debt for the Company from 7.50% to 5.15% explained by lower yields for the Company’s bonds traded in the capital markets. In addition, a further improvement in the prevailing conditions for capital raising by Argentine entities, generated a 18 basis points decrease in the Country Risk Premium from 4.85% to 4.67%. On the other hand, the Risk Free Rate reached 2.35%, returning to 2015 levels and more than off-setting improvements in the Country Risk Premium;

(ii)

a net positive impact of Ps.1,805.1 million generated by an increase of Ps.4,537.3 million in the projected cash flows used to estimate fair value of our shopping malls as a result of expected local inflation, a decrease of Ps.5,524.5 million due to the conversion into U.S. dollars of the projected cash flows considering estimated forward US$/ARS exchange rates and a positive effect of Ps.2,792.3 million due to the conversion of the value in dollars of our shopping malls into pesos at a higher exchange rate at year-end; and

(iii)

our segments Offices and Sales and Developments, increased Ps. 1,257.7 million in the value of our properties as measured in pesos, mainly as a result of the Peso depreciated in fiscal year 2017 by approximately 10.6% against the U.S. dollar (from Ps. 15.04 to Ps. 16.63 to US$1.00). .

146

General and administrative expenses

	Fiscal year ended June 30, 2017
	Incomestatement	Expenses andcollectivepromotion fund	Interest injointventures	Information bysegment(1)
	(in millions of Ps.)
Shopping Malls	(259.2)	—	(2.3)	(261.5)
Offices	(31.0)	—	(0.5)	(31.5)
Sales and Developments	(30.5)	—	—	(30.5)
Others	(1.5)	—	—	(1.5)
Total general and administrative expenses	(322.2)	—	(2.8)	(325.0)

(1) See Note 6 to our Audited Financial Statements.

	Fiscal year ended June 30, 2016
	Incomestatement	Expenses andcollectivepromotion fund	Interest injointventures	Information bysegment(1)
	(in millions of Ps.)
Shopping Malls	(178.3)	—	(0.4)	(178.6)
Offices	(23.0)	—	(0.3)	(23.3)
Sales and Developments	(20.3)	—	—	(20.3)
Others	—	—	—	—
Total general and administrative expenses	(221.6)	—	(0.7)	(222.2)

(2) See Note 6 to our Audited Financial Statements.

Administrative expenses, as per the income statement, increased 45.4%, from Ps.221.6 million during fiscal year 2016 to Ps.322.2 million during fiscal year 2017. Total administrative expenses as a percentage of total revenues increased slightly from 5.7% during fiscal year 2016 to 6.4% during fiscal year 2017.

Administrative expenses from our joint ventures increased from Ps.0.7 million (Ps.0.4 million of which is attributable to the Shopping Malls segment and Ps.0.3 million to the Offices segment) during fiscal year 2016 to Ps.2.8 million (Ps.2.3 million of which is attributable to the Shopping Malls segment and Ps.0.5 million to the Offices segment) during fiscal year 2017.

Therefore, administrative expenses (taking into account administrative expenses derived from our joint ventures, and inter-segment eliminations) rose by 46.2%, from Ps.222.2 million during fiscal year 2016 to Ps.325.0 million during fiscal year 2017, mainly as a result of: (i) a Ps.82.8 million increase in administrative expenses of our Shopping Malls segment; (ii) a Ps.10.2 million increase in administrative expenses of our Sales and Developments segment; (iii) a Ps.8.2 million increase in administrative expenses of our Offices segment, and (iv) a Ps.1.5 million increase in administrative expenses of our Others segment. Administrative expenses, pursuant to the information by segments, as a percentage of total revenues, increased from 8.2% during fiscal year 2016 to 9.2% during fiscal year 2017.

147

● 

Shopping malls. Administrative expenses of our Shopping Malls segment increased 46.4%, from Ps.178.6 million during fiscal year 2016 to Ps.261.5 million during fiscal year 2017, mainly due to: (i) an increase of Ps.33.0 million in salaries, social security charges and other personnel expenses; (ii) an increase of Ps.24.7 million in fees and compensation for services; (iii) a Ps.13.5 million increase in director’s fees; (iv) an increase of Ps.6.6 million in maintenance, repair and service expenses and employees’ travel expenses. Administrative expenses of Shopping Malls as a percentage of revenues from such segment rose from 7.4% during fiscal year 2016 to 8.6% during fiscal year 2017.

● 

Offices. Administrative expenses of the Offices segment increased Ps.8.2 million, from Ps.23.3 million during fiscal year 2016 to Ps. 31.5 million during fiscal year 2017, mainly as a result of: (i) an increase of Ps.4.5 million in salaries, social security charges and other personnel expenses; and (ii) a Ps. 3.0 million increase in fees and compensations for services. Administrative expenses of the Offices segment as a percentage of revenues from this segment decreased from 8.2% during fiscal year 2016 to 7.8% during fiscal year 2017.

● 

Sales and developments. Administrative expenses of the Sales and Developments segment experienced a rise of Ps.10.2 million mainly as a result of increased costs generated by: (i) an increase of Ps.4.2 million in salaries, social security charges and other personnel expenses; (ii) an increase of Ps.2.6 million in fees and compensations for services; and (iii) an increase of Ps. 1.8 million in directors’ fees, among other items.

● 

Others. Administrative expenses of the Others segment increased Ps.1.5 million, mainly due to the cost generated by fees and compensations for services of Ps.1.4 million. There were no expenses during fiscal year 2016.

Selling expenses

	Fiscal year ended June 30, 2017
	Incomestatement	Expenses andcollectivepromotion fund	Interest injointventures	Information bysegment(1)
	(in millions of Ps.)
Shopping Malls	(186.5)	—	(1.6)	(188.1)
Offices	(33.3)	—	(0.6)	(33.9)
Sales and Developments	(13.7)	—	—	(13.7)
Others	(3.0)	—	—	(3.0)
Total selling expenses	(236.5)	—	(2.1)	(238.7)

(1) See Note 6 to our Audited Financial Statements.

	Fiscal year ended June 30, 2016
	Incomestatement	Expenses andcollectivepromotion fund	Interest injointventures	Information bysegment(1)
	(in millions of Ps.)
Shopping Malls	(143.5)	—	(1.8)	(145.3)
Offices	(12.6)	—	(0.2)	(12.8)
Sales and Developments	(4.3)	—	—	(4.3)
Others	(1.8)	—	—	(1.8)
Total selling expenses	(162.2)	—	(2.0)	(164.2)

(1) See Note 6 to our Audited Financial Statements.

148

Selling expenses increased 45.8%, from Ps.162.2 million during fiscal year 2016 to Ps.236.5 million during fiscal year 2017. Selling expenses as a percentage of total revenues increased from 4.2% during fiscal year 2016 to 4.7% during fiscal year 2017.

Selling expenses from our joint ventures showed a slight increase, from Ps.2.0 million during fiscal year 2016 (Ps.1.8 million of which was attributable to the Shopping Malls segment and Ps.0.2 million to the Offices segment) to Ps.2.1 million during fiscal year 2017 (Ps.1.6 million of which was attributable to the Shopping Malls segment and Ps.0.6 million to the Offices segment).

Based on the information by segment, total selling expenses increased 45.4%, from Ps.164.2 million during fiscal year 2016 to Ps.238.7 million during fiscal year 2017. This increase was mainly attributable to: (i) a Ps.42.8 million increase in selling expenses of the Shopping Malls segment; (ii) an increase of Ps.21.1 million in selling expenses in the Offices segment; (iii) a Ps.9.5 million increase in selling expenses from the Sales and Developments segment; and (iv) an increase of Ps.1.2 million in selling expenses in the Others segment. Selling expenses as a percentage of total revenues increased from 6.1% during fiscal year 2016 to 6.7% during fiscal year 2017.

● 

Shopping malls. Selling expenses from the Shopping Malls segment increased 29.5%, from Ps.145.3 million during fiscal year 2016 to Ps.188.1 million during fiscal year 2017, mainly as a result of: (i) an increase of Ps.18.9 million in taxes, rates and contributions, mainly generated by higher turnover taxes; (ii) a Ps.12.7 million in allowance for doubtful accounts; (iii) a Ps.6.1 million increase in publicity and advertising expenses; and (iv) a Ps.5.1 million increase in salaries, social security charges and other personnel expenses. Selling expenses as a percentage of revenues from the Shopping Malls segment increased from 6.0% during fiscal year 2016 to 6.2% during fiscal year 2017.

● 

Offices. Selling expenses from the Offices segment increased Ps.21.0 million, from Ps.12.8 million during fiscal year 2016 to Ps.33.9 million during fiscal year 2017, mainly as a result of: (i) a Ps.17.1 million increase in allowance for doubtful accounts; and (ii) a Ps.2.8 million increase in taxes, rates and contributions, mainly generated by higher turnover taxes. Selling expenses from the Offices segment as a percentage of the revenues from such segment increased from 4.5% during fiscal year 2016 to 8.4% during fiscal year 2017.

● 

Sales and developments. Selling expenses from our Sales and Developments segment increased Ps.9.5 million, from Ps.4.3 million during fiscal year 2016 to Ps.13.7 million during fiscal year 2017, mainly due to an increase in overhead during fiscal year 2017, as compared to fiscal year 2016.

● 

Others. Selling expenses from the Others segment increased Ps.1.2 million, from Ps.1.8 million during fiscal year 2016 to Ps.3.0 million during fiscal year 2017, mainly as a result of an increase of the residual consumer financing operations.

Other operating results, net

	Fiscal year ended June 30, 2017
	Incomestatement	Expenses andcollectivepromotion fund	Interest injointventures	Information bysegment (1)
	(in millions of Ps.)
Shopping Malls	(56.3)	—	(1.4)	(57.7)
Offices	(7.2)	—	0.5	(6.7)
Sales and Developments	(3.9)	—	(0.2)	(4.1)
Others	16.2	—	—	16.2
Total other operating results, net	(51.2)	—	(1.1)	(52.3)

(1) See Note 6 to our Audited Financial Statements.

149

	Fiscal year ended June 30, 2016
	Incomestatement	Expenses andcollectivepromotion fund	Interest injointventures	Information bysegment (1)
	(in millions of Ps.)
Shopping Malls	(59.9)	—	(1.7)	(61.6)
Offices	(1.0)	—	(0.4)	(1.4)
Sales and Developments	(7.6)	—	(0.2)	(7.8)
Others	—	—	—	—
Total other operating results, net	(68.6)	—	(2.2)	(70.8)

(1) See Note 6 to our Audited Financial Statements.

The total loss from Other operating results, net, as per the income statement, declined from Ps.68.6 million during fiscal year 2016 to Ps.51.2 million during fiscal year 2017. Total Other operating results, net as a percentage of total revenues declined from 1.8% during fiscal year 2016 to 1.0% during fiscal year 2017.

The total loss from our joint ventures decreased Ps.1.1 million, from Ps.2.2 million (Ps.1.7 million of which were allocated to the Shopping Malls segment, Ps.0.4 million to the Offices segment and Ps.0.2 million to the Sales and Developments segment) during fiscal year 2016 to Ps.1.1 million (Ps.1.4 million of which were allocated to the Shopping Malls segment, Ps. 0.2 million to the Sales and Developments segment and Ps.0.5 million (gain) to the Offices segment) during fiscal year 2017.

Therefore, taking into account our interest in joint ventures and inter-segment eliminations, Other operating results, net declined from a loss of Ps.70.8 million during fiscal year 2016 to a loss of Ps.52.3 million during fiscal year 2017, mainly as a result of (i) a higher profit of Ps. 16.2 million in other operating results, net from the Others segment; (ii) a lower loss of Ps.3.9 million in other operating results, net from the Shopping Malls segment; (iii) a lower loss of Ps.3.7 million in other operating results, net from the Sales and Developments segment, and (iv) a higher loss of Ps.5.3 million in other operating results, net from the Offices segment. Total Other operating results, net as a percentage of revenues (taking into account other operating results derived from our joint ventures and inter-segment eliminations) declined from 2.6% during fiscal year 2016 to 1.5% during fiscal year 2017.

● 

Shopping malls. Other operating results, net from the Shopping Malls segment decreased 6.2%, from a loss of Ps.61.6 million during fiscal year 2016 to a loss of Ps.57.7 million during fiscal year 2017, mainly as a result of: (i) an increased in lawsuits and contingencies of Ps.10.9 million; (ii) an increase in donations of Ps.8.2 million; partially offset by (iii) a lower charge in Others related to the loss of “tunel Mendoza” advance payment in fiscal year 2016; and (iv) a lower charge for evaluation projects expenses of Ps.4.6 million. Other operating results, net from this segment as a percentage of revenues from this segment decreased from 2.6% during fiscal year 2016 to 1.9% during fiscal year 2017.

● 

Offices. Other operating results, net from the Offices segment changed from a loss of Ps.1.4 million during fiscal year 2016 to a loss of Ps.6.7 million during fiscal year 2017, mainly attributable to: (i) a higher charge for donations of Ps. 2.8 million and (ii) a higher charge in others of Ps.2.8 million attributable to the expenses related to the sale of the floor in the Intercontinental building. Other operating results, net from this segment as a percentage of the revenues from this segment increased from 0.5% during fiscal year 2016 to 1.7% during fiscal year 2017.

● 

Sales and developments. Other operating results, net from the Sales and Developments segment improved from a loss of Ps.7.8 million during fiscal year 2016 to a loss of Ps.4.1 million during fiscal year 2017, attributable to: (i) a higher charge for donations of Ps.2.7 million, partially offset by (ii) a lower loss from Others as a result of the fair value adjustment during fiscal year 2016. Other operating results, net from this segment as a percentage of the revenues from this segment decreased from 288.9% during fiscal year 2016 to 4.1% during fiscal year 2017.

150

● 

Others. Other operating results, net from the Others segment increased Ps.16.2 million, mainly due to the revaluation of the equity interest held befor the business combination of Entertainment Holding S.A. for Ps.7.6 million and the royalty with La Rural for Ps.8.8 million.

Profit from operations

	Fiscal year ended June 30, 2017
	Incomestatement	Expenses andcollectivepromotion fund	Interest in jointventures	Information bysegment (1)
	(in millions of Ps.)
Shopping Malls	4,207.0	23.7	27.2	4,258.0
Offices	1,194.3	0.8	185.8	1,381.1
Sales and Developments	221.7	—	(0.2)	221.5
Others	(2.2)	—	—	(2.2)
Total profit from operations	5,620.9	24.6	212.9	5,858.4

(1) See Note 6 to our Audited Financial Statements.

	Fiscal year ended June 30, 2016
	Incomestatement	Expenses andcollectivepromotion fund	Interest in jointventures	Information bysegment (1)
	(in millions of Ps.)
Shopping Malls	17,791.2	17.7	96.1	17,905.0
Offices	858.2	—	243.5	1,101.7
Sales and Developments	389.9	—	(0.2)	389.7
Others	(0.9)	—	—	(0.9)
Total profit from operations	19,038.3	17.7	339.5	19,395.6

 (1) See Note 6 to our Audited Financial Statements.

Total profit from operations decreased 70.5%, from Ps.19,038.3 million during fiscal year 2016 to Ps.5,620.9 million during fiscal year 2017. Total profit from operations as a percentage of total revenues decreased from 493.4% during fiscal year 2016 to 112.5% during fiscal year 2017.

Profit from operations from the expenses and collective promotion fund increased 39.0%, form Ps.17.7 million (attributable to the Shopping Malls segment) during fiscal year 2016 to Ps.24.6 million (Ps.23.7 million of which was generated by the Shopping Malls segment and Ps.0.8 million by the Offices segment) during fiscal year 2017.

Profit from operations from our joint ventures decreased 37.3%, from Ps.339.5 million (Ps.243.5 million attributable to the Offices segment, Ps.96.1 million to the Shopping Malls segment, and a loss of Ps.0.2 million to the Sales and Developments segment) during fiscal year 2016 to Ps.212.9 million (of which a gain of Ps.185.8 million was attributable to the Offices segment, Ps.27.2 million to the Shopping Malls segment, and a loss of Ps.0.2 million to the Sales and Developments segment) during fiscal year 2017.

151

Based on the information by segment, profit from operations decreased 69.8%, from Ps.19,395.6 million during fiscal year 2016 to Ps.5,858.4 million during fiscal year 2017, mainly as a result of: (i) a decrease in profit from operations from the Shopping Malls segment of Ps.13,647.0 million; (ii) a decrease in profit from operations from Ps.168.2 million from the Sales and Developments segment; (iii) a decrease in profit from operations from the Others segment of Ps.13.4 million; partially offset by (iv) higher profit from operations of Ps.279,4 million from the Offices segment. Total profit from operations as a percentage of total revenues decreased from 719.2% during fiscal year 2016 to 165.1% during fiscal year 2017.

● 

Shopping malls. Operating income from the Shopping Malls segment decreased 76.2%, from Ps.17,905.0 million during fiscal year 2016 to Ps.4,258.0 million during fiscal year 2017. Operating income from the Shopping Malls segment as a percentage of revenues from this segment decreased from 743.2% during fiscal year 2016 to 139.8% during fiscal year 2017.

● 

Offices. Profit from operations from the Offices segment increased Ps.264.6 million, from Ps.1,101.7 million during fiscal year 2016 to Ps.1,366.4 million during fiscal year 2017. Profit from operations from the Offices segment, as a percentage of revenues from this segment, decreased from 387.8% during fiscal year 2016 to 340.1% during fiscal year 2017.

● 

Sales and developments. Profit from operations from the Sales and Developments segment decreased Ps.168.2 million, from Ps.389.7 million during fiscal year 2016 to Ps.221.5 million during fiscal year 2017.

● 

Others. Profit from operations from the Others segment increased from a loss of Ps.0.9 million during fiscal year 2016 to a loss of Ps.12.5 million during fiscal year 2017.

Share of profit of associates and joint ventures

The share of profit (loss) of associates and joint ventures declined by Ps.51.6 million, from a profit of Ps.204.3 million during fiscal year 2016 to a profit of Ps.152.7 million during fiscal year 2017. This variation was mainly due to (i) a lower profit of Ps.40.8 million generated by our Shopping Malls segment; (ii) a lower profit of Ps.35.4 million generated by our Offices segment, partially offset by (iii) a profit of Ps. 24.7 million from our Others segment.

● 

Shopping Malls. The share of profit (loss) of associates and joint ventures from the Shopping Malls segment declined by 40.8 million, from a profit of Ps. 61.2 million during fiscal year 2016 to a profit of Ps. 20.3 million during fiscal year 2017, mainly generated by our interest in Nuevo Puerto Santa Fe.

● 

Offices. The share of profit (loss) of associates and joint ventures from the Offices segment declined by Ps.35.4 million from a profit of Ps.154.1 million during fiscal year 2016 to a profit of Ps.118.7 million during fiscal year 2017, generated by our interest in Quality Invest S.A.

● 

Others. The share of profit (loss) of associates and joint ventures from the Others segment increased by Ps.24.7 million from a loss of Ps. 11.0 million during fiscal year 2016 to a profit of Ps. 13.7 million during fiscal year 2017, mainly generated by the profit from our investment in Tarshop S.A. and Entertainment Holding S.A.

 

152

Financial results, net

Financial results, net increased 10.6%, from a loss of Ps.711.2 million during fiscal year 2016 to a loss of Ps.786.9 million during fiscal year 2017.

 

Financial income decreased Ps.270.1 million, from Ps.512.6 million during fiscal year 2016 to Ps.242.4 million during fiscal year 2017, mainly as a result of: (i) a Ps.361.9 million decrease in foreign exchange gains due to the impact of lower depreciation of the Argentine peso during fiscal year 2017 on our U.S. dollar-denominated net assets compared to depreciation during fiscal year 2016 (the Peso/U.S. dollar bid exchange rate as reported by Banco de la Nación Argentina increased 10.6% during fiscal year 2017, from Ps.14.94 per US$1.00 as of June 30, 2016 to Ps.16.53 per US$1.00 as of June 30, 2017, while during fiscal year 2016, the Argentine peso depreciated 66.2% compared to fiscal year 2015, from Ps.8.988 per US$1.00 as of June 30, 2015 to Ps.14.94 per US$1.00 as of June 30, 2016); and (ii) a net increase of Ps.82.1 million in interest income, mainly generated by default interest payable by clients and related parties, and gains (losses) from the sale of securities and fixed-term bank deposits.

Financial expenses decreased 55.3%, from Ps.2,938.5 million during fiscal year 2016 to Ps.1,313.3 million during fiscal year 2017, mainly as a result of: (i) a Ps.1,627.1 million decrease in foreign exchange losses due to the impact of lower depreciation of the Peso during fiscal year 2017 on the amount outstanding of our U.S. dollar-denominated debt as compared to depreciation during fiscal year 2016 (the Peso/U.S. dollar selling exchange rate as reported by Banco de la Nación Argentina increased 10.6% during fiscal year 2017, from Ps.15.04 to US$1.00 as of June 30, 2016 to Ps.16.63 to US$1.00 as of June 30, 2017, while during fiscal year 2016, it increased 65.5% compared to fiscal year 2015, from Ps.9.088 per US$1.00 as of June 30, 2015 to Ps.15.04 to US$1.00 as of June 30, 2016).

Other financial results decreased Ps.1,430.7 million, from a gain of Ps.1,714.7 million during fiscal year 2016 to a gain of Ps.284.0 million during fiscal year 2017, mainly as a result of: (i) a Ps.1,167.3 million decrease in gains generated by derivated financial instruments (mainly due to less contracts hired during fiscal year 2017); and (ii) a Ps.263.2 million decrease in revenues generated by the valuation of financial assets at fair value (mainly as a result of the decrease of the value of TGLT shares).

Income tax expense

Income tax expense decreased 74.4% from Ps.6,278.9 million during fiscal year 2016 to Ps.1,609.2 million during fiscal year 2017, due to a decrease in pre-tax income during fiscal 2017. Profit before income tax expense includes Uruguayan-source income, generated by financial results not taxedin that jurisdiction. Profit before income tax expense at the prevailing tax rate does not include such Uruguayan-sourced income.

In determining the income tax charge, we apply the deferred tax method, recognizing the temporary differences between the book value, the valuation of assets and liabilities for tax purposes and the application of tax loss carry forwards. For this reason, the amount recorded as income tax expense reflects not only the amount payable but also the recognition of the tax on the taxable income as booked.

The amount of tax payable for fiscal year 2017 was Ps.510.1 million.

Total profit for the year

As a result of the factors described above, total profit for the year decreased 72.4%, from Ps.12,252.5 million during fiscal year 2016 to Ps.3,377.5 million during fiscal year 2017. Income attributable to our parent company’s shareholders decreased 72.4%, from Ps.11,821.3 million during fiscal year 2016 to Ps.3,260.5 million during fiscal year 2017. Income attributable to non-controlling interest decreased 72.9%, from Ps.431.3 million during fiscal year 2016 to Ps.117.0 million during fiscal year 2017.

153

B. Liquidity and capital resources

Our principal sources of liquidity have historically been:

● 

cash generated from operations;

● 

cash generated from the issuance of capital stock and notes; and

● 

cash from borrowings (including bank overdrafts) and financing arrangements.

Our principal cash requirements or uses (other than in connection with our operating activities) have historically been:

● 

the acquisition of investment properties;

● 

the development of new shopping malls;

● 

the improvement of existing investment properties;

● 

the development of properties for sale;

● 

working capital needs;

● 

the maintenance of cash and other liquid assets to enable us to take advantage of the acquisition and development of investment opportunities as they arise;

● 

interest payments; and

● 

investments in financial assets.

We believe our working capital and our cash from operating activities are adequate for our present and future requirements. In the event that cash generated from our operations is at any time insufficient to finance our working capital, we would seek to finance such working capital needs through debt or equity financing or through the sale of properties available for sale.

154

Cash flow information

	Fiscal years ended June 30,
	2018	2017	2016
	(in millions of Ps.)
Net cash flow generated by operating activities	3,624.0	2,875.2	1,013.4
Net cash flow used in investing activities	(3,861.2)	(148.1)	(1,864.6)
Net cash flow generated by (used in) financing activities	1,800.4	(957.8)	579.7
Net (decrease) increase in cash and cash equivalents	1,563.2	1,769.4	(271.5)

Fiscal year 2018

As of June 30, 2018, we had cash and cash equivalents of Ps.3,643.1 million, an increase of Ps.1,835.6 million compared to June 30, 2017. The increase was primarily due to cash inflows of Ps.3,624.0 million related to net cash generated by operating activities and the issuance of non-convertible notes Series IV for Ps.2,365.0 million, partially offset by cash outflows from the purchase of investment properties for Ps.1,231.9 million, the payment of interest on financial borrowings for Ps.724.7 million and the payment of dividends for Ps.680.0 million.

Fiscal year 2017

As of June 30, 2017, we had cash and cash equivalents of Ps.1,807.5 million, an increase of Ps.1,774.5 million compared to the year ended June 30, 2016. The increase was primarily due to cash inflows of Ps.2,875.2 million related to net cash generated by operating activities and the sale of financial assets of Ps.764.8 million, partially offset by cash outflows from the acquisition of investment properties of Ps.703.9 million, the payment of interest of Ps.544.3 million and the redemption of Ps.407.3 million of bonds outsanding.

Fiscal year 2016

As of June 30, 2016, we had cash and cash equivalents of Ps.33.0 million, a decrease of Ps.271.5 million compared to the year ended June 30, 2015. The decrease was primarily due to cash outflows from the net increase in financial assets of Ps.1,462.8 million, the principal repayment of borrowings and Notes for Ps.5,043.9 million and Ps.1,140.0 million, respectively, partially offset by cash inflows generated by our operating activities totaling Ps.1,013.4 million, Ps.1,250.8 million in cash inflows from the result of derivative instruments, and a Ps.5,411.2 million cash inflow generated by our notes issuance.

Operating activities

Fiscal year 2018

Our operating activities for the fiscal year ended June 30, 2018 generated net cash inflows of Ps.3,624.0 million, mainly due to operating income of Ps.3,805.6 million, a decrease in trading properties of Ps.100.2 million and an increase in trades and other payables charges of Ps.485.7 million, partially offset by increased trade and other receivables of Ps.229.8 million and Ps.559.3 million related to income tax paid.

Fiscal year 2017

Our operating activities generated net cash inflows of Ps.2,875.2 million, mainly due to operating income of Ps.2,773.5 million, a decrease in trading properties of Ps.98.8 million and an increase in trades and other payables charges of Ps.397.0 million, partially offset by increased trade and other receivables of Ps.156.3 million and Ps.264.7 million related to income tax paid.

155

Fiscal year 2016

Our operating activities generated net cash inflows of Ps.1,013.4 million, mainly due to operating income of Ps.2,000.6 million and an increase in trades and other payables charges of Ps.187.3 million, partially offset by increased trade and other receivables of Ps.606.3 million and Ps.575.9 million related to income tax paid.

Investment activities

Fiscal year 2018

Cash used by investing activities was Ps.3,861.2 million for the fiscal year ended June 30, 2018 primarily due to: (i) acquisition of investment properties in the amount of Ps.1,231.9 million; (ii) advances to suppliers related to the Catalinas project for Ps.90.5 million; (iii) the payment made as a result of the business combination in the amount of Ps.46.3 million; and (iv) the acquisition of financial assets, net of Ps.2,794.6 million, partially offset by an increase in collection of interest and dividends of Ps 336.5 million.

Fiscal year 2017

Cash used by investing activities was Ps.148.3 million for the fiscal year ended June 30, 2017 primarily due to: (i) acquisition of investment properties in the amount of Ps.703.9 million; (ii) advances to suppliers related to the Catalinas project for Ps.169.6 million; and (iii) the payment made as a result of the business combination in the amount of Ps.46.1 million, partially offset by a reduction in financial assets, net of Ps.764.8 million.

Fiscal year 2016

Cash used in investing activities was Ps.1,864.6 million for the fiscal year ended June 30, 2016 primarily consisting of: (i) an increase in financial assets, net of Ps.1,462.8 million; (ii) acquisition and capital contributions in associates and joint ventures of Ps.73.0 million; (iii) acquisition of property, plant and equipment for Ps.13.7 million; (iv) acquisition of investment properties for Ps.167.7 million; and (v) Ps.533.5 million loans granted to related parties; partially offset by Ps.357.2 million in proceeds from the sale of investment properties.

Financing activities

Fiscal year 2018

Cash used in financing activities was Ps.1,800.4 million for the fiscal year ended on June 30, 2018, primarily consisting of: (i) the issuance of notes for Ps.2,365.0 million and (ii) borrowings for Ps.715.4 million, offset by (i) interest expense for Ps.724.7 million; (ii) payment of dividends for Ps.680.0 million; and (iii) settlements of financial derivatives of Ps.221.8 million.

 Fiscal year 2017

Cash used in financing activities was Ps.957.8 million for the fiscal year ended on June 30, 2017, primarily consisting of: (i) interest expense of Ps. 544.3 million; (ii) repayment of outstanding notes of Ps.407.3 million; (iii) repayment of loans of Ps.72.1 million; (iv) payment of dividends of Ps.109.5 million; and (iv) payment of financial derivatives of Ps.47.8 million, partially offset by (a) borrowings of Ps. 107.7 million; and (b) collection of financial derivatives of Ps.131.0 million.

156

Fiscal year 2016

Cash generated by financing activities was Ps.579.7 million for the fiscal year ended June 30, 2016, primarily consisting of: (i) a Ps.5,043.9 million repayment of borrowings; (ii) interest expense of Ps.278.3 million; (iii) a Ps.114.6 million dividend payment; (iv) payment of financial derivatives of Ps.580.8 million; and (v) a Ps.1,140.0 million redemption of bonds outstanding; partially offset by (a) borrowings of Ps.729.3 million; (b) collection of financial derivatives of Ps.1,831.6 million; and (c) issuance of notes in the amount of Ps.5,411.2 million.

Capital expenditures

Fiscal year 2018

During the fiscal year ended June 30, 2018, we incurred capital expenditures of Ps.1,338.2 million, of which: (i) Ps.1,231.9 million was used in the acquisition of investment properties, mainly, in the offices segment; and (ii) Ps.15.8 million was related to the acquisition of property, plant and equipment; and (iii) Ps.90.5 million was related to advanced payments.

Fiscal Year 2017

During the fiscal year ended June 30, 2017, we incurred capital expenditures of Ps.897.4 million, of which: (i) Ps.703.9 million was used in the acquisition of investment properties, mainly in connection with the Offices segment; (ii) Ps.23.9 million was related to the acquisition of property, plant and equipment; and (iii) Ps.169.6 million was related to advanced payments.

Fiscal Year 2016

During the fiscal year ended June 30, 2016, we incurred capital expenditures of Ps.188.0 million, of which: (i) Ps.167.7 million was used in the acquisition of investment properties, mainly in connection with improvements to our shopping malls; (ii) Ps.13.7 million was related to the acquisition of property, plant and equipment; and (iii) Ps.6.6 million was related to advanced payments.

Indebtedness

Our total consolidated debt outstanding as of June 30, 2018, was Ps.15,635 million, 99.3% of which was denominated in U.S. dollars and the remaining 0.7% was denominated in Pesos. The following table presents a breakdown of our indebtedness as of June 30, 2018 with a breakdown of its main components:

	As of June 30, 2018
	Currency of indebtedness	Less than a year	From 1 to 2 years	From 2 to 3 years	From 3 to 4 years	More than 4 years	Total	(10)%
		(in thousands of Pesos)
Financial and Bank Loans:
Notes Series II due 2023(1)	US$	244,864	—	—	—	10,235,361	10,480,225	8.75
Notes Series IV due 2020(2)	US$	9,959	—	4,026,046	—	—	4,036,005	5.00
Bank overdrafts(3)	Ps.	6,692	—	—	—	—	6,692	Mixed rate
Finance leases(4)	Ps. / US$	6,574	6,141	1,688	—	—	14,403	Mixed rate
Bank loan(5)	US$	4,733	155,346	310,692	310,692	232,819	1,014,282	Libor + 1,9%
AABE Debt(6)	Ps.	—	—	—	83,942	—	83,942	Libor
Total financial and bank loans		272,822	161,487	4,338,426	394,634	10,468,180	15,635,549
Related parties(7)	Ps.	4,154	—	—	—	—	4,154	Badlar
Non controlling shareholders loans(8)	US$	28,504	—	—	—	—	28,504	8.5
Total debt		305,48	161,487	4,338,426	394,634	10,468,180	15,668,207
Cash and cash equivalents and current investments in financial assets							(8,788,594)
Total net debt (9)							6,879,613

157

(1) On March 23, 2016, we issued non-convertible notes Series II due in March 23, 2023. Interest will be paid on a half-yearly basis and principal will be repaid at maturity.

(2) On September 12, 2017, we issued non-convertible notes Series IV due in September 14, 2020. Interest will be paid on a quarterly basis and principal will be repaid at maturity.

(3) Granted by multiple financial institutions. Overdrafts accrue interest at rates ranging from 25.25% to 60.0% annually, and are due within a maximum term of three months from each year end.

(4) Accrue interest at rates ranging from 3.2% to 34.8% annually.

(5) On February 16, 2018, Panamerican Mall S.A. subscribed a loan with Citibank for US$35 million at Libor + 1,9%. As a result of a swap transaction the interest rate was fixed reaching an all in cost of 6,04%. Principal will be repaid on February 16, 2023.

(6) Debt assumed pursuant to the joint venture agreement entered into in 2002 between Boulevard Norte S.A. and Sociedad Rural Argentina, for the payment of an outstanding balance for the purchase of Predio Ferial Palermo, which debt accrues interest at Libor.

(7) Includes credit lines with Nuevo Puerto Santa Fé,which accrue interest at Badlar rate, due in May 2019.

(8) Includes credit lines with non controlling shareholders which accrue interest fixed rate.

(9) For more information regarding net debt. See “Item 3. Key Information—Selected consolidated financial data”.

(10) Average weighted rates

.Issuance of notes

IRSA CP’s series II 8.75% notes due 2023

On March 3, 2016, we launched a cash tender offer for any and all of our outstanding 7.875% Notes due 2017, Series I. On March 23, 2016, we issued new notes in an aggregate principal amount of US$360 million under our Global Note Program. The Series II Notes accrue interest, at a fixed rate of 8.75% per annum payable semi-annually in arrears, and are repayable upon maturity, on March 23, 2023. Their issue price was 98.722% of the principal amount. The proceeds were used: (a) to repurchase our Series I Notes in an outstanding principal amount of US$120 million and (b) to repay the US$240.0 million balance due to IRSA for our acquisition of certain office properties and land reserves in December 2014, together with accrued interest thereon. Our Series II Notes due 2023 are subject to certain covenants, events of default and limitations, such as the limitation on incurrence of additional indebtedness, limitation on restricted payments, limitation on transactions with affiliates, and limitation on merger, consolidation and sale of all or substantially all assets.

To incur additional indebtedness, we must meet the Consolidated Interest Coverage Ratio on additional indebtedness, which should be greater than 2.00. The Consolidated Interest Coverage Ratio is defined as Consolidated EBITDA divided by consolidated interest expense. Consolidated EBITDA is defined as operating income plus depreciation and amortization and other consolidated non-cash charges.

The Series II Notes contain financial covenants limiting our ability to declare or pay dividends in cash or in kind, unless the following conditions are met at the time of payment:

● 

no Event of Default shall have occurred and be continuing;

● 

we must be able to incur at least US$1.00 of Additional Indebtedness under the “Limitation on Incurrence of Additional Indebtedness;” and

● 

the aggregate amount of such Restricted Payment does not exceed the sum of:

➢

100% of cumulative EBITDA for the period (treated as one accounting period) from July 1, 2015 through the last day of the last fiscal quarter ended prior to the date of such Restricted Payment minus an amount equal to 150% of consolidated interest expense for such period; and

➢

any reductions of Indebtedness of the Issuer or its Subsidiaries after the Issue Date any reductions of Indebtedness of the Issuer or its Subsidiaries after the Issue Date exchange to Capital Stock of the Issuer or its Subsidiaries.

158

On March 28, 2016 and April 8, 2016, we purchased US$59.2 million and US$0.4 million, respectively, in aggregate principal amount of our 7.875% Notes due 2017, Series I, and we simultaneously instructed the Trustee of the Series I Notes to repay US$59.5 million in aggregate principal amount of such Notes, resulting in an aggregate principal amount outstanding of our 7.875% Notes due 2017, Series I, of US$60.5 million. On April 4, 2016, our board of directors approved the repayment of the outstanding balance of the US$60.5 million of our Series I Notes and payment of such Notes was made on May 4, 2016.

On April 6, 2016, we had repaid the outstanding balance US$240 million plus accrued interest of an intercompany loan due to IRSA, which was related to the acquisition of an office portfolio in December 2014.

IRSA CP’s series IV 5.00% notes due 2020

On September 12, 2017, we issued the Series IV Notes in the local market for US$140,000,000, at a fixed rate of 5.00%, which matures on September 14, 2020.

Panamerican Mall bank loan

On February 16, 2018, Panamerican Mall S.A., controlled 80% by us, subscribed a loan with Citibank for US$35 million at Libor + 1,9%. As a result of a swap transaction the interest rate was fixed reaching an all in cost of 6.04%. Principal will be repaid on February 16, 2023. The funds will be used mainly for the completion of the construction work of the Polo Dot 1º stage office building.

C. Research and Development, Patents and Licenses, etc.

We have several trademarks registered with the Instituto Nacional de la Propiedad Industrial, the Argentine institute for industrial property. We use these trademarks to name our commercial centers and in connection with marketing and charitable events that we organize from time to time. We do not own any patents nor benefit from licenses from third parties.

D. Trend Information

International Macroeconomic Outlook

As reported in the IMF’s “World Economic Outlook,” world growth is expected to reach 3.7% in 2018 and 2019. In 2018 growth in advanced economies is expected to remain above trend at about 2.4%, before reaching 2.1 in 2019. The growth projected in the United States is at 2.9% for 2018 and 2.5% for 2019, and in the Euro area economy is projected to slow gradually from 2.4% in 2017, to 2.0 in 2018 and 1.9 in 2019. Growth in Latin America is projected to increase modestly from 1.3% in 2017 to 1.2% in 2018, and further to 2.2% in 2019.

Many emerging market and developing economies need to enhance resilience through an appropriate mix of fiscal, monetary, exchange rate, and prudential policies to reduce vulnerability to tightening global financial conditions, sharp currency movements, and capital flow reversals. Long-standing advice on the importance of reining in excess credit growth where needed, supporting healthy bank balance sheets, containing maturity and currency mismatches, and maintaining orderly market conditions has become even more relevant in the face of renewed market volatility. In general, allowing for exchange rate flexibility will be an important means for cushioning the impact of adverse external shocks, although the effects of exchange rate depreciations on private and public sector balance sheets and on domestic inflation expectations need to be closely monitored. With debt levels rising rapidly in both emerging and lowincome economies over the past decade, fiscal policy should focus on preserving and rebuilding buffers where needed, through growth-friendly measures that protect the most vulnerable. To raise potential growth and enhance its inclusiveness, structural reforms remain essential to alleviate infrastructure bottlenecks, strengthen the business environment, upgrade human capital, and ensure access to opportunities for all segments of society.

159

Higher energy prices have lifted headline year-over-year inflation rates in advanced and emerging market and developing economies over the past six months. Core inflation remains below central banks’ targets in most advanced economies. Core annual consumer price inflation in the United States, where unemployment hovers around multidecade lows, has exceeded 2 percent since March. Core inflation in the United Kingdom averaged slightly more than 2 percent in the first half of 2018, lower than the last year. Core inflation in emerging markets has also inched up, reflecting pass-through effects from currency depreciation in some cases and second-round effects of higher fuel prices in others.

The IMF’s Primary Commodities Price Index rose 3.3% between February 2018 and August 2018, driven by higher energy prices. Food prices fell amid rising trade tensions, while the price of metals softened because of weaker demand from China.

Argentine macroeconomic context

On August, 2018, the Central Bank of Argentina published that growth is expected to decrease from 2.9 percent in 2017 to (2.6) percent in 2018 due to the effect of the drought on agricultural production, as well as the needed fiscal and monetary adjustment to improve the sustainability of public finances and reduce high inflation.

Shopping malls sales reached a total Ps.6,886.4 million in June 2018, which represents a 31.2% increase as compared to the same period last year. Accumulated sales for the first six months of the year totaled Ps.33,733.7 million, representing a 27.9% increase as compared to the same period last year.

The INDEC reported that, as of June 2018, industrial activity in Argentina decreased by 8.1% as compared to the same month in 2017. Textile industry accumulated a 1.0% increase during the first six months of the year as compared to the same period last year. Moreover, the monthly estimation of economic activity (“EMAE”) as of July 2018, showed a reduction of 6.7% compared with the same period of the previous year.

Regarding the balance of payments, in the second quarter of 2018 the current account deficit reached US$8,292 million, with US$4,363 million allocated to the goods and services trade balance, and US$4,379 million to the net primary income, and a superávit of US$450 million to the net secondary income.

During the second quarter of 2018, the financial account showed net income of US$8,427 million, due to the net issue of liability assets of US$20,601, partially offset by net adquisition of assets of US$ 12,174 million. As a result of the Balance transactions, the stock of international reserves increased by US$741 million during the second quarter of 2018.

Total gross external debt stock at the end of June 2018 is estimated at US$261,483 million, with an increase of US$ 8,267 million, 3.3% compared to the previous quarter 61% of the debt corresponds to the Government;8% to the Argentine Central Bank;27% to non-financial corporations and households, 2% to deposit-taking companies and 1% to other financial companies.

In local financial markets, the Private Badlar rate in Pesos ranged from 19.69% to 32.69% in the period from July 2017 to June 2018, averaging 30.57% in June 2018 against 19.81% in June 2017. As of June 30, 2018, the seller exchange rate quoted by Banco de la Nación Argentina was of Ps.28.8500 pesos per US$1.00. As of June 30, 2018, Argentina’s country risk increased by 175 basis points in year-on-year terms. The debt premium paid by Argentina was at 610 basis points in June 2018, compared to the 332 basis points paid by Brazil and 211 basis points paid by Mexico.

As of September 28, 2018, the Private Badlar rate in Pesos peaked at 43.31%. As of September 28, 2018, the seller exchange rate quoted by Banco de la Nación Argentina was of Ps.41.2500 pesos per US$1.00. As of September 28, 2018, Argentina’s country risk increased by 253 basis points in year-on-year terms. The debt premium paid by Argentina was at 623 basis points in September 28, 2018, compared to the 293 basis points paid by Brazil and 180 basis points paid by Mexico.

160

Our Segments

Evolution of Shopping Malls in Argentina

At June 2018, the Consumer Confidence Index (CCI) showed a 0.3% decline as compared to May 2018, and a 14.4% decrease as compared to June 2017. Sales in Shopping Mall Properties in June 2018 reached a total amount of Ps.6,886.4 million, which represented a 31.2% increase compared to the same month in 2017. Accumulated sales for the first six months of the year totaled Ps.33,733.7 million and reached a 27.9% percent variation compared to the same period the previous year.

Evolution of Offices in Argentina

According to Colliers International, as of June 30, 2018, the A+ and A office inventory increased as compared to 2017, at 1,899,183 square meteres. In terms of rental availability, the vacancy rate maintained without important changes around 7.3% during the second quarter of 2018. These values indicate that the market is healthy in terms of its operations, allowing an optimum level of supply with balanced values.

Compared to the previous quarter, the Premium Offices prices remained the same in the order of US$ 25.8 per square meter compared to the previous quarter, and showed a 5% increase compared to the same period last year, which was was US$ 24.5 per square meter. There was a decrease in rental prices for A+ properties of US$ 2.8 per square meter, from US$ 25.6 per square meter in the first quarter of 2018 to US$ 28.4 per square meter for the second quarter of 2018. In this context, Catalinas presents as the zone with higher prices per square meter, reaching an average of US$ 31.3. Likewise, the industry reported a 2% increase in rental prices for A properties compared to the first quarter of 2018, reaching an average of US$ 23.1 per square meter, in which the North zone of Ciudad de Buenos Aires reach the higher prices, reaching US$ 29.1 per square meter.

E. Off-Balance Sheet Arrangements

As of June 30, 2018, we did not have any off-balance sheet transactions, arrangements or obligations with unconsolidated entities or others that are reasonably likely to have a material effect on our financial condition, results of operations or liquidity.

F. Tabular Disclosure of Contractual Obligations

Contractual obligations

The following table sets forth our contractual obligations as of June 30, 2018. When the applicable interest rate is variable, the amount disclosed has been determined by reference to the existing conditions at the reporting date.

	Payments due by period
	Less than1 year	Between1 and 2 years	Between2 and 3 years	Between3 and 4 years	More than4 years	Total(1)
	(in thousands of Ps.)
Borrowings (excluding finance leases liabilities)	1,138,838	1,387,782	5,374,580	1,235,747	11,381,419	20,518,366
Finance leases	6,945	6,498	1,803	—	—	15,246
Operating leases	13,763	10,905	2,400	2,400	42,400	71,868
Derivative financial instruments	264	—	—	—	46,447	46,711
Total	1,159,810	1,405,185	5,378,783	1,238,147	11,470,266	20,652,191

(1) Includes accrued and future interest, if applicable.

161

G. Safe Harbor

See the discussion at the beginning of this Item 5 and the disclosure regarding forward-looking information in the introduction of this annual report for forward-looking safe harbor provisions.

ITEM 6. Directors, Senior Management and Employees

A. Directors and Senior Management

Board of Directors

We are managed by a board of directors. Our bylaws provide that the board of directors will have a number of 6, 9 or 12 regular directors and the same or less alternate directors as specified by the ordinary shareholders meeting with one third renewal each year. The directors are elected by absolute majority vote by our shareholders at an ordinary shareholders’ meeting for a three-year term and may be reelected indefinitely. Alternate directors will be summoned to act as regular directors in temporary or permanent manner in case of absence, vacancy or demise. If the replacement is permanent the alternate director shall assume the position for the remaining term of office of the regular director that is replacing.

As of the date of this annual report, our board of directors is comprised of nine directors and five alternate directors. The table below contains certain information relating to our directors and alternate directors:

Name	Date of birth	Office held	Date ofappointmentto the currentoffice	Term in officeexpires in(1)	Officeheld since
Eduardo Sergio Elsztain	01/26/1960	Chairman	2017	2020	1994
Saúl Zang	12/30/1945	First Vice-Chairman	2017	2019	2003
Alejandro Gustavo Elsztain	03/31/1966	Executive Vice-Chairman and Chief Executive Officer	2017	2018	2003
Daniel Ricardo Elsztain	12/22/1972	Regular Director and Chief Operating Officer	2017	2020	2004
Fernando Adrián Elsztain	01/04/1961	Regular Director	2017	2018	1998
Leonardo Fabricio Fernández(1)	06/30/1967	Regular Director	2017	2018	2007
Enrique Antonini(1)	03/16/1950	Regular Director	2017	2019	2007
Isela Angélica Costantini	12/08/1971	Regular Director	2017	2019	2017
Marcos Oscar Barylka(1)	06/29/1945	Regular Director	2017	2020	2006
Gastón Armando Lernoud	06/04/1968	Alternate Director	2017	2020	2017
Juan Manuel Quintana	02/11/1966	Alternate Director	2017	2020	2003
Pablo Daniel Vergara del Carril	10/03/1965	Alternate Director	2017	2019	2006
Salvador Darío Bergel	04/17/1932	Alternate Director	2017	2018	2006
Mauricio El’as Wior	10/23/1956	Alternate Director	2017	2018	2006
Gabriel Adolfo Gregorio Reznik	11/18/1958	Alternate Director	2017	2019	2004

(1) Independent directors, pursuant to Rule 10A-3(b)(1) of the Exchange Act.

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The following is a brief biographical description of each member of our board of directors: 

Eduardo Sergio Elsztain. Mr. Elsztain has been engaged in the real estate business for more than twenty five years and has served as chairman of our board of directors since 1994. He is chairman of the board of directors of IRSA, Cresud, IDB Development Corporation Ltd., Discount Investment Corporation Ltd., Banco Hipotecario S.A., Banco Hipotecario SA, BrasilAgro Companhia Brasileira de Propriedades Agrícolas, Austral Gold Ltd. and Consultores Assets Management S.A., , among others. Mr. Elsztain chairs Fundación IRSA, is also a member of the World Economic Forum, the Council of the Americas, the Group of 50 and Argentina’s Business Association (AEA), among others. He is co-Founder of Endeavor Argentina and Vice-President of the World Jewish Congress. He is Fernando Adrián Elsztain’s cousin and Alejandro Gustavo Elsztain and Daniel Ricardo Elsztain’s brother.

Saúl Zang. Mr. Zang obtained a law degree from the University of Buenos Aires. He is a member of the International Bar Association and of the Interamerican Federation of Lawyers. He was a founding partner of Zang, Bergel & Viñes Law Firm. Mr. Zang is vice-chairman of Cresud, IRSA, Consultores Assets Management S.A. and other companies such as Fibesa S.A. and chairman of the board of directors of Puerto Retiro S.A. He is also member of the board of directors of IDB Development Corporation Ltd., Discount Investment Corporation Ltd., Banco Hipotecario S.A., BrasilAgro Companhia Brasileira de Propiedades Agrícolas, BACS Banco de Crédito & Securitización S.A., Tarshop S.A., Nuevas Fronteras S.A.and Palermo Invest S.A., among other companies.

Alejandro Gustavo Elsztain. Mr. Elsztain obtained a degree in agricultural engineering from the University of Buenos Aires. He is currently second vice chairman of the board of directors of Cresud and IRSA, chairman of Fibesa S.A., and vice-chairman of directors of Nuevas Fronteras S.A. and Hoteles Argentinos S.A. He is also a chairman of the Israeli companies Gay Yam and Mehadrin and vice-chairman of Property & Building Corporation Ltd. Additionally, he is regular director of IDB Development Corporation Ltd. , BrasilAgro Companhia Brasileira de Propiedades Agrícolas, Emprendimientos Recoleta S.A. among other companies. Mr. Alejandro Gustavo Elsztain is the brother of our chairman, Eduardo Sergio Elsztain and of Daniel Ricardo Elsztain. He is also Fernando Adrián Elsztain’s cousin.

Daniel Ricardo Elsztain. Mr. Elsztain obtained a degree in economic sciences from Torcuato Di Tella University and has a master’s degree in business administration in Universidad Autral IAE. He is the Chief Operating Officer of the Company since 2011. Previously, he was the Chief Commercial and Marketing Officer and has been in charge of the real estate investment in New York between 2008 and 2011. He is also a member of the board of directors of Entertainment Holding S.A., Entretenimiento Universal S.A., Boulevard Norte S.A. and Odgen Argentina S.A. as well as director of IRSA, Condor Hospitality Trust, among other companies. Mr. Elsztain is Mr. Eduardo Sergio Elsztain’s and Mr. Alejandro Gustavo Elsztain’s brother and Fernando Adrián Elsztain’s cousin.

Fernando Adrián Elsztain. Mr. Elsztain earned an architecture degree from the University of Buenos Aires. He has been engaged in the real estate business as a consultant and as managing officer of a real estate agency. He is chairman of the boards of directors of Palermo Invest S.A. and Nuevas Fronteras S.A. He is also a member of the boards of directors of IRSA, Hoteles Argentinos S.A., Llao Resorts S.A.,and alternate director of Puerto Retiro S.A. He is the cousin of Eduardo Sergio Elsztain, Alejandro Gustavo Elsztain and Daniel Ricardo Elsztain.

Leonardo Fabricio Fernández. Mr. Fernández obtained a law degree from the University of Buenos Aires. He serves as an alternate director on the boards of directors of Disco S.A. and Transportadora de Gas del Norte S.A.

Enrique Antonini. Mr. Antonini holds a law degree from the University of Buenos Aires. He is currently a member of the boards of directors of Banco Mariva S.A. (since 1992) and since 2017 alternate director of Mariva Bursátil S.A. He has served as a member of the board of directors of IRSA from 1993 to 2002 and is currently one of its alternate directors as well as Cresud’s alternate director. He is a member of the Banking Lawyers Committee (Comité de Abogados Bancarios) of the Bank Association and the International Bar Association.

Gastón Armando Lernoud. Mr. Lernoud obtained a law degree from Universidad del Salvador in 1992. He holds a master’s degree in corporate law from Palermo University. He was an associate at Zang, Bergel & Viñes until June 2002, when he joined us as legal counsel.

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Marcos Oscar Barylka. Mr. Barylka obtained a degree in commercial activities from the Gral. San Martín School. Mr. Barylka has been involved in the retail and the gastronomy industries for over 35 years, having served as partner, manager and consultant for several companies. Since 2006, Mr. Barylka has served as secretary of the Pele Ioetz Foundation, which provides support to economically and socially vulnerable families.

Isela Angélica Costantini. Mrs. Costantini obtained a Social Communication degree from Universidad Pontificia Universidad Catolica de Paraná (Curitiba, Brasil) and has a master administration degree in International Business and Marketing. Moreover, she is director of Grupo ST and board member of Hawksbill Consulting, CIPPEC and Banco de Alimentos de Buenos Aires.

Juan Manuel Quintana. Mr. Quintana obtained a law degree from the University of Buenos Aires. He is a partner at Zang, Bergel & Viñes. In addition, he serves as alternate director of Nuevas Fronteras S.A. and regular director in Emprendimiento Recoleta S.A., among other companies.

Pablo Daniel Vergara del Carril. Mr. Vergara del Carril obtained a law degree from Catholic University of Argentina where he teaches commercial law and contract law. He also lectures on corporate law, the law of contracts and capital markets for post-graduate programs. He is a member of the Legal Advisory Committee of Cámara de Sociedades Anónimas as well as vice-president of the Antitrust Law Committee of the Buenos Aires Bar Association (Colegio de Abogados de la Ciudad de Buenos Aires). He is a partner at Zang, Bergel & Viñes and a member of the boards of directors of Emprendimiento Recoleta S.A., Nuevas Fronteras S.A. and Banco Hipotecario S.A.

Salvador Dario Bergel. Mr. Bergel obtained a law degree and a doctorate at Universidad del Litoral. He is professor emeritus at University of Buenos Aires and was a founding partner of Zang, Bergel & Viñes. He also serves as an alternate director of Cresud.

Mauricio Elías Wior. Mr. Wior obtained his bachelor’s degrees in economics and accounting, and a master’s degree in finance from Tel Aviv University in Israel. Mr. Wior is currently a member of the boards of directors of Banco Hipotecario S.A. He has held positions at Bellsouth where he was Vice-President for Latin America from 1995 to 2004. Mr. Wior was also Chief Executive Officer of Movicom Bellsouth from 1991 to 2004. In addition, he led the operations of various cellular phone companies in Uruguay, Chile, Peru, Ecuador and Venezuela. He was president of the Asociación Latinoamericana de Celulares (ALCACEL); American Chamber of Commerce in Argentina, and the Israeli-Argentine Chamber of Commerce. He was director of Instituto para el Desarrollo Empresarial de la Argentina (IDEA), Fundación de Investigaciones Económicas Latinoamericanas (FIEL) and Tzedaka.

Gabriel Adolfo Gregorio Reznik. Mr. Reznik obtained a degree in civil engineering from the University of Buenos Aires. He worked for IRSA from 1992 until May 2005. He previously worked for an independent construction company in Argentina. He is a member of the boards of directors of IRSA and Banco Hipotecario S.A., among others.

Employment contracts with our directors

We do not have written contracts with our directors. However, Eduardo S. Elsztain, Saul Zang, Alejandro G. Elsztain, Fernando A. Elsztain and Daniel R. Elsztain are employed by us under the Labor Contract Law No. 20,744. In addition, our director Gastón Armando Lernoud provides services to us under the corporate services agreement.

Law No. 20,744 governs certain conditions of the labor relationship, including remuneration, protection of wages, hours of work, holidays, paid leave, maternity protection, minimum age requirements, protection of young workers and suspension and termination of the contract.

Executive committee

In conformity with our bylaws, the aspects related to the organization of the decision-making process are the responsibility of an Executive Committee made up of five directors, including our chairman and vice-chairman. The current members of the Executive Committee are Messrs. Eduardo Sergio Elsztain, Saúl Zang, Alejandro Gustavo Elsztain, Fernando Adrián Elsztain and Daniel Ricardo Elsztain.

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The Executive Committee is responsible for the daily management of the activities delegated by our board of directors in conformity with applicable laws and our by-laws. Our by-laws authorize the Executive Committee to perform the following functions:

● 

designate managers and establish their duties and compensation;

● 

hire, impose disciplinary measures and terminate personnel, as well as determine salaries and compensation;

● 

enter into contracts related to our corporate purpose;

● 

manage and dispose of our assets;

● 

borrow funds for use in our operations; and

● 

create liens to secure our obligations, and engage in all acts necessary to manage our daily activities.

Senior management

Senior management performs its duties in accordance with the authorization and under the supervision of our board of directors. The following chart shows information about our current senior management team:

Name	Date of birth	Position	Currentpositionheld since
Alejandro Gustavo Elsztain	03/31/1966	Chief Executive Officer	2002
Daniel Ricardo Elsztain	12/22/1972	Chief Operating Officer	2011
Matías Iván Gaivironsky	02/23/1976	Chief Financial and Administrative Officer	2016
Arnaldo Jawerbaum	13/08/1966	Chief Investment Officer	2017
Juan José Martinucci	01/31/1972	Chief Commercial Officer	2013

The following is a brief biographical description of each of our senior management team:

Alejandro Gustavo Elsztain. See “—Board of Directors.”

Daniel Ricardo Elsztain. See “—Board of Directors.”

Matías Iván Gaivironsky. Mr. Matías Gaivironsky obtained a degree in business administration from the University of Buenos Aires. He has a master’s degree in finance from CEMA University. Since 1997 he has served in different positions at Cresud, IRSA and with us, and was appointed Chief Financial Officer in December 2011 and in early 2016 he was appointed as Chief Financial and Administrative Officer. Previously, Mr. Gaivironsky acted as Chief Financial Officer of Tarshop S.A. until 2008.

Juan José Martinucci. Mr. Juan José Martinucci obtained a degree in Business Sciences from Fundación de Altos Estudios, where he graduated as a specialized technician in Strategical Communications. He subsequently attended the Management Development Program at IAE Business School. Mr. Martinucci has worked with our company in different capacities for more than 20 years, from Center Manager at Alto Palermo Shopping to his most recent previous position as Shopping Mall Regional Manager for five years. Since the beginning of 2013 he has served as Chief Commercial Officer.

Arnaldo Jawerbaum. Mr Jawerbaum graduated as architect fromUniversidad de Belgrano. With a career of more than 20 years in the Company, he has served as Marketing Manager from 1997 to 2002, Marketing Manager in Fibesa S.A. from 2003 to 2017 and currently he was appointed as Chief Investment Officer.

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Supervisory committee

Our Supervisory Committee (Comisión Fiscalizadora) is responsible for reviewing and supervising our administration and operational activities. In addition, it verifies compliance with our by-laws and implementation of the resolutions adopted at shareholders’ meetings. The members of our Supervisory Committee are appointed for a one-year term at the annual meeting of our shareholders. Our Supervisory Committee is composed of three members and three alternate members.

The following table sets forth information about the members of our Supervisory Committee who were elected at the Annual General Ordinary Shareholders’ Meeting held on October 31, 2017. Appointments will expire at the next annual shareholders’ meeting which is expected to be held on or about October 31, 2018.

Name	Date of birth	Office in IRSA CP	Currentofficeheld since
José Daniel Abelovich	07/20/1956	Regular Syndic	2005
Marcelo Héctor Fuxman	11/30/1955	Regular Syndic	2010
Noem’ Ivonne Cohn	05/20/1959	Regular Syndic	2010
Gaston Gabriel Lizitza	09/06/1972	Alternate Syndic	2017
Roberto Daniel Murmis	04/07/1959	Alternate Syndic	2010
Alicia Graciela Rigueira	12/02/1951	Alternate Syndic	2010

Set forth below is a brief biographical description of each member of our Supervisory Committee:

José Daniel Abelovich. Mr. Abelovich obtained a degree in accounting from the University of Buenos Aires. He is a founding member and partner of Abelovich, Polano & Asociados S.R.L., a member firm of Nexia International. Formerly, he was manager of Harteneck, López y Cía/Coopers & Lybrand and has served as a senior advisor in Argentina for the United Nations and the World Bank. He is a member, among others, of the supervisory committees of Cresud, IRSA, Hoteles Argentinos, Inversora Bolívar and Banco Hipotecario S.A.

Marcelo Héctor Fuxman. Mr. Fuxman obtained a degree in accounting from the University of Buenos Aires. He is a partner of Abelovich, Polano & Asociados S.R.L., a member firm of Nexia International. He is also a member, among others, of the supervisory committees of Cresud, IRSA, Inversora Bolívar and Banco Hipotecario S.A.

Noemí Ivonne Cohn. Mrs. Cohn obtained a degree in accounting from the University of Buenos Aires. She is a partner at Abelovich, Polano & Asociados S.R.L., a member firm of Nexia International, where she works in the auditor’s department. Mrs. Cohn worked in the audit area of Harteneck, Lopez y Cía., Coopers & Lybrand in Argentina and Los Angeles, California. Mrs. Cohn is a member, among others, of the supervisory committees of Cresud and IRSA.

Gastón Gabriel Lizitza. Mr. Lizitza obtained a degree in accounting from University of Buenos Aires. He is manager of Abelovich, Polano & Asociados S.R.L., a member firm of Nexia International. He is also member of BACSAA, Cresud SACIF y A, Futuros y Opciones.Com S.A. and IRSA.

Roberto Daniel Murmis. Mr. Murmis holds a degree in accounting from the University of Buenos Aires. He is a partner at Abelovich, Polano & Asociados S.R.L., a member firm of Nexia International. He formerly served as an advisor to the Secretariat of Public Revenue (Secretaría de Ingresos Públicos) of the Argentine Ministry of Economy. Mr. Murmis also is a member of the supervisory committees of Cresud, IRSA, Futuros y Opciones S.A. and Llao Resorts S.A., among other companies.

Alicia Graciela Rigueira. Mrs. Rigueira holds a degree in accounting from the University of Buenos Aires. Since 1998, she has been a manager at Estudio Abelovich, Polano & Asociados S.R.L., a member firm of Nexia International. From 1974 to 1998, Mrs. Rigueira served in different positions at Harteneck, Lopez y Cía., an affiliate of Coopers & Lybrand. Mrs. Rigueira lectured at the School of Economic Sciences of the Lomas de Zamora University (Universidad de Lomas de Zamora).

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Audit committee

In accordance with the Argentine Capital Markets Law and the CNV Rules, our board of directors established an audit committee. The primary function of our Audit Committee is to assist our board of directors in performing its duty, including exercising due care, diligence and competence in issues relating to us and our operations, specifically in the enforcement of accounting policies and in the preparation and publication of accounting and financial information, the management of business risk and of internal control systems, the conduct and ethical soundness of our business, the supervision of the integrity of our financial statements, compliance with laws and regulations, assessing the independence and capability of our independent auditor and the performance of the internal audit function by our management team and our external auditors. In addition, the Audit Committee may, at the request of our board of directors, render an opinion as to whether transactions with our related parties involving relevant amounts can be reasonably considered adequate according to normal market conditions. In accordance with applicable rules, our Audit Committee must hold sessions at least with the same frequency required of our board of directors.

The Argentine Capital Markets Law and CNV Rules require that publicly listed companies in Argentina such as us must have an Audit Committee comprised of three members of the board of directors, the majority of which must be independent. Notwithstanding, our Audit Committee is comprised of three independent directors in compliance with the requirements of the SEC.

On February 5, 2016, our board of directors appointed Enrique Antonini, Leonardo Fernández and Marcos Barylka, all of whom are independent board members for purposes of U.S. Securities Law requirements, as members of our Audit Committee. We have a fully independent Audit Committee as per the standard provided in Rule 10(A)-3(b)(1) of the general rules and regulations promulgated under the U.S. Securities Exchange Act.

B. Compensation

Members of the Board of Directors and Executive Committee

The Argentine Companies Law establishes that if the compensation of the members of the board of directors is not established in an entity’s bylaws, it should be subject to approval at the annual shareholders’ meeting. Total compensation of the members of the board of directors, including wages and compensation for technical or administrative permanent activities, cannot exceed 5% of our annual earnings when there are no dividend distributions. When dividends are distributed, compensation may be increased proportionally up to a maximum of 25% of our annual earnings when all profits are distributed. Reductions in dividend distributions resulting from compensation to the board of directors and the Supervisory Committee may not be taken into account when making such calculation.

However, when one or more directors perform special commissions or technical or administrative activities, and there are no earnings to distribute, or they are reduced, the shareholders’ meeting may approve compensation in excess of the above-mentioned limits.

The Argentine Capital Markets Law states that public companies may compensate directors and senior managers that perform special commissions or technical or administrative duties with Company stock options, according to the rules and proceedings established by the CNV. In these cases, the shareholders’ meeting must determine the price of such stock options and the value assigned to them for purpose of determining compensation and compliance with Section 261 of the Argentine Companies Law. Unless otherwise prohibited by the bylaws, the Company may also purchase civil liability insurance for its directors and officers, with respecto to risks inherent to the performance of their duties.

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CNV Rules regulate and replicate the preceding dispositions, establishing the procedure to determine compensation in accordance to Section 261 of the Argentine Companies Law, limiting it to 5% of anual earnings when all profits are distributed, and gradually incresasing this limit in proportion to profit distribution, in accordance to Annex I, Chapter 3, Title II of the CNV Rules. The Rules also state that, when one or more directors perform special commissions or technical or administrative duties, there are reduced or inexistent profits and there arises the need to exceed the limits set by Section 261, said action must be included as a special ’tem on the agenda of the ordinary shareholders’ meeting.

The compensation of our directors for each fiscal year is determined pursuant to the Argentine Companies Law the Argentine capital markets law, the CNV Rules and taking into consideration if the directors perform technical or administrative activities and our fiscal year’s results. Once the amounts are determined, they are considered at the shareholders’ meeting. We do not enter into employment agreements with our directors nor do we provide stock option plans or any other compensation for our board members other than as described above.

At our annual ordinary shareholders’ meeting held on October 31, 2017, the shareholders resolved to pay aggregate compensation of Ps.125,810,416 to the members of the board of directors for all services rendered during the fiscal year ended June, 2017.

Supervisory Committee

The shareholders’ meeting held on October 31, 2017, approved payment of an aggregate compensation of Ps.600,000 to the members of the Supervisory Committee for services rendered during the fiscal year ended June 30, 2017.

Senior management

Our senior managers are paid a fixed amount that is determined on the basis of their experience, competencies and background. Senior management is also paid an annual bonus that varies depending on the performance of each individual and on the results of our operations. For the year ended June 30, 2018, our senior management team, including members of our board of directors, were paid an aggregate compensation of Ps.35,426,960.

Audit committee

The members of our Audit Committee do not receive compensation other than fees for their services as members of the board of directors.

Defined contribution plan

We have a defined contribution plan covering the members of our management team. The Plan became effective on January 1, 2006. Employees may begin participation voluntarily on monthly enrollment dates. Participants may make pre-tax contributions to the Plan of up to 2.5% of their monthly salary, or the “Base Contributions”, and pre-tax contributions of up to 15% of their annual bonuses, or “Extraordinary Contributions”. Under the Plan, we match employee contributions to the plan at a rate of 200% for Base Contributions and 300% for Extraordinary Contributions. Contribution expense was Ps.16.8 million, Ps.11.6 million and Ps.10.3 million for the fiscal years ended June 30, 2018, 2017 and 2016, respectively. Employee contributions are held in a mutual fund. Contributions we make on behalf of our employees are held temporarily in a company account until the trust is set up. Individual participants may direct the trustee to invest their accounts in authorized investment alternatives. Participants or their assignees, as the case may be, may have access to 100% of our contributions under the following circumstances:

1. ordinary retirement in accordance with applicable labor regulations;

2. total or permanent incapacity or disability; or

3. death.

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In case of resignation or unjustified termination, the beneficiary may redeem the amounts contributed by us only if he or she has participated in the Plan for at least five years.

Incentive plan for employees

Certain of our employees may elect to participate in IRSA’s incentive plan. Under this plan, up to 1% of IRSA’s shareholders’ equity was allocated mainly as compensation for the benefit of our and IRSA’s executive officers and key employees upon the termination of their labor relationships for one of the causes described below.

The board of directors invited executive officers and key employees to participate as beneficiaries and their decision to join was voluntary. Under the plan’s framework, share-based contributions by IRSA for executive officers and key employees were calculated based on the annual bonus for the years 2011, 2012, 2013. Participants or their successors in interest will have access to 100% of the benefits in the following events:

● 

if an employee resigns or is dismissed without cause provided that, five years have elapsed from the moment of each contribution;

● 

retirement;

● 

total or permanent disability; or

● 

death.

For fiscal year 2014, the plan contemplated an extraordinary award consisting of freely available stock payable in a single occasion.

In addition, IRSA granted a bonus to all personnel with more than two years of seniority and who do not participate in the plan consisting of a number of shares equivalent to their compensation for the month of June 2014.

On June 26, 2017, the General Ordinary and Extraordinary Shareholders’ Meeting approved the implementation of a new incentive plan for directors, management and employees based on the granting of shares for the long-term remuneration of its executives, directors and employees, which accomplish certain requirements in terms of seniority and internal category. For this reason, it was agreed that the funds allocated to this program will be based in part on the shares to be issued as a result of the capital increase approved at the Shareholders’ Meeting, in the amount of up to 4,444,444 shares resulting from the capital increase, in compliance with the provisions of current legislation which establishes that the cumulative total of shares issued for this purpose may not exceed 10 percent of the capital stock. As informed on July 21, 2017, we have discontinued capital increase until otherwise decided. Therefore, up to date, this incentive plan has not been implemented. 

Compensation committee

We do not have a compensation committee.

C. Board practices

For information about the date of expiration of the current term of office and the period during which each director has served in such office see “—Board of Directors” and “—Senior Management.”

Benefits upon termination of employment

There are no contracts providing for payment of benefits or compensation to members of our board of directors if they are not re-appointed to a new term as director. In addition, upon their termination members of our senior management team are entitled only to the compensation and benefits described under “—Board of Directors” and “—Senior Management” and “—Incentive Plan for Employees.”

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Audit committee

In accordance with the Capital Markets Law, and the CNV Rules, our board of directors established an audit committee. See “—Board of Directors” and “—Audit Committee” for further details regarding the functions of our Audit Committee.

Compensation Committee

There is no compensation committee.

D. Employees

As of June 30, 2018 we had 928 employees, of which 434 are subject to collective bargaining agreements. We believe that we have good relations with our employees. We subcontract certain operational functions related to our business to third parties primarily through tender processes for construction of development projects and for the provision of security, maintenance and cleaning services related to our shopping malls and office properties.

The following table shows the number of employees as of the indicated dates:

	Fiscal year ended June 30,
	2018	2017	2016
IRSA Propiedades Comerciales S.A.(1)	788	808	823
Emprendimiento Recoleta S.A.	30	29	30
Fibesa S.A.	21	20	20
Panamerican Mall S.A.	66	69	69
Arcos del Gourmet S.A.	7	7	6
Nuevo Puerto Santa Fe S.A.	16	14	16
Total	928	947	964

(1) In January 2014 we assigned administrative employees to Cresud under our Agreement for the Exchange of Corporate Services. For further information, see “Item 7. Major Shareholders and Related Party Transactions—Related Party Transactions.” In April and May 2015, the employees assigned to IRSA related to operation of buildings and IRSA’s Real Estate division were transferred to us as part of the transferred office assets that was completed on December 22, 2014. In June 2015, the employees assigned to Cresud under the Joint Administrative Services Agreement were transferred to us.

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E. Share Ownership

The following table sets forth the amount and percentage ownership of our common shares beneficially owned by our directors, members of our senior management and members of our Supervisory Committee, as of June 30, 2018.

 

		Share ownership
Name	Position	Amount	(%)
		(in thousands)
Directors
Eduardo Sergio Elsztain(1)	Chairman	108,802	863
Saúl Zang	First Vice-Chairman	—	—
Alejandro Gustavo Elsztain	Executive Vice-Chairman / Chief Executive Officer	160	*
Daniel Ricardo Elsztain	Director / Chief Operating Officer	9	*
Fernando Adrián Elsztain	Director	—	—
Leonardo Fabricio Fernández	Director	—	—
Enrique Antonini	Director	—	—
Marcos Oscar Barylka	Director	—	—
Isela Angelica Constantini	Director	—	—
Gastón Armando Lernoud	Alternate Director	2	*
Pablo Daniel Vergara del Carril	Alternate Director	—	—
Salvador Darío Bergel	Alternate Director	—	—
Mauricio Elías Wior	Alternate Director	—	—
Gabriel A.G. Reznik	Alternate Director	—	—
Juan Manuel Quintana	Alternate Director	—	—
Senior Management
Matías Gaivironsky	Chief Financial and Administrative Officer	1	*
Juan José Martinucci	Chief Commercial Officer	—	—
Arnaldo Jawebaum	Compliance Officer	—	—
Supervisory Committee
José Daniel Abelovich	Member	—	—
Marcelo Héctor Fuxman	Member	—	—
Noemi Cohn	Member	—	—
Gastón Gabriel Lizitza	Alternate Member	—	—
Roberto Daniel Murmis	Alternate Member	—	—
Alicia Graciela Rigueira	Alternate Member	—	—

* Less than 1%.

(1) Mr. Eduardo Sergio Elsztain, chairman of our board of directors, beneficially owns, as of June 30, 2018, 174,267,696 common shares of Cresud representing 34.7% of its total share capital. Although Mr. Elsztain does not own a majority of the common shares of Cresud, he is its largest shareholder and exercises substantial influence over Cresud. Cresud, as of June 30, 2018, owned 63.4% of IRSA’s common shares. If Mr. Elsztain were considered to control Cresud due to his significant influence over it, he would be considered to be the beneficial owner of 63.4% of IRSA’s common shares (includes (i) 364,599,453 common shares owned by Cresud and ii) 2,188,790 common shares owned by Cresud’s subsidiary, Helmir S.A.). IRSA, as of June 30, 2018 owns 86.34% of our common shares, which includes i) 108,652,538 common shares directly owned by IRSA; ii) 128,499 common shares owned by E-Commerce, a company fully owned through direct and indirect control by IRSA and iii) 20,733 common shares owned by Tyrus, a company fully owned by IRSA. If Mr. Elsztain were considered the beneficial owner of 63.4% of IRSA, he would be the beneficial owner of 86.34% of our common shares through IRSA.

Option Ownership

No options to purchase common shares have been granted to our directors, senior managers, members of our Supervisory Committee or our Audit Committee.

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Employee Participation in our share capital

There are no arrangements for involving our employees in our capital stock or related to the issuance of options, common shares or securities, other than those described under the following sections: (i) “—Compensation” and (ii) “—Incentive Plan for Employees.”

ITEM 7. Major Shareholders and Related Party Transactions

A. Major Shareholders

Information about Major Shareholders

Share Ownership, as of June 30, 2018

The following table sets forth information regarding ownership of our capital stock by each person known to us to own beneficially at least 5% of our common shares, the ANSES and all our directors and officers as a group, as of June 30, 2018:

	Share ownership as ofJune 30, 2018
	Number ofcommonshares(in thousands)	Actual(%)(1)
IRSA(2)	108,802	86.3
Directors and officers excluding Eduardo Sergio Elsztain(3)	172	0.1
ANSES	1,739	1.4
Total	110,713	87.8

(1) Figures may not add up due to rounding.

(2) Mr. Eduardo Sergio Elsztain, chairman of our board of directors, beneficially owns, as of June 30, 2018, 174,267,696 common shares of Cresud representing 34.7% of its total share capital. Although Mr. Elsztain does not own a majority of the common shares of Cresud, he is its largest shareholder and exercises substantial influence over Cresud. Cresud, as of June 30, 2018, owned 63.4% of IRSA’s common shares. If Mr. Elsztain were considered to control Cresud due to his significant influence over it, he would be considered to be the beneficial owner of 63.4% of IRSA’s common shares (includes (i) 364,599,453 common shares beneficially owned by Cresud and ii) 2,188,790 common shares owned by Cresud’s subsidiary, Helmir S.A.). IRSA, as of June 30, 2018 owns 86.34% of our common shares, which includes i) 108,652,538 common shares directly owned by IRSA; ii) 128,499 common shares owned by E-Commerce, a company fully owned through direct and indirect control by IRSA and iii) 20,733 common shares owned by Tyrus, a company fully owned by IRSA. If Mr. Elsztain were considered the beneficial owner of 63.4% of IRSA, he would be the beneficial owner of 86.34% of our common shares through IRSA.

(3) Includes only direct ownership of our directors and senior management, other than Mr. Elsztain. Information as of June 30, 2018.

Through its ownership of our common shares, IRSA currently has voting control over us and the power to direct or influence the direction of our management and policies. IRSA is an Argentine real estate company engaged in a range of real estate activities. IRSA’s common shares are listed and traded on ByMA and on the New York Stock Exchange.

As of June 30, 2018, Cresud owned 63.4% of IRSA’s common shares. Cresud is a leading Argentine producer of basic agricultural products. Cresud’s common shares are listed and traded on ByMA and on NASDAQ.

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Changes in Share Ownership

	Share Ownership as of June 30,
Shareholder	2018	2017	2016	2015	2014
IRSA (1)	86.3%	94.6%	94.6%	95.8%	95.7%
Directors and officers	0.1%	0.1%	0.1%	0.1%	0.1%
ANSES	1.4%	1.4%	1.4%	1.4%	1.4%

(1) Mr. Eduardo Sergio Elsztain, chairman of our board of directors, beneficially owns, as of June 30, 2018, 174,267,696 common shares of Cresud representing 34.7% of its total share capital. Although Mr. Elsztain does not own a majority of the common shares of Cresud, he is its largest shareholder and exercises substantial influence over Cresud. Cresud, as of June 30, 2018, owned 63.4% of IRSA’s common shares. If Mr. Elsztain were considered to control Cresud due to his significant influence over it, he would be considered to be the beneficial owner of 63.4% of IRSA’s common shares (includes (i) 364,599,453 common shares beneficially owned by Cresud and ii) 2,188,790 common shares owned by Helmir.). IRSA, as of June 30, 2018 owns 86.34% of our common shares, which includes i) 108,652,538 common shares directly owned by IRSA; ii) 128,499 common shares owned by E-Commerce, a company fully owned through direct and indirect control by IRSA and iii) 20,733 common shares owned by Tyrus, a company fully owned by IRSA. If Mr. Elsztain were considered the beneficial owner of 63.4% of IRSA, he would be the beneficial owner of 86.34% of our common shares through IRSA.

Differences in Voting Rights

Our major shareholders do not have different voting rights.

Arrangements for change in control

There are no arrangements that may at a subsequent date result in a change in control.

Securities held in the host country

As of June 30, 2018, we had 126,014,050 common shares issued and outstanding of which 112,785,242 (or 89.5%) were held in Argentina. As of June 30, 2018, we had 3,307,202 ADS outstanding (representing 13,228,808 of our common shares, or 10.5% of all of our total common shares issued and outstanding). As of such date, we had fourteen registered holders of our ADS in the United States.

B.Related Party Transactions

We enter into transactions with related parties on an arm’s length basis. A related party transaction is any transaction entered into directly or indirectly by us or any of our subsidiaries that is material based on the value of the transaction to (a) us or any director, officer or member of our management or shareholders; (b) any entity in which any such person described in clause (a) is interested; or (c) any person who is connected or related to any such person described in clause (a).

Leases for space at our offices and shopping malls

IRSA and Cresud rent office space for their executive offices located at the Intercontinental Plaza tower at Moreno 877 in the Autonomous City of Buenos Aires, which we have owned since December 2014. They also rent space that we own at the Abasto Shopping.

The offices of Eduardo Sergio Elsztain, the chairman of our board of directors and our controlling shareholder are located at 108 Bolivar, in the City of Buenos Aires. The property has been rented to a company controlled by family members of Mr. Elsztain, and to a company controlled by Fernando A. Elsztain, one of our directors, and members of his family.

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● 

In addition, Tarshop S.A., BACS Banco de Crédito y Securitización S.A., BHN Sociedad de Inversión S.A., BHN Seguros Generales S.A. and BHN Visa S.A. rent offices owned by us in different buildings.

● 

Furthermore, we also let various spaces in our shopping malls (stores, stands, storage space or advertising space) to third parties and related parties such as Tarshop S.A. and Banco Hipotecario S.A.

Lease agreements entered into with associates have included similar provisions and amounts to those included in agreements with third parties.

Agreement for the exchange of corporate services with Cresud and IRSA

Considering that each of IRSA, Cresud and us have operations that overlap to a certain extent, our board of directors deemed it advisable to implement alternatives designed to reduce certain fixed costs of our combined activities and to mitigate their impact on our operating results while seizing and optimizing the individual efficiencies of each of them in the different areas comprising the management of operations.

To such end, on June 30, 2004, a Master Agreement for the Exchange of Corporate Services, or the “Framework Agreement,” was entered into between IRSA, Cresud and us, which was amended several times to bring it in line with evolving operating requirements. The goal of the amendment is to increase efficiency in the distribution of corporate resources and reduce operating costs. The agreement had an initial term of 24 months and is renewable automatically for equal periods, unless it is terminated by any of the parties upon prior notice.

The Framework Agreement currently provides for the exchange and sharing of services among the following areas: Corporate Human Resources, Administration and Finance, Planning, Institutional Relations, Compliance,Shared Service Center, Security, Attorneys, Corporate Legal, Corporate Environment and Quality, General Management to Distribute, Security of Directory, Real Estate Business Administration, Real Estate Business Human Resources, Technique, Infrastructure and Services, Purchase and Contracting, Administrations and Authorizations, Investments, Governmental Affairs, Hotels, Fraud Prevention, Bolivar, Directory to Distribute and Real Estate Directory to Distribute.

Pursuant to the Framework Agreement, we IRSA and Cresud hired Deloitte & Co., an external consulting firm, to review and evaluate periodically the criteria used in the process of liquidating the corporate services, as well as the basis for distribution and source documentation used in the process indicated above, by means of a half-yearly report.

The operations indicated above allow both IRSA and Cresud to keep our strategic and commercial decisions fully independent and confidential, with cost and profit apportionment allocated on the basis of operating efficiency and equity, without pursuing individual economic benefits for any of the related companies.

Special reimbursement with different payment methods

We and our related parties undertake different commercial actions and promotions intended to promote customer traffic and consumption at our shopping malls. Certain promotions are offered on specific dates or periods, offering different types of discounts to clients and/or interest-free financing plans. We and our related parties entered into agreements with various financial entities and/or related parties, such as Banco Hipotecario S.A. and Tarshop S.A.

These agreements generally establish different reimbursement rates for customers that purchase in all the shops that are part of the network using the payment methods specified by each financial entity and, in certain circumstances, additional financing plans with zero interest rates. The costs of the reimbursements given to the customers generally are distributed proportionally among the tenants of the shops and the financial entities, while the cost of the financing at a zero interest rate is assumed by the financial entities. We and our related parties act as intermediaries, ensuring that the tenants adhere to the plan and advertising of these promotions. These activities do not generate any cash or transfer of income or cost between us and our related parties.

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Hospitality services

We and our related parties hire, on certain occasions, hotel services and lease conference rooms for events held at Nuevas Fronteras S.A., Hoteles Argentinos S.A. and Llao Resorts S.A., subsidiaries of IRSA, all on arm’s-length terms and conditions.

Financial and service operations

We work with several financial entities in Argentina for operations including, but not limited to, credit, investment, purchase and sale of securities and financial derivatives. Such entities include Banco Hipotecario S.A. and its subsidiaries. Furthermore, Banco Hipotecario S.A. and BACS Banco de Crédito y Securitización S.A. usually act as underwriters in capital market transactions we undertake.

Donations granted to Fundación IRSA and Fundación Museo de los Niños

Fundación IRSA is a non-profit charity that seeks to support and generate initiatives concerning education, the promotion of corporate social responsibility and the entrepreneurial spirit of young adults. It carries out corporate volunteer programs and fosters donations from our employees. The main members of Fundación IRSA’s board of directors are: Eduardo S. Elsztain (President); Saúl Zang (Vice-President I); Alejandro Elsztain (Vice-President II); and Mariana C. de Elsztain (Secretary). It finances its activities with donations from us, IRSA, Cresud and other related companies.

On October 31, 1997, we entered into an agreement with Fundación IRSA whereby 3,800 square meters of the developed area at Abasto Shopping was granted under a gratuitous bailment agreement for a term of 30 years. Subsequently, on October 29, 1999, Fundación IRSA assigned free of cost all the rights of use over such store and its respective obligations to Fundación Museo de los Niños. On November 29, 2005, we signed another agreement with Fundación Museo de los Niños granting under gratuitous bailment 2,670 square meters of the developed area at Alto Rosario shopping mall for a term of 30 years.

Fundación Museo de los Niños has used these spaces to set up Abasto Shopping and Museo de los Niños and Rosario, two interactive learning centers intended for children and adults. Both agreements establish the payment of common charges and direct expenses related to the services performed by these stores must be borne by Fundación Museo de los Niños.

Borrowings

In the normal course of our activities, we enter into diverse loan agreements or credit facilities between the related companies and/or other related parties. These loans accrue interest at prevailing market rates.

Purchase of financial assets

We usually invest excess cash in several instruments that may include those issued by related companies, acquired at issuance or from unrelated third parties through secondary market deals.

Investment in mutual funds of BACS Administradora de Activos S.A., S.G.F.C.I.

We invest from time to time our liquid fund in mutual funds managed by BACS Administradora de Activos S.A. S.G.F.C.I., which is a subsidiary of Banco Hipotecario, among other entities.

Legal services

We hire legal services from Estudio Zang, Bergel & Viñes, in which Saúl Zang and Salvador D. Bergel are founding partners (currently retired) and Juan Manuel Quintana and Pablo Vergara del Carril are partners. Mr. Zang is a member of our board of directors and that of our related companies. Mr. Bergel, Mr. Quintana and Mr. Vergara del Carril serve as alternate members of our board of directors.

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Property purchase—sale

In the ordinary course of business, we may acquire from or sell to our related parties certain real estate properties used for rental purposes or otherwise, subject to our Audit Committee’s approval. The Audit Committee must render an opinion as to whether the terms of these transactions can reasonably be expected to have been obtained by us in a comparable transaction in arm’s-length dealings with a non-related party. In addition, if the Audit Committee so requires, valuation reports by independent specialist third parties must be obtained.

Acquisition of investment properties from IRSA

On December 22, 2014, we acquired from IRSA 83,789 square meters of its premium office portfolio including the buildings República, Bouchard 710, Della Paolera 265, Intercontinental Plaza and Suipacha 652 and the “Intercontinental II” plot of land in order to consolidate assets for the main corporate purpose to develop and operate commercial properties in Argentina. Based on third-party appraisals, the total purchase price of the transaction was US$308.0 million, which has been fully paid as of June 30, 2016.

On April 7, 2016, we acquired from IRSA 16,012 square meters covering 14 floors and 142 garages in a building to be developed in the area of Catalinas, City of Buenos Aires. The price of the transaction was established based on two components: a “determined” or fixed part equal to Ps.455.7 million corresponding to the price of the land acquired based on the number of square meters of the plot, which has been fully paid, and a “determinable” component, where IRSA will transfer to us the real cost per square meter of the construction. Our Audit Committee had no objections with respect to this transaction.

Transfer of tax credits

Sociedad Anónima Carnes Pampeanas S.A. (a company controlled by Cresud) and Cresud, assigned credits to us and other related parties corresponding to value added tax export refunds related to such companies’ business activity.

For further information regarding related party transactions see Note 29 to our Audited Financial Statements.

C. Interests of Experts and Counsel

This section is not applicable.

ITEM 8.Financial Information

A. Consolidated Statements and Other Financial Information

See Item 18 for our consolidated financial statements.

Legal or Arbitration Proceedings

Arcos del Gourmet

Injuction order

In December 2013, the Judicial Branch confirmed an injunction order that suspended the opening of the Shopping Mall on the grounds that it did not have certain government permits in the context of two legal proceedings, where a final decision has been rendered for Arcos.

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The plaintiff filed a petition for the continuation of the preliminary injunction by means of an extraordinary appeal of unconstitutionality which was denied by the lower and appellate courts. consequently, it filed an appeal with the Supreme Court of Justice of the Autonomous City of Buenos Aires, which referred the proceedings to the Court of Appeals for re­consideration of certain parameters related to green areas, as established by the lower court.

Nowadays, the Distrito Arcos Shopping Mall is open to the public and operating normally.

Concession Status order

In November 2008, the Agencia de Administración de Bienes del Estado (State Assets Administration Office, or AABE in Spanish) signed a contract with the Company granting the concession to use the premises located next to Estación Palermo, ex Línea San Martín - Palermo loading deck (on Juan B. Justo Avenue from Santa Fe Avenue to Paraguay Street) until December 31, 2025.

Subsequently, in September 2011, an amendment to this concession agreement was signed with the Railway Infrastructure Administrator (ADIF in spanish) (to which the railway system assets under AABE jurisdiction were transferred) (“Contract for Readjustment of the Concession of Rights”), according to which the term ofthe concession was extended until December 31, 2030. This new agreement also provides for an automatic extension of 3 years and 4 months in the event that the Company complies with its obligations under the concession agreement as amended. Likewise, a further extension was agreed for an additional 3 years term if the Company’s option provided the Company’s compliance with its obligations under the agreement. The mentioned agreement established an initial monthly fee of Ps.200,000 (plus VAT) until December 31, 2025, and Ps.250,000 (plus VAT) as of January 1, 2026, these values being adjustable every 2 years until the expiration of the term of the concession.

The Argentine government issued Executive Order 1723/2012, whereby several plots of land located in prior rail yards of Palermo, Liniers and Caballito were designated for development and urbanization projects.

In this respect and as part of several measures related to other licensed persons and/or concessionaires, IRSA Propiedades Comerciales was notified, of Resolution 170/2014 issued by the Agencia de Administración de Bienes del Estado (State Assets Administration Office, or AABE in Spanish) revoking of the Contract for Readjustment of the Concession of Rights.

It should further be pointed out that such measure:

(i)

has not been adopted due to noncompliance of Arcos.

(ii)

to the date of these annual report there is no interruption of the commercial development or operation of the shopping mall, which continues to operate under normal conditions.

Notwithstanding the foregoing, Arcos del Gourmet S.A. has applied for relevant administrative remedies (appeal) and has also filed a judicial action requesting that the revocation of such concession be overruled and has concurrently brought an action for determination of lease rental payments as a result of which it is making judicial deposits of the agreed monthly rental payments. To date, the administrative remedy has been waived (by operation of law since judicial proceedings have been commenced), the State answered the complaint in the case where the parties contest the admissibility of the order revoking the concession, and the complaint has already been served and we are awaiting the answer from Trenes Argentinos. The Argentine Government required the notification of the complaint to Playas Ferroviarias de Buenos Aires S.A. This party answered the complaint.

Dividend Policy

Pursuant to Argentine Companies Law, the distribution and payment of dividends to shareholders is valid only if they result from realized net earnings of the company pursuant to annual financial statements approved at the annual meeting of shareholders. The amount and payment of dividends are also subject to approval by our shareholders at our annual ordinary shareholders’ meeting by the affirmative vote of a majority of the shares entitled to vote at the meeting.

Pursuant to Argentine law and our by-laws, net and realized profits for each fiscal year are allocated as follows:

● 

5% of net profits is allocated to our legal reserve, until such reserve amounts to 20% of our capital stock;

● 

a certain amount determined at a shareholders’ meeting is allocated to the compensation of our directors and the members of our Supervisory Committee; and

● 

additional amounts are allocated to the payment of dividends, optional reserve, or to fund reserves for any other purpose as determined by our shareholders.

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According to rules issued by the CNV and our bylaws, cash dividends must be paid to shareholders within 30 days of the resolution approving their distribution. In the case of dividends payable in form of additional shares, the shares must be delivered to shareholders within three months of the annual meeting of our shareholders that approved them.

The following table illustrates the total and per share amounts paid as dividends on each fully paid-in share for the fiscal years mentioned. The amounts stated in Pesos correspond to nominal Pesos on their respective dates of payment. See “Item 3. Key Information—Local Exchange Market and Exchange Rates.”

Fiscal year	Cash dividends	Total per share(1)
	(Ps.)	(Ps.)
2014	407,522,074	3.2339
2015	437,193,000	3.4694
2016	283,580,353	2.2504
2017(2)	770,000,000	6.1104
2018	680,000,000	5.3962

(1) On November 30, 2016, we changed the par value of our common shares from Ps.0.10 to Ps.1.00 per share. The aforementioned change was taken into account in the presentation of the date in the table.

(2) An interim dividend was paid on April 25, 2017.

B.Significant changes

Shareholders‘ Meeting:

Our 2018 annual meeting of shareholders has been called for October 29, 2018, in order to consider, among others, (i) treatment and allocation of net income for the fiscal year ended June 30, 2018, (ii) consideration of payment of a cash dividend for up to Ps.545 million, (iii) approve of a new US$600,000,000 global note program, (iv) consideration of delegation of powers to the Board of Directors in order to determine the time and currency of issuance and further terms and conditions governing the issue of notes under the new US$600,000,000 global note program to be approved by the shareholders, (v) adequacy of the by-laws to new legal provisions, (vii) authorizations for carrying out registration proceedings relating to this shareholders’ meeting before the CNV and the Argentine Superintendency of Corporations and (viii) appointment of regular and alternate board members for the statutory term in order to implement the election by thirds.

ITEM 9. The Offer and Listing

A. The offer and listing details

The following summary provides information concerning our share capital and briefly describes all material provisions of our bylaws and the Argentine Corporation Law.

Stock Exchanges in which our securities are listed

Our common shares are listed on ByMA, the successor to Merval, under the ticker “IRCP.” ADSs representing our common shares are listed on the NASDAQ Global Market under the ticker “IRCP.” Our outstanding capital stock consists of Ps.126,014,050 represented by 126,014,050 common shares of Ps.1.00 face or nominal value per share, with one vote per share. All of the common shares are validly issued, fully paid and non-assessable.

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Price history of our stock

Our common shares are listed and traded on ByMA under the ticker “IRCP”. The shares have been listed on ByMA and its predecessor, Merval, since March 26, 1996. ADS are listed and traded on the NASDAQ Global Market under the symbol “IRCP”. Each ADS represents four common shares. The ADS were listed on the NASDAQ on November 15, 2000, acting as depository of the ADS. The following chart shows, for the period indicated, the maximum and minimum closing listed prices of our common shares on the ByMA and of our ADS on the NASDAQ.

	ByMA			NASDAQ
	Ps. per share(1)			US$ Per ADS
	Share Volume	High	Low	ADS Volume	High	Low
Fiscal Year 2014
1st Quarter	11,197	41.00	31.50	102,359	19.27	15.78
2nd Quarter	12,974	55.00	45.00	175,356	23.40	18.85
3rd Quarter	18,962	54.00	41.00	141,499	23.30	15.30
4th Quarter	9,884	53.00	41.20	110,745	22.52	17.40
Annual	53,017	55.00	31.50	529,959	23.40	15.30
Fiscal Year 2015
1st Quarter	17,546	80.00	47.50	80,099	23.00	19.75
2nd Quarter	24,189	77.00	58.00	78,402	23.00	17.95
3rd Quarter	9,817	89.00	60.00	81,134	38.00	22.60
4th Quarter	22,237	95.00	87.00	46,710	35.00	29.00
Annual	73,789	95.00	47.50	286,345	38.00	17.95
Fiscal Year 2016
1st Quarter	28,119	120.00	90.00	49,801	35.00	24.75
2nd Quarter	14,195	135.00	109.00	338,943	39.00	28.76
3rd Quarter	19,607	128.00	100.00	207,474	37.00	31.75
4th Quarter	34,857	144.00	127.00	227,759	39.80	36.51
Annual	96,778	144.00	90.00	823,977	39.80	24.75
Fiscal Year 2017
1st Quarter	36,716	175.00	136.00	49,981	44.70	36.00
2nd Quarter	142,042	190.50	159.70	88,834	48.00	41.88
3rd Quarter	9,118	173.00	160.00	74,345	46.01	41.46
4th Quarter	28,359	233.00	162.00	215,833	57.00	43.50
Annual	216,235	233.00	136.00	428,993	57.00	36.00
Fiscal Year 2018
1st Quarter	21,759	260.00	224.00	93,918	61.50	52.00
2nd Quarter	45,799	282.00	240.00	481,724	64.65	55.00
3rd Quarter	177,336	275.00	228.00	1,596,433	57.50	44.00
4th Quarter	118,185	250.00	201.50	654,932	47.01	30.09
Annual	363,079	282.00	201.50	2,827,007	64.65	30.09
Fiscal Year 2019
1st Quarter	62,274	255.00	201.10	552,950	34.49	23.75
For the month of:
July 2018	53,136	235.00	208.00	96,302	34.49	30.01
August 2018	6,820	255.00	201.10	179,260	33.20	26.25
September 2018	2,318	255.00	237.20	277,388	26.00	23.75
October (through October 18, 2018)	1,580	242.00	220.00	70,157	24.86	22.54

Source: Bloomberg

(1) On November 30, 2016, we changed the par value of our common shares from Ps.0.10 to Ps.1.00 per share. The aforementioned change was taken into account in the presentation of the date in the table.

Due to the aggregate ownership of approximately 86.3% as of June 30, 2018 by our principal shareholder, the liquidity of our common shares is restricted and may frequently cause our stock not to be traded daily. 

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B. Plan of Distribution

This section is not applicable.

C. Markets

Argentine Securities Markets

In December 2012, the Argentine government enacted Capital Markets Law No 26,831, which sets out the rules governing capital markets, its participants, and the rules by which securities traded therein are subject to regulation and monitoring by the CNV. In September 2013, the CNV issued General Resolution No. 622/2013 (the “CNV Rules”) a new set of rules further implementing and administering the requirements of the Capital Markets Law. On May 9, 2018, the Argentine Chamber of Deputies approved Law No. 27,440 called “Ley de Financiamiento Productivo”, which creates a new financing regime for MiPyMEs and modifies Capital Markets Law No. 26,831, Investment Funds Law No. 24,083 and Law No. 23,576, among others, as well as certain related tax provisions, and establishes regulations for derivative instruments, all with the aim of achieving a modern and transparent financial regulatory framework that contributes to the development of the Argentine economy. On May 21, 2018, the Argentine Government issued Decree No. 471/2018, which regulates certain aspects of the Capital Markets Law as amended by Law No. 27,440.

The Capital Markets Law, as currently in effect, sets forth, among others the following key goals and principles:

● 

Promoting the participation of small investors, employee unions, industry groups and trade associations, professional associations and all public savings entities in the capital markets, promoting mechanisms designed to promote domestic savings and channel such funds toward the development of production;

● 

Strengthening mechanisms to prevent abuses and protect small investors;

● 

Promoting access to the capital market by small and medium-sized companies;

● 

Using state-of-the-art technology to foster creation of an integrated capital market through mechanisms designed to achieve interconnection of computer systems among trading markets;

● 

Encouraging simpler trading procedures available to users to increase liquidity and competitiveness to develop favorable conditions for transaction execution;

●     Reducing systemic risk in the Argentine capital markets through actions and resolutions aimed at implementing international best practices;

●     Promoting the integrity and transparency of the Argentine capital markets; and

● 

Promoting financial inclusion.

The CNV is a self-administered agency of the Argentine Government with jurisdiction covering the territory of Argentina, governed by the provisions of the Capital Markets Law, and the CNV Rules among other related statutory regulations. The relationship of the CNV and the Argentine Executive branch is maintained through the Ministerio de Finanzas (Ministry of Finance), which hears any appeals filed against decisions made by the CNV, notwithstanding any other legal actions and remedies contemplated in the Capital Markets Law.

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The CNV supervises and regulates the authorized markets in which the securities and the collective investment products are traded, the corporations authorized in the public offer regime, and all the other players authorized to operate in the public offer regime, as the registered agents, the trading agents, the financial advisors, the underwriters and distributors, the brokers, the settlement and clearing agents, the managers of collective investment products, the custodians of collective investment products, the collective depositories, and the risk rating agencies, among others. Argentine institutional investors and insurance companies are regulated by separate government agencies, whereas financial institutions are regulated mainly by the Central Bank.

Before offering securities to the public in Argentina, an issuer must meet certain requirements established by the CNV with regard to its assets, operating history and management. Only securities offerings approved by the CNV may be listed on a stock exchange. However, CNV approval does not imply certification as to the quality of the securities or the solvency of the issuer issuers of listed securities are required to file unaudited quarterly financial statements and audited annual financial statements prepared in accordance with IFRS, as issued by the IASB (excluding financial institutions under the supervision of the Central Bank, insurance companies under the supervision of the Insurance Superintendence and medium and small enterprises) and various other periodic reports with the CNV and the stock exchange on which their securities are listed. In addition, issuers must report to the CNV and the relevant stock exchange any event related to the issuer and its shareholders that may affect materially the value of the securities traded.

In Argentina, debt and equity securities traded on an exchange must, unless otherwise instructed by their shareholders, be deposited with a Central Securities Depository based in Argentina. Currently the only depositary authorized to act in accordance with the Capital Markets Law and CNV Rules is Caja de Valores S.A., a corporation owned by ByMA which provides central depositary facilities, as well as acting as a clearinghouse for securities trading and as a transfer and paying agent for securities transactions.

Law No. 27,440 streamlines the regulation of mutual funds, public offerings of securities, of negotiable obligations and regulation of intermediaries and securities markets, while incorporating a long-awaited regulation for derivative instruments and the margins and guarantees that cover them. Below is a summary of the main amendments to the Capital Markets Law introduced by Law No. 27,440:

● 

Eliminates the CNV’s power to appoint supervisors with veto power over resolutions adopted by an issuer’s board of directors without a judicial order.

● 

Grants the CNV the power to issue regulations to mitigate situations of systemic risk, set maximum fees to be received by securities exchanges, create or modify categories of agents, encourage the simplification of the negotiation of securities and promote the transparency and integrity of the capital markets, while prohibiting the CNV from denying an issuer’s public offer authorization request solely because of opportunity, merit or convenience.

● 

Empowers the CNV to regulate private offerings of securities.

● 

Grants federal commercial courts jurisdiction to review resolutions or sanctions issued by the CNV.

● 

Strengthens due process guarantees in favor of persons on entities sanctioned by the CNV and increases the amount of the fines, between Ps.100,000 and Ps.100 million, which can be increased up to five times the benefits perceived with the infraction.

● 

Returns certain functions such as supervision, inspection and control of agents and operations, to the stock exchanges and clearing houses without this implying delegation of the powers of the CNV.

● 

Allows the CNV to regulate and set ownership limits of authorized markets to restrict control concentration.

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● 

Preemptive rights may be exercised through the placement procedure determined in a public offering prospectus, instead of the procedure set forth in the Argentine General Companies Law. Preemptive right holders have the right to subscribe for newly issued shares in proportion to their shareholding prior to the capital increase. The subscription price for the newly issued shares may not be less than the public offering price. In order to use the public offering regime for a preemptive rights offering the issuer must (i) have an express provision in its bylaws adopting this regime in lieu of the regime set forth in the Argentine General Companies Law; and (ii) the issuer’s shareholders must approve any issuance of equity securities or convertible debt securities.

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Eliminates share accretion rights, unless expressly provided for in a listed company’s bylaws.

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Allows foreign entities to participate in all shareholder meetings through authorized agents.

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Establishes guidelines to set the offer price in a mandatory tender offer.

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Allows the offeror to freely set the offer price in a voluntary tender offer.

Information regarding the ByMA(1)

	As of June 30,
	2018	2017
Market capitalization (in billions of Ps.)	8,248	5,557
Average daily trading volume(2) (in millions of Ps.)	1,142	452
Number of listed companies(3)	100	101

(1) Reflects Merval historical data.

(2) During the month of June.

(3) Includes companies that received authorization for listing.

Although companies may list all of their capital stock on the ByMA, in many cases a controlling block is retained by the listed company’s shareholders, resulting in a relatively small percentage of many companies’ stock being available for active trading by the public.

As of June 30, 2018, approximately 100 companies had equity securities listed on, or being transitioned to the ByMA. The Argentine securities markets generally have substantially more volatility than securities markets in the United States and certain developed countries. The Merval index experienced a 36.1% increase in 2015, a 44.9% increase in 2016, 77.7% increase in 2017 and a 13.4% decrease for the six months of 2018. In order to avoid major fluctuations in securities prices, the ByMA operates a system pursuant to which the negotiation of a particular security is suspended for 15 minutes when the price of the security registers a variation between 10% and 15% and between 15% and 20%, during any trading session. Any additional 5% variation in the price of the security results in additional 10 minutes successive suspension periods.

NASDAQ Stock Market

Our ADSs are listed and traded in the NASDAQ Global Market under the trading symbol “IRCP”.

D. Selling Shareholders

This section is not applicable.

E. Dilution

This section is not applicable.

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F. Expenses of the Issue

This section is not applicable.

ITEM 10. Additional Information

A. Share Capital

This section is not applicable.

B. Memorandum and Articles of Association

Our corporate purpose

Our legal name is “IRSA Propiedades Comerciales S.A.” Our former legal name was Alto Palermo S.A. (APSA), which was modified by vote of the Extraordinary General Shareholders’ meeting held on February 5, 2015. We were organized and incorporated on August 29, 1889 under Argentine law as a stock corporation (Sociedad Anónima). Our by-laws were registered in the public registry of commerce of the city of Buenos Aires, currently named the Superintendence of Corporations (Inspección General de Justicia) on February 27, 1976 under number 323, on page 6, book 85 of the stock corporations volume. Pursuant to our bylaws, our term of duration expires on August 28, 2087. Article 4 of our bylaws defines our corporate purpose as follows:

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Invest, develop and operate real estate, and specially shopping malls; 

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Invest, develop and operate personal property, and specially securities; 

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Issuing of Credit Cards; 

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Manage real or personal property, whether owned by us or by third parties; 

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Build, recycle or repair real property whether owned by us or by third parties; 

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Marketing products; 

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Agencies and representations; 

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Advise third parties with respect to the aforementioned activities; and 

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Fund projects, undertakings, works and/or real estate transactions of third parties. 

Board of Directors

Voting of proposals in which Directors have material interest

Capital Markets Law establishes in Section 78, that the directors, and members of the supervisory committee of those companies whose securities are publicly offered, shall act in a loyal and diligent manner when exercising their functions. In that sense the aforementioned persons must follow the following rules:

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shall not be allowed to make use of any corporate assets or confidential information for his/her own private purposes;

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shall not be allowed to profit or permit a third party to profit, whether by an action or an omission to act, from any business opportunities available to the company;

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shall be required to exercise any powers conferred to them solely for the purposes for which they were conferred under the law or the corporate bylaws or by a shareholders’ meeting or the board of directors; and

●

shall be required to meticulously ensure that no conflict of interest, whether direct or indirect, shall under any circumstances arise between his/her actions and the company’s interests.

In case of doubt as to a director’s compliance with his/her duty of loyalty, the burden of proof shall be borne by such person.

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The Argentine Corporations Law No. 19,550 establishes in Section 271 that directors may enter into agreements with the company, that concern the business in which the company engages, always provided that they are entered into under market conditions. The agreements that do not fulfill the requirements mentioned above may only be executed with the prior approval of the board of directors. These transactions must be informed to the shareholders’ meeting.

Furthermore, the Capital Markets Law in Section 72 states for companies authorized in the public offer regime, that any acts performed or contracts executed between the company and a related party and involving a significant amount shall be performed or executed pursuant to the procedure set forth below:

a) A “related party” shall mean any of the following persons with respect to the issuer:

i) Directors, members of the supervisory body or surveillance committee, as well as chief executive officers or special managers of the issuing company appointed under section 270 of Argentine Companies Law No. 19,550;

ii) Natural persons or legal entities controlling or holding a substantial interest, as determined by the CNV, in the capital stock of the issuer or the issuer’s controlling entity;

iii) Any other company under the common control of the same controlling entity;

iv) The ascendants, descendants, spouses or siblings of any of the natural persons referred to in paragraphs i) and ii) above; and

v) Companies in which any of the persons referred to in paragraphs i) to iv) above hold a significant direct or indirect interest. Provided none of the circumstances described above is present, a subsidiary of the issuer shall not be deemed a “related party.”

b) A “significant amount” shall be deemed involved in an act or contract when such amount exceeds 1% of the company’s shareholders’ equity as shown in the most recently approved balance sheet.

The board of directors or any members thereof shall request the audit committee to state whether in its opinion the terms of a transaction may be reasonably deemed adapted to regular and usual market conditions. The audit committee shall issue its pronouncement within 5 business days.

Notwithstanding the above inquiry from the audit committee, a resolution may be adopted by the company on the basis of a report from 2 independent evaluation companies, which shall express their opinion on the same matter and other terms of the transaction.

Nevertheless that, Section 272 of the Corporations Law provides that when a director has an opposite interest to the one of the company, he or she should notify that situation to the board of directors and the supervisory committee and abstain to vote in that respect. The violation of this provision results in the director being jointly and severally unlimitedly liable.

Approval of compensation of Directors and Supervisory Committee

Our bylaws do not establish the compensation to be paid to members of the Board of Directors and the supervisory committee, and therefore pursuant to Section 261 of the Corporations Law, it should be approved by the majority of shareholders. The maximum amount that may be paid as compensation to members of the Board of Directors and the supervisory committee should not exceed 25% of the realized and net earnings of the company and 5% when there is no distribution of dividends. If the company does not distribute the total earnings, the amount of the compensation should be proportional to that distribution and within the mentioned limits. These limits may only be surpassed by express approval of majority of the shareholders.

Borrowing powers of Directors

Our bylaws establish, in Section 17, that the board of directors has full and broad powers to organize, manage and direct us, aimed at fulfilling the corporate purpose.

In case one of our directors borrowed from us, the matter would be subject to the requirements described above for transactions in which directors have material interest.

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Retirement of Directors and ownership of common shares requirement

Our bylaws do not establish any requirements or provisions regarding age limits for directors’ retirement nor do they require ownership of a certain number of common shares in order to be eligible for appointment as director.

Meetings of the Board of Directors

The Board of Directors can celebrate their meetings using teleconference technology. An absolute majority of the directors will constitute the quorum. The directors physically present at the time and those using teleconference technologies will be taken into consideration for the quorum. The resolutions of the Board of Directors will be passed by the vote of the majority of the directors physically present at the meeting and those using teleconference technologies.

Rights, preferences and restrictions attaching to the common shares

Dividend rights

The Corporations Law establishes that the distribution and payment of dividends to shareholders is valid only if they result from realized and net earnings of the company pursuant to an annual financial statements approved by the shareholders. The approval, amount and payment of dividends is subject to the approval of our annual ordinary shareholders meeting of the company. That approval requires the affirmative vote of the majority of the present votes with right to vote at the meeting.

Pursuant to the Corporations Law and Section 28 of our bylaws, liquid and realized profits of each fiscal year shall be distributed as follows:

●

allocate 5% of such net profits to legal reserve, until the amount of such reserve equals 20% of the capital stock;

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the sum established by the shareholders’ meeting as remuneration of the of Directors and the supervisory committee;

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the sum established by the shareholders’ meeting as remuneration of the of Directors and the supervisory committee;

Dividends are paid pro rata according to the interests held by shareholders within ten business days after approval and the right to collection expires upon the expiration of a term of five years since they were made available to shareholders.

The shareholders’ meeting may authorize payment of dividends on a quarterly basis provided no applicable regulations are violated. In that case, all and each of the members of the Board of Directors and the supervisory committee will be jointly and severally liable for the refund of those dividends if, as of the end of the respective fiscal year, the realized and net earnings of the company are not sufficient to allow the payment of dividends.

Voting rights and Staggered Elections

Our stock capital is composed by book-entry common shares with face value of Ps.1 per share and entitled to one vote each.

●

Our bylaws establish that directors and alternate directors are elected by thirds every year with a term of office of three years each. The board is currently composed by nine members. 

●

Our bylaws do not establish staggered elections.

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Rights to share in our profits

The holders of our common shares have the right to participate in our net and realized profits on a pro rata basis of their respective interests.

Surplus rights to share in the event of liquidation

Section 29 of our bylaws determine that, in the event of liquidation, dissolution or winding-up, our assets (i) will be applied to satisfy liabilities and (ii) will be proportionally distributed among holders of preferred stock if there are any and in accordance with the terms of the preferred stock. If any surplus remains, the holders of common shares are entitled to receive and share on a pro rata basis in all net assets remaining for distribution.

Procedure to change the rights of stockholders

The rights of stockholders are established in the Corporations Law and in the bylaws. The rights of shareholders provided for by the Corporations Law may not be diminished by the bylaws. Section 235 of the Law of Corporations No. 19,550 establishes that the amendment of the bylaws should be approved by shareholders in an extraordinary shareholders meeting.

Ordinary and extraordinary Shareholders’ Meeting

General

Shareholders’ meetings may be ordinary or extraordinary. We are required to hold an ordinary shareholders’ meeting within four months of the close of each fiscal year to approve our financial statements, the allocation of net income for the fiscal year, the approval of the reports of the Board of Directors and the audit committee and the election and remuneration of directors and members of the audit committee. Other matters which may be considered at an ordinary meeting include the responsibility of directors and members of the audit committee, capital increases and the issuance of certain corporate bonds. Extraordinary shareholders’ meetings may be called at any time to consider matters beyond the scope of an ordinary meeting, including amendment of the bylaws, issuance of debentures, early dissolution, merger, spin-off, reduction of capital stock and redemption of shares, changing the limiting or extending the shareholders liability by changing our corporate legal status and limitation of shareholders preemptive rights.

Notices

Notice of shareholders’ meetings must be published for five days in the Official Gazette of the Republic of Argentina, in an Argentine newspaper of wide circulation and in the publications of Argentine exchanges or securities markets in which our common shares are traded, at least ten days prior to the date on which the meeting is to be held as per Argentine Corporation Law, and at least 20 days prior to the meeting as per Capital Markets Law. The notice must include information regarding the type of meeting to be held, the date, time and place of the meeting and the agenda. If there is no quorum at the meeting, notice for a meeting on second call must be published for three days, at least eight days before the date of the second meeting, and must be held within 30 days of the date for which the first meeting was called. The first call and second call notices may be sent simultaneously in order for the meeting on second call to be held on the same day as the meeting on first call, but only in the case of ordinary shareholders’ meetings. Shareholders’ meetings may be validly held with at least 10 days prior notice in the publications of Argentine exchanges or securities markets in which our common shares are traded if all common shares of our outstanding capital stock are present and resolutions are adopted by unanimous vote.

The Board of Directors will determine appropriate publications for notice outside Argentina in accordance with requirements of jurisdictions and exchanges where our common shares are traded.

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Quorum and Voting Requirements

The quorum for ordinary meetings of shareholders on first call is a majority of the common shares entitled to vote, and action may be taken by the affirmative vote of an absolute majority of the common shares present that are entitled to vote on such action. If a quorum is not available, a second call meeting may be held at which action may be taken by the holders of an absolute majority of the common shares present, regardless of the number of such common shares. The quorum for an extraordinary shareholders’ meeting on first call is sixty percent of the common shares entitled to vote, and if such quorum is not available, a second call meeting may be held, for which there are no quorum requirements, according to our bylaws.

Action may be taken at extraordinary shareholders’ meetings by the affirmative vote of an absolute majority of common shares present that are entitled to vote on such action, except that the approval of a majority of common shares with voting rights, without application of multiple votes, is required in both first and second call for: (i) the transfer of our domicile outside Argentina, (ii) a fundamental change of the corporate purpose set forth in the bylaws, (iii) our anticipated dissolution, (iv) the total or partial repayment of capital, (v) a merger of our company, if we are not the surviving entity, (vi) a spin-off of our company, or (vii) changing our corporate legal status.

Shareholders’ meetings may be called by the Board of Directors or the members of the statutory audit committee whenever required by law or whenever they deem it necessary. Also, the board or the members of the statutory audit committee are required to call shareholders’ meetings upon the request of shareholders representing an aggregate of at least five percent of our outstanding capital stock. If the board or the statutory audit committee fails to call a meeting following this request, a meeting may be ordered by theCNV or by the courts. In order to attend a meeting, a shareholder must deposit with us a certificate of book-entry shares registered in his name and issued by Caja de Valores S.A. at least three business days prior to the date on which the meeting is to be held. A shareholder may be represented by proxy. Proxies may not be granted to directors, members of the audit committee or officers or employees of our company.

No Limitations on ownership of securities

There are no legal limitations to own our securities or exercise voting rights for residents, non-resident or foreign shareholders.

Ownership threshold above which ownership should be disclosed

The CNV Rules requires that transactions, which cause a person’s holdings of capital stock of a registered Argentine company, to equal or exceed 5% of the voting power, should be immediately notified to the CNV. Thereafter, every change in the holdings that represents a multiple of 5% of the voting power should also be notified.

Directors, senior managers, executive officers, members of the supervisory committee, and controlling shareholders of an Argentine company whose securities are publicly offered, should notify theCNV on a monthly basis, of their beneficial ownership of common shares, debt securities, and call and put options related to securities of such companies and their controlling, controlled or affiliated companies.

Furthermore, the CNV must be immediately notified of transactions which cause a person’s holdings of capital stock of an Argentine company whose securities are publicly offered to equal or exceed 5% of the voting power and every change in the holdings that represents a multiple of 5% of the voting power. Holders of more than 50% of the common shares or who otherwise control decision making in shareholders’ meetings, as well as directors, officers and members of the supervisory committee must provide theCNV with annual reports of their holdings in the capital stock of such companies and monthly reports of any change in their holdings.

187

Amendment to the by-laws

At the shareholders’ meeting held on October 25, 2007, our shareholders voted to amend the following sections of our by-laws: (i) Section Twelve in order to adapt the performance bonds granted by directors to current rules and regulations, and (ii) Section Fifteen in order to incorporate the possibility of holding remote board meetings pursuant to the provisions of section 65 of Decree 677/01–currently section 61 of Capital Markets Law-. Such amendment is attached here to as Exhibit 1.2.

At the shareholders’ meeting held on October 31, 2012, our shareholders voted to amend the following sections of our by-laws: (i) Section Sixteen in order to allow the Board of Directors to celebrate their meetings using teleconference technology. An absolute majority of the directors will constitute the quorum. Only the directors physically present at the time and those using teleconference technologies will be taken into consideration for the quorum. The resolutions of the Board of Directors will be passed by the vote of the majority of directors physically present at the meeting and those using teleconference technologies. Such amendment is attached here to as Exhibit 1.3.

At the shareholders’ meeting held on February 5, 2015, our shareholders voted to amend Section One of our by-laws in order to modify our legal name to IRSA Propiedades Comerciales S.A. Such amendment is attached here to as Exhibit 1.4.

At the shareholders’ meeting held on October 31, 2016, our shareholders voted to amend Section Eleven of our by-laws in order to modify the appointment of the directors by thirds each year with a term of office of three years each. The board shall be composed by six, nine or twelve members. Such amendment is attached hereto as Exhibit 1.5.At the shareholders’ meeting held on October 31, 2017,our shareholders voted to maned Section Sixteen of our by-laws in order to modify the required quorum for Board of Directors’ meeting, allowing for such purpose not only those physically present but also those communicated by teleconference technology.

At the shareholders’ meeting held on October 31, 2017, our shareholders approved an amendment to Section Sixteen of our by-laws in order to modify the required quorum for a meeting of our Board of Directors, counting for such purpose not only those physically present but also directors that are present through teleconference.

C. Material Contracts

We have not entered into any material contracts outside the ordinary course of business other than those contracts described in the Related Party Transactions and Our Indebtedness Sections contained in this annual report.

D.Exchange Controls

Foreign Currency Regulation

Under Decree No. 260/2002, the Argentine government had set up an exchange market through which all foreign currency exchange transactions are made. Such transactions were subject to the regulations and requirements imposed by the Argentine Central Bank. Under Communication “A” 3471, as amended, the Central Bank established certain restrictions and requirements applicable to foreign currency exchange transactions. If such restrictions and requirements are not met, criminal penalties shall be applied.

Under Communication “A” 6037, dated August 8th, 2016, and Communication “A” 6150, of the Argentine Central Bank, no further authorization is required for residents and non-residents to have access to local exchange market and there is no amount or matter that limits the access thereto.

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Outflow and Inflow of Capital

Inflow of capital

Under Argentine Foreign Investment Law No. 21,382, as amended, and the wording restated under Executive Branch Decree No. 1853/1993, the purchase of stock of an Argentine company by an individual or legal entity domiciled abroad or by an Argentine “foreign capital” company (as defined under the Foreign Investment Law) represents a foreign investment.

Pursuant to Resolution E 1/2017 of the Ministerio de Hacienda and the Communication “A” 6150 of the Argentine Central Bank, it was deleted the obligation that required non-residents to perform portfolio investments in the country intended for the holding of private sector financial assets to maintain for a period of 120 days of permanence the funds in the country.

As of that resolution and the provisions of Communication “A” 6244 of the Argentine Central Bank, there are no restrictions on entry and exit in the MULC.

Outflow of capital, including the availability of cash or cash equivalents

Financial Indebtedness

Pursuant to Resolution E 1/2017 of the Ministerio de Hacienda and the Communication "A" 6150 of the Argentine Central Bank, it was deleted the obligation that required non-residents to perform portfolio investments in the country intended for the holding of private sector financial assets to maintain for a period of 120 days of permanence the funds in the country.

As of that resolution and the provisions of Communication "A" 6244 of the Argentine Central Bank, there are no restrictions on entry and exit in the MULC.

Formation of off-shore assets by residents with and without subsequent allocation to specific purposes

Under Communication “A” 5850, 5899, 6037, 6058, 6137 and 6244, as amended, of the Central Bank, residents shall have access to the local exchange market without prior authorization of the Central Bank in order to purchase of foreign currency for the formation of off-shore assets by residents.

Outflow of funds for payment to non-residents

According to Communication “A” 5264, amended by Communication “A” 5377 (issued on December 14, 2012) and Communication “A” 6037, 6058, 6137 and 6244, as amended, of the Central Bank there are no limits or restrictions applicable for residents who access the foreign exchange market to pay services, debts and profits to non-residents. The access to the MULC requires the filing of certain documentation by residents demonstrating the validity of transactions in which the funds are purchased for its remittance abroad.

Payment of services

As it was mentioned above, there is no restriction applicable for payments to be made to non-residents for performed services. The regulation covers all types of services without making any specifications. The financial entity shall require the filing of documentation supporting the authenticity of the transaction, the service rendered by the non-resident to the resident and the amount to be transferred abroad.

If services performed are not related to the activities actually developed by the resident, the financial entity shall require a copy of the contract by which the payment obligation arises from and an auditor report. Such requirements intend to demonstrate the actual rendering of services to the non-resident and the existence of the debt.

189

Payment of rents (interest, profits and dividends)

As of January 8, 2003, Communication “A” 3859, item 3, allowed Argentine companies to transfer abroad profits and dividends related to closed financial statements certified by independent accountants without being required to obtain the prior authorization of the Central Bank. Such Communication was replaced by Communication “A” 5264, amended by Communication “A” 5377 and Communication “A” 6037, 6058, 6137 and 6244 as amended of the Central Bank.

The payments of profits and dividends to non-residents or holders of our ADRs are authorized, insofar as such payments are made according to financial statements duly audited and approved at our annual meeting of shareholders’.

Payment of foreign financial indebtedness

Access to the exchange market is allowed for payments of principal amounts due.

In general terms, access to MULC for payment of principal, interest and prepayment of financial indebtedness incurred by Argentine residents in the private non-financial sector and financial sector are allowed subject to regulations set forth by Communications “A” 6037, of August 8, 2016.

Pursuant to Resolution E 1/2017 of the Ministerio de Hacienda and the Communication "A" 6150 of the Argentine Central Bank, it was deleted the obligation that required non-residents to perform portfolio investments in the country intended for the holding of private sector financial assets to maintain for a period of 120 days of permanence the funds in the country.

As of that resolution and the provisions of Communication "A" 6244 of the Central Bank, there are no restrictions on entry and exit in the MULC.

Direct Investment

Communication A "6401" established a new reporting system of direct investments, which replaced the reporting system established by Communications "A" 3602 and "A" 4237, applicable since December 31, 2017. As of date, investors who are Argentine residents must comply with the information regime if the value of their investments abroad reaches or exceeds the equivalent of US $ 1,000,000 -measured in terms of 1) the sum of the flows of external assets and liabilities during the previous calendar year; and 2) the balance of holdings of external assets and liabilities at the end of the previous calendar year. If the value of investments abroad does not exceed the equivalent of US $ 50,000,000, the information regime must be complied on an annual basis (in case it is less than US $ 10,000,000, the information regime will be annual but with a simplified form), instead of quarterly. If the value of the investments is less than the equivalent of US $1,000,000, compliance with said regime is optional.

For further details of the totality of the exchange and controlling restrictions applicable in Argentina, investors is suggested to read the Communication "A" 6037, Communication "A" 6058, Communication "A" 6137 and the Communication "A" 6244 and its modifications of the Argentina Central Bank, and Decree No. 616/2005 with its regulations and complementary and / or modifying rules, to which the interested parties may consult the same on the website of the Ministerio de Hacienda (www.minhacienda.gob.ar) and the Ministerio de Finanzas (www.minfinanzas.gob.ar), or the Argentine Central Bank (http://www.bcra.gob.ar).

190

Money Laundering

Argentine Law No. 25,246, as amended and/or complemented by Law Nos. 26,087, 26,119, 26,268, 26,683, 26,831, 26,860 and 27,304 (the “Anti-Money Laundering Law”), categorizes money laundering as a crime, which is defined as the exchange, transfer, management, sale or any other use of money or other assets obtained through a crime, by a person who did not take part in such original crime, with the potential result that such original assets (or new assets resulting from such original assets) have the appearance of having been obtained through legitimate means. In spite of the fact that there is a specific amount for the money laundering category (Ps.300,000), the crimes committed for a lower amount are also punished, but the prison sentence is reduced.

After the enactment of Law No. 26,683, money laundering was included in the Penal Code as an independent crime against economic and financial order and it was split from the title “Concealment” as originally disposed. Therefore, money laundering is a crime which may be prosecuted independently.

The Anti-Money Laundering Law created the Financial Information Unit (UIF). UIF is in charge of the analysis, treatment and transmission of information to prevent and impede the money laundering originating from, among others:

a) Crimes related to the traffic and illegal commercialization of drugs (Law No. 23,737)

b) Crimes related to arms traffic (Law No. 22,415)

c) Crimes related to illegal association or terrorist association

d) Crimes committed by illegal associations organized to commit crimes for political or racial purposes;

e) Crimes against Public Administration 

f) Crimes of minor’s prostitution and child pornography

g) Crimes related to terrorism financing

The UIF analyzes the information received by entities that have the obligation to report suspicious activities or operations and, as the case may be, inform the Public Ministry to carry out the investigations that may be considered relevant or necessary.

The money laundering legal framework in Argentina also assigns information and control duties to certain private sector entities, such as banks, agents, non-profits organizations, stock exchanges, insurance companies, according to the regulations of the Financial Information Unit, and for financial entities, the Argentine Central Bank. These regulations apply to many Argentine companies, including us. These obligations ainly seek that all financial institutions, brokers and stockbrokers, mutual funds management companies, those intermediaries in the purchase, lease or loan of negotiable securities that operate under the orbit of stock exchanges with or without attached markets, and other subjects provided by article 20 of the Anti-Money Laundering Law (the "Obligated Subjects") have a prevention system for money laundering and financing of terrorism that covers risk management and compliance elements. The component referred to "risk management" is made up of the policies, procedures and controls for the identification, evaluation, mitigation and monitoring of the risks to which the Obligated Subject is exposed, identified within the framework of a self-assessment. The "compliance elements" consist mainly of: (i) maintaining internal policies and procedures aimed at money laundering prevention and financing of terrorism, especially through the application of the policy “know your client”; (ii) reporting any suspicious activity or operation and (iii) acting according the Money Laundering Law with respect to the confidentiality of the information obtained from the clients. For that purpose, each entity involved must appoint an officer responsible for the monitoring and control under the Money Laundering Law.

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Pursuant to Decree 360/2016 dated February 16, 2016, the Argentine government created the “National Coordination Program for Combating Money Laundering and Terrorist Financing” within the purview of the Ministry of Justice and Human Rights. Its purpose is to rearrange, coordinate and strengthen the anti-money laundering and anti-terrorist financing system at national level, in light of the actual risks that could impact the Argentine territory and the global requirements to be met under the scope of the obligations and international recommendations of the United Nations and FATF standards.

Moreover, Law No. 27,260, which introduced certain tax modifications and a new regime for residents to disclose undeclared assets, established that the UIF would now be within the purview of the Ministry of Economy and Finances. Nowaydays, as a result of the reorganization of said ministry, the UIF depends on the Ministry of Finance. For its part, the UIF recently issued Resolution No. 4/2017, which requires certain specific due diligence procedures (commonly called "know your client") to be performed when a national or foreign depositor opens a bank account for the purpose of investment.

In addition, UIF Resolution No. 30-E/2017 dated June 16, 2017, completely modifies the regulatory framework under which financial and exchange institutions must manage the risks of money laundering and financing of terrorism, repealing UIF Resolution No. 121/2011 and 94/2016. The new regulatory framework was reformulated on the basis of the new FATF standards, which modified the criteria for the prevention of money laundering and terrorist financing, thus moving from a formalistic regulatory compliance approach to a risk-based approach in which entities must implement a system for preventing money laundering and financing of terrorism, which must contain all the policies and procedures established for the management of money laundering and financing of terrorism to which they are exposed and the elements of compliance required by current regulations, for which they must develop a risk identification and assessment methodology in accordance with the nature and size of their commercial activity, taking into account the different risk factors in each of their business lines plus guidelines for compliance and requirements to compliance officers and processes for the preparation of suspicious transaction reports, among others, established in the resolution itself.

On March 5, 2018, the UIF Resolution No. 21/2018 on guidelines for the management of risks of money laundering and financing of terrorism and on the minimum compliance to be adopted for the prevention of laundering was published in the Official Gazette. In line with UIF Resolution No. 30-E/2017 addressed to the financial sector, UIF Resolution No. 21/2018 also moves from a formalistic compliance approach to a risk-based approach, in order to ensure that the measures implemented are commensurate with the risks identified. In this way, the obligated subjects must identify and evaluate their risks and, depending on this, adopt management and mitigation measures. In this framework, they are enabled to implement accredited technological platforms that allow carrying out procedures at a distance, without personal display of the documentation, without this conditioning the fulfillment of due diligence duties.

UIF Resolution No. 21/2018 provides that as of September 30, 2018, the obligors must have developed and documented the risk identification and assessment methodology and, as of December 31, 2018, they must have a technical report that reflects the results of the implementation of the risk identification and evaluation methodology. In this sense, as of March 31, 2019, they must have adjusted their policies and procedures and, in accordance with the results of the irrigation self-assessment performed, they must be included in the money laundering and terrorist financing prevention manual. Finally, as of September 30, 2018, the compliance of the information regimes will be deferred, starting from that date the obligation to inform on the terms and conditions contemplated therein.

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E.Taxation

United States taxation

The following summary describes the material United States federal income tax consequences of the ownership of common shares and ADSs as of the date hereof. The discussion set forth below is applicable to U.S. Holders (as defined below). Except where noted, this discussion deals only with U.S. Holders that hold the common shares or ADSs as capital assets. This summary does not represent a detailed description of the United States federal income tax consequences applicable to you if you are subject to special treatment under the United States federal income tax laws, including if you are:

● a bank;

● a dealer in securities or currencies;

● a financial institution;

● a regulated investment company;

● a real estate investment trust;

● an insurance company;

● a tax-exempt organization;

● a person holding the common shares or ADSs as part of a hedging, integrated or conversion transaction, constructive sale or straddle;

● a trader in securities that has elected the mark-to-market method of accounting for your securities;

● a person liable for alternative minimum tax;

● a person who owns or is deemed to own 10% or more of our stock (by vote or value);

● a person required to accelerate the recognition of any item of gross income with respect to common shares or ADSs as a result of such income being recognized on an applicable financial statement;

● a partnership or other pass-through entity for United States federal income tax purposes; or

● a person whose “functional currency” is not the U.S. dollar.

Furthermore, the discussion below is based upon the provisions of the Internal Revenue Code of 1986, as amended, or the “Code,” and regulations, rulings and judicial decisions thereunder as of the date hereof, and such authorities may be repealed, revoked or modified so as to result in United States federal income tax consequences different from those discussed below. This summary does not contain a detailed description of all the United States federal income tax consequences to you in light of your particular circumstances and does not address the Medicare tax on net investment income, or the effects of any state, local or non-United States tax laws. In addition, this summary is based, in part, upon representations made by the ADS depositary, or the “Depositary,” to us and assumes that the deposit agreement governing the ADSs, and all other related agreements, will be performed in accordance with their terms.

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The discussion below does not address the receipt, exercise, transfer or lapse of rights to subscribe for newly issued common shares that are received by our existing shareholders, or the sale of any such rights (and distribution of proceeds) by the Depositary. Current holders of our common shares and ADSs should consult their tax advisors in this regard.

As used herein, the term “U.S. Holder” means a beneficial owner of common shares or ADSs that is for United States federal income tax purposes:

● an individual citizen or resident of the United States;

● a corporation created or organized in or under the laws of the United States, any state thereof or the District of Columbia;

● an estate the income of which is subject to United States federal income taxation regardless of its source; or

● a trust if it (1) is subject to the primary supervision of a court within the United States and one or more United States persons have the authority to control all substantial decisions of the trust or (2) has a valid election in effect under applicable United States Treasury regulations to be treated as a United States person.

If a partnership holds common shares or ADSs, the tax treatment of a partner will generally depend on the status of the partner and the activities of the partnership. If you are a partner of a partnership holding common shares or ADSs, you should consult your tax advisors.

IF YOU ARE CONSIDERING THE PURCHASE, OWNERSHIP OR DISPOSITION OF COMMON SHARES OR ADSS YOU SHOULD CONSULT YOUR OWN TAX ADVISOR CONCERNING THE UNITED STATES FEDERAL INCOME TAX CONSEQUENCES TO YOU AS WELL AS ANY CONSEQUENCES ARISING UNDER THE LAWS OF ANY OTHER TAXING JURISDICTION.

ADSs

In general, for United States federal income tax purposes, U.S. Holders of ADSs will be treated as the owners of the underlying common shares that are represented by the ADSs. Accordingly, deposits or withdrawals of common shares by U.S. Holders for ADSs will not be subject to United States federal income tax.

Distributions on common shares or ADSs

Subject to the discussion under “Passive foreign investment company” below, the gross amount of distributions on the common shares or ADSs (including amounts withheld to reflect Argentine withholding taxes, if any) will be taxable as dividends to the extent paid out of our current or accumulated earnings and profits (as determined under United States federal income tax principles). Such income (including withheld taxes, if any) will be includable in your gross income as ordinary income on the day actually or constructively received by you, in the case of common shares, or by the Depositary, in the case of ADSs. Such dividends will not be eligible for the dividends-received deduction allowed to corporations under the Code.

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With respect to non-corporate United States investors, certain dividends received from a qualified foreign corporation may be subject to reduced rates of taxation. A foreign corporation is treated as a qualified foreign corporation with respect to dividends received from that corporation on common shares (or ADSs representing such shares) that are readily tradable on an established securities market in the United States. United States Treasury Department guidance indicates that our ADSs (which are listed on the NASDAQ), but not our common shares, are readily tradable on an established securities market in the United States. Thus, we do not believe that dividends that we pay on our common shares that are not represented by ADSs currently meet the conditions required for these reduced tax rates. Non-corporate holders that do not meet a minimum holding period requirement during which they are not protected from the risk of loss or that elect to treat the dividend income as “investment income” pursuant to Section 163(d)(4) of the Code will not be eligible for the reduced rates of taxation regardless of our status as a qualified foreign corporation. In addition, the rate reduction will not apply to dividends if the recipient of a dividend is obligated to make related payments with respect to positions in substantially similar or related property. This disallowance applies even if the minimum holding period has been met.

The amount of any dividend paid in Pesos will equal the U.S. dollar value of the Pesos received calculated by reference to the exchange rate in effect on the date the dividend is actually or constructively received by you, in the case of common shares, or by the Depositary, in the case of ADSs, regardless of whether the Pesos are converted into U.S. dollars. If the Pesos received are not converted into U.S. dollars on the day of receipt, you will have a basis in the Pesos equal to their U.S. dollar value on the date of receipt. Any gain or loss you realize on a subsequent conversion or other disposition of the Pesos will be treated as United States source ordinary income or loss.

Subject to certain significant conditions and limitations, Argentine tax withheld from dividends, if any, may be treated as foreign income tax eligible for credit or deduction against your United States federal income tax liability. For purposes of the foreign tax credit, dividends paid on the common shares or ADSs will be treated as income from sources outside the United States and will generally constitute passive category income. Further, in certain circumstances, if you have held common shares or ADSs for less than a specified minimum period during which you are not protected from risk of loss, or are obligated to make payments related to the dividends, you will not be allowed a foreign tax credit for foreign taxes imposed on dividends paid on common shares or ADSs. The rules governing the foreign tax credit are complex. Investors are urged to consult their tax advisors regarding the availability of the foreign tax credit under their particular circumstances.

To the extent that the amount of any distribution (including amounts withheld to reflect Argentine withholding taxes, if any) exceeds our current and accumulated earnings and profits for a taxable year, as determined under United States federal income tax principles, the distribution will first be treated as a tax-free return of capital, causing a reduction in the adjusted basis of the common shares or ADSs, and the balance in excess of adjusted basis will be taxed as capital gain recognized on a sale or exchange. However, we do not expect to keep earnings and profits in accordance with United States federal income tax principles. Therefore, you should expect that a distribution will generally be treated as a dividend (as discussed above).

Taxation of capital gains

Subject to the discussion under “Passive foreign investment company” below, upon the sale, exchange or other disposition of common shares or ADSs, you generally will recognize capital gain or loss equal to the difference between the U.S. dollar value of the amount realized upon the sale, exchange or other disposition and the adjusted tax basis of the common shares or ADSs, determined in U.S. dollars. The capital gain or loss will be long-term capital gain or loss if at the time of sale, exchange or other disposition you have held the common shares or ADSs for more than one year. Long-term capital gains of non-corporate U.S. Holder are eligible for reduced rates of taxation. The deductibility of capital losses is subject to limitations. Any gain or loss you recognize will generally be treated as United States source gain or loss. Consequently, you may not be able to use the foreign tax credit arising from any Argentine tax imposed on the disposition of common shares or ADSs unless such credit can be applied (subject to applicable limitations) against tax due on other income treated as derived from foreign sources.

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Passive foreign investment company

In general, we will be a PFIC for any taxable year in which either (i) at least 75% of the gross income of our company for the taxable year is passive income or (ii) at least 50% of the value (determined on the basis of a quarterly average) of our assets is attributable to assets that produce or are held for the production of passive income. For this purpose, passive income generally includes dividends, interest, royalties and rents (other than royalties and rents derived in the active conduct of a trade or business and not derived from a related person), annuities and gains from assets that produce passive income. If we own at least 25% by value of the stock of another corporation, we will be treated for purposes of the PFIC tests as owning a proportionate share of the assets of the other corporation, and as receiving directly a proportionate share of the other corporation’s income.

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 PFIC for United States federal income tax purposes for the taxable year ending June 30, 2018, and we do not currently expect to become a PFIC, although there can be no assurance in this regard. The determination of whether we are a PFIC is made annually. Accordingly, it is possible that we may be a PFIC in the current or any future taxable year due to changes in our asset or income composition or if our projections are not accurate. The volatility and instability of Argentina’s economic and financial system may substantially affect the composition of our income and assets and the accuracy of our projections. In addition, this determination is based on the interpretation of certain U.S. Treasury regulations relating to rental income, which regulations are potentially subject to differing interpretation.

If we are a PFIC for any taxable year during which you hold common shares or ADSs in our company, unless you make the mark-to-market election discussed below, you will be subject to special tax rules discussed below.

If we are a PFIC for any taxable year during which you hold our common shares or ADSs, you will be subject to special tax rules with respect to any “excess distribution” received and any gain realized from a sale or other disposition, including a pledge, of such common shares or ADSs. Distributions received in a taxable year that are greater than 125% of the average annual distributions received during the shorter of the three preceding taxable years or your holding period for the common shares or ADSs will be treated as excess distributions. Under these special tax rules (i) the excess distribution or gain will be allocated ratably over your holding period for the common shares or ADSs, (ii) the amount allocated to the current taxable year, and any taxable year prior to the first taxable year in which we were a PFIC, will be treated as ordinary income, and (iii) the amount allocated to each other year will be subject to tax at the highest tax rate in effect for that year and the interest charge generally applicable to underpayments of tax will be imposed on the resulting tax attributable to each such year.

If we are a PFIC for any taxable year during which you hold our common shares or ADSs and any of our non-United States subsidiaries is also a PFIC, you would be treated as owning a proportionate amount (by value) of the common shares of the lower tier PFIC for purposes of the application of these rules. You are urged to consult your tax advisors about the application of the PFIC rules to any of our subsidiaries.

In addition, non-corporate U.S. Holders will not be eligible for reduced rates of taxation on any dividends received from us, if we are a PFIC in the taxable year in which such dividends are paid or in the preceding taxable year.

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In certain circumstances, in lieu of being subject to the excess distribution rules discussed above, you may make an election to include gain on the stock of a PFIC as ordinary income under a mark-to-market method provided that such stock is regularly traded on a qualified exchange. Under current law, the mark-to-market election is only available for stock traded on certain designated United States exchanges and foreign exchanges which meet certain trading, listing, financial disclosure and other requirements to be treated as a qualified exchange under applicable United States Treasury regulations. Consequently, the mark-to-market election may be available to you with respect to the ADSs because the ADSs are listed on the NASDAQ, which constitutes a qualified exchange under the regulations, although there can be no assurance that the ADSs will be regularly traded. You should note that only the ADSs and not the common shares are listed on the NASDAQ. The common shares are listed on ByMA. Consequently, ByMA would need to meet the trading, listing, financial disclosure and other requirements of the United States Treasury regulations. The ADSs or common shares would also need to be regularly traded on such exchanges in order for the ADSs or common shares to be potentially eligible for the mark-to-market election.

If we are a PFIC in any taxable year in which you hold our common shares or ADSs, but you do not make a mark-to-market election until a subsequent taxable year, you will be subject to special rules in the taxable year of the election. You should consult your own tax advisors regarding the application of the mark-to-market election in your particular situation.

If you make an effective mark-to-market election, you will include in income each year that we are a PFIC as ordinary income, rather than capital gain, the excess, if any, of the fair market value of your common shares or ADSs at the end of the taxable year over your adjusted tax basis in the common shares or ADSs and will be permitted an ordinary loss in respect of the excess, if any, of the adjusted tax basis of such common shares or ADSs over their fair market value at the end of each such taxable year, but only to the extent of the net amount previously included in income as a result of the mark-to-market election. Your basis in the common shares or ADSs will be adjusted to reflect any such income or loss amounts. Any gain or loss on the sale of the common shares or ADSs will be ordinary income or loss, except that such loss will be ordinary loss only to the extent of the previously included net mark-to-market gain.

If you make a mark-to-market election it will be effective for the taxable year for which the election is made and all subsequent taxable years unless the common shares or ADSs are no longer regularly traded on a qualified exchange or the Internal Revenue Service consents to the revocation of the election. Mark-to-market inclusions and deductions will be suspended during taxable years in which we are not a PFIC, but would resume if we subsequently become a PFIC. You are urged to consult your own tax advisor about the availability of making such a mark-to-market election , and whether making the election would be advisable in your particular circumstances.

Alternatively, a United States investor that owns common shares or ADSs in a PFIC can sometimes avoid the rules described above by electing to treat the company as a “qualified electing fund” under Section 1295 of the Code. This option is not available to you because we do not intend to comply with the requirements necessary to permit you to make this election.

A U.S. Holder who owns common shares or ADSs during any year that we are a PFIC must generally file IRS Form 8621.

You should consult your own tax advisors concerning the United States federal income tax consequences of holding the common shares or ADSs if we are considered a PFIC in any taxable year.

Argentine personal assets tax

Amounts paid on account of the Argentine personal assets tax, if any, will not be eligible as a credit against your United States federal income tax liability, but may be deductible subject to applicable limitations in the Code.

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Information reporting and backup withholding

In general, information reporting requirements will apply to dividends on common shares or ADSs and to the proceeds from the sale, exchange or redemption of a common shares or ADSs paid to you within the United States (and in certain cases, outside the United States), unless you are an exempt recipient. Backup withholding may apply to such payments if you fail to provide a correct taxpayer identification number or certification of exempt status or fail to report in full dividend and interest income.

Backup whithholding is not an additional tax. Any amounts withheld under the backup withholding rules will be allowed as a refund or a credit against your United States federal income tax liability provided you timely furnish the required information to the Internal Revenue Service.

Argentine taxation

The following discussion is a summary of certain Argentine tax considerations associated with an investment in, ownership or disposition of, the common shares or the ADSs by (i) an individual holder that is a resident of Argentina, (ii) an individual holder that is neither domiciled in nor a resident of Argentina, (iii) a legal entity organized under the laws of Argentina, (iv) a permanent business establishment in Argentina owned by a foreign entity and (v) a legal entity that is not organized under the laws of Argentina, that does not have a permanent establishment in Argentina and is not otherwise doing business in Argentina on a regular basis. The discussion is for general information only and is based on current Argentine tax laws. Moreover, while this summary is considered to be a correct interpretation of existing laws in force as of the date of this annual report, no assurance can be given that the courts or administrative authorities responsible for the administration of such laws will agree with this interpretation or that changes in such laws or interpretations will not occur.

PROSPECTIVE INVESTORS ARE URGED TO CONSULT THEIR OWN TAX ADVISOR REGARDING THE PARTICULAR TAX CONSEQUENCES ARISING UNDER ANY TAXING JURISDICTION.

Income tax

Law No. 26,893, enacted on September 12, 2013, and published in the Official Gazette on September 23, 2013, introduced several amendments to Income Tax Law No. 20,628 in connection with, among others, the taxation of gains derived from transfers of common shares and other securities, including the derogation of Section 78 of Decree No. 2,284/1991, which provided that foreign holders with no permanent establishment in Argentina were exempt from paying income tax on the capital gains arising from the sale or other disposition of common shares or ADSs.

On February 7, 2014, the Executive Branch issued Decree No. 2,334/13, which regulates Law No. 26,893.

The changes introduced by Law No. 26,893 are effective from the date of publication of such law in the Official Gazette and are applicable to taxable events consummated from such date onwards.

Law No. 27,430 enacted on December 27, 2017 and published in the Official Gazette on December 29, 2017, introduced several amendments to Income Tax Law No. 20,628, including a corporate tax rate reduction in two phases. For fiscal years beginning on or after January 1, 2018 until December 31, 2019, the tax rate will be reduced from 35% to 30%. Beginning on or after January 1, 2020 the tax rate will be further reduced to 25%.

Additionally, a withholding of 7% or 13% is established for the fiscal years mentioned above, on the dividends distributed by local entities in favor of their shareholders provided they are resident individuals or undivided estates, or are foreign beneficiaries.

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Taxation of dividends

Dividends distributions which source are profits generated in fiscal years beginning before January 1, 2018, whether in cash, in common shares or in kind, are not subject to income tax withholding except for the application of the “Equalization Tax” described below.

An income tax withholding will be applied to the amount of dividends distributed in excess of a company’s net taxable income determined in accordance with general income tax regulations for the fiscal years preceding the date of the distribution of such dividends, the “Equalization Tax.” The legislation requires that companies withhold 35% of the amount of distributed dividends in excess of the net taxable income of such distribution, as determined in accordance with the income tax law. Dividends distributed by an Argentine company are not subject to this tax to the extent that those dividends arise from dividend income or other distributions received by such company from other Argentine companies.

Dividend distributions made in kind (other than cash) will be subject to the same tax rules as cash dividends. Stock dividends on fully paid common shares are not subject to Equalization Tax.

Equalization Tax will not be applicable on profits generated from fiscal years beginning on or after January 1, 2018.

Dividends distributions, other than stock dividends, which source are profits generated in fiscal years beginning on or after January 1, 2018, whether in cash, in shares or in kind, made by local entities to resident individuals, resident undivided estates and foreign beneficiaries are subject to a withholding tax at a rate of 7% and at a rate of 13% from fiscal years beginning on or after January 1, 2020. If dividends are distributed to Argentine corporate taxpayers (in general, entities organized or incorporated under Argentine law, certain traders and intermediaries, local branches of foreign entities, sole proprietorships and individuals carrying on certain commercial activities in Argentina), no dividend tax would apply.

Certain tax treaties contemplate the application of a ceiling tax rate on dividends (i.e., 10% on gross dividends).

Taxation of capital gains

Resident individuals

Capital gains obtained by resident individuals or undivided estates situated in Argentina from the sale or disposition of common shares and other securities are subject to income tax at a 15% rate on net income, unless such securities were traded in stock exchange under the supervision of the CNV, in which case an exemption applies.

Losses arising from the sale, exchange or other disposition of common shares or ADSs can be applied only to offset such capital gains arising from the sale, exchange or other disposition of these securities, for a five-year carryover period.

Foreign beneficiaries

Capital gains obtained by non-Argentine individuals or non-Argentine entities from the sale, exchange or other disposition of common shares are subject to income tax at a 15% rate on the net capital gain or at a 13.5% rate on the gross price at the seller´s election.

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Notwithstanding, Law No. 27,430 established an exemption for foreign beneficiaries participating in the sale of publicly traded shares traded in stock exchanges under the supervision of the CNV. Said Law also established an exemption for capital gains derived from the sale , exchange or other disposition of share certificates issued abroad that represent shares issued by Argentine companies (i.e. ADRs). The exemptions will apply only if the foreign beneficiaries do not reside in, and the funds do not arise from, “non-cooperating” jurisdictions for tax transparency purposes. Indirect transfer of Argentine assets (including shares) will be taxable, if (i) the value of the Argentine assets exceed 30% of the transaction´s overall value, and (ii) the equity interest sold (in the foreign entity) exceeds 10%. The tax will also be due if any of these thresholds were met during the twelve month period prior to the sale. The indirect transfer of Argentine assets within the same economic group would also not trigger taxation, provided the requirements set by regulations have been met. However, no withholding mechanism is currently available.

Argentine entities

Capital gains obtained by Argentine entities (in general entities organized or incorporated under Argentine law, certain traders and intermediaries, local branches of non-Argentine entities, sole proprietorships and individuals carrying on certain commercial activities in Argentina) derived from the sale, exchange or other disposition of common shares or ADSs are subject to income tax at the rate of 35%, 30% or 25% as have been mentioned above.

Losses arising from the sale, exchange or other disposition of common shares or ADSs can be applied only to offset such capital gains arising from the sale, exchange or other disposition of these securities, for a five-year carryover period.

WE RECOMMEND PROSPECTIVE INVESTORS TO CONSULT THEIR OWN TAX ADVISOR REGARDING THE PARTICULAR TAX CONSEQUENCES CONCERNING THE SALE OR OTHER DISPOSITIONS OF COMMON SHARES AND ADSs.

Value added tax

The sale, exchange, disposition, or transfer of common shares or ADSs is not subject to Value Added Tax. Dividend distributions are not levied with value added tax either.

Personal assets tax

Argentine entities, such as us, have to pay the personal assets tax corresponding to Argentine and foreign domiciled individuals and foreign domiciled entities for the holding of our shares. The applicable tax rate is 0.25% and is levied on the proportional net worth value (valor patrimonial proporcional), or the book value, of the shares arising from the last balance sheet of the Argentine entity calculated under Argentine GAAP. Pursuant to the Personal Assets Tax Law, the Argentine company is entitled to seek reimbursement of such paid tax from the applicable Argentine domiciled individuals and/or foreign domiciled shareholders.

Pursuant to Law No. 27,260, Argentine companies that have properly fullfiled their tax obligations during the two prior fiscal years to the 2016 fiscal year, and which comply with certain other requirements, may qualify for an exemption from personal asset tax for the 2016, 2017 and 2018 fiscal years. The request for this tax exemption should be filed before March 31, 2017. The Company filed this request.

On October 11, 2018, a draft bill for the amendment to the personal assets tax was summited to the Chamber of Deputies. Its main purpose is to raise the non-taxable minimum to Ps.2 million and modify the scale of the tax rate according to the taxable amount. Likewise, it is worth mentioning that the aforementioned project does not provide for changes with respect to the aliquots of the tax for the foreigners. Moreover, it intends to repeal the exemption existing in the tax for rural properties that were previously subject to the IGMP (as defined below). If approved as proposed, these amendments would become effective as of fiscal year 2019 and following.

Tax on minimum notional income (Impuesto a la Ganancia Mínima Presunta, IGMP)

Entities domiciled in Argentina, partnerships, foundations, sole proprietorships, trusts, certain mutual funds organized in Argentina, and permanent business establishments owned by foreign persons, among other taxpayers, shall apply a 1% rate to the total value of assets held by such persons, above an aggregate nominal amount of Ps. 200,000. Nevertheless, common shares and ADSs issued by entities subject to such tax are exempt from the IGMP.

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Law No. 27,260 has repealed this tax for fiscal years commenced since January 1, 2019.

Turnover tax

The gross turnover tax is a local tax; therefore, the rules of the relevant provincial jurisdiction should be considered, which may levy this tax on the customary purchase and sale, exchange or other disposition of common shares and ADSs, and/or the collection of dividends at an average rate of 6%, unless an exemption is applicable. In the particular case of the City of Buenos Aires, any transaction involving common shares and/or the collection of dividends and revaluations is exempt from this tax.

There is no gross income tax withholding system applicable to the payments made to foreign beneficiaries.

Stamp tax

Stamp taxes may apply in the City of Buenos Aires and in certain Argentine provinces in case transfer of common shares or ADSs is performed or executed in such jurisdictions by means of written agreements.

Other taxes

There are no Argentine federal inheritance or succession taxes applicable to the ownership, transfer or disposition of our common shares or ADSs. The provinces of Buenos Aires and Entre Ríos established a tax on free transmission of assets, including inheritance, legacies, donations, etc. Free transmission of our shares could be subject to this tax. In the case of litigation regarding the shares before a court of the City of Buenos Aires, a 3% court fee would be charged, calculated on the basis of the claim.

Treaties to avoid double taxation

Argentina has entered into treaties to avoid double taxation with several countries. There is currently no tax treaty or convention in effect between Argentina and the United States.

F. Dividends and Paying Agents

This section is not applicable.

G. Statement by Experts

This section is not applicable.

H. Documents on Display

We file annual, quarterly and other information with the SEC. You may read and copy any document that we file at the public reference rooms of the SEC at100 F. Street, N.E., Washington, D.C. 20549 and www.sec.gov. You may obtain information on the operation of the public reference rooms by calling the SEC at 1-800-SEC-0330. Our Internet address is http://www.irsacp.com.ar. You may request a copy of these filings at no cost, by writing to: ir@irsacp.com.ar or calling the office at +54(11) 4323-7440.

I. Subsidiary Information

This section is not applicable.

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ITEM 11. Quantitative and Qualitative Disclosures About Market Risk

In the normal course of business, we are exposed to foreign exchange risk, interest rate risks and other price risk, primarily related to changes in exchange rates and interest rates. We manage our exposure to these risks through the use of various financial instruments, none of which are entered into for trading purposes. We have established policies and procedures governing the use of financial instruments, specifically as they relate to the type and volume of such financial instruments. For further information on our market risks, please see Note 5 to our consolidated financial statements.

ITEM 12. Description of Securities Other than Equity Securities

A. Debt Securities

This item is not applicable

B. Warrants and Rights

This item is not applicable

C. Other Securities

This item is not applicable

D. American Depositary Shares

The Bank of New York Mellon, as depositary for the ADSs (the “Depositary”) collects its fees for delivery directly from investors depositing common shares or surrendering ADSs for the purpose of withdrawal. The depositary also collects taxes and governmental charges from the holders of ADSs. The depositary collects these fees and charges by deducting those fees from the amounts distributed or by selling a portion of distributable property to pay the fees (after attempting by reasonable means to notify the holder prior to such sale).

The Depositary has agreed to reimburse or pay on our behalf, certain reasonable expenses related to our ADS program and incurred by us in connection with the program (such as NASDAQ listing fees, legal and accounting fees incurred with preparation of Form 20-F and ongoing SEC compliance and listing requirements, distribution of proxy materials, investor relations expenses, etc).

The amounts the Depositary reimbursed or paid are not perforce related to the fees collected by the depositary from ADS holders.

We agree to pay the fees, reasonable expenses and out-of-pocket charges of the depositary and those of any registrar only in accordance with agreements in writing entered into between the Depositary and us from time to time. The Depositary shall present its statement for such charges and expenses to us once every three months. The charges and expenses of the custodian are for the sole account of the Depositary.

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The following charges shall be incurred by any party depositing or withdrawing common shares or by any party surrendering receipts or to whom receipts are issued (including, without limitation, issuance pursuant to a stock dividend or stock split declared by us or an exchange regarding the receipts or deposited securities or a distribution of receipts), whichever applicable: (1) taxes and other governmental charges, (2) such registration fees as may from time to time be in effect for the registration of transfers of common shares generally on the share register of the Company or foreign registrar and applicable to transfers of common shares to the name of the Depositary or its nominee or the custodian or its nominee on the making of deposits or withdrawals hereunder, (3) such cable, telex and fax transmission expenses as are expressly provided in the deposit agreement, (4) such expenses as are incurred by the Depositary in the conversion of foreign currency (5) a fee of US$5.00 or less per 100 ADS (or portion), (6) a fee of US$0.02 or less per ADS (or portion) for any cash distribution made pursuant to the deposit agreement, and (7) a fee for the distribution of securities, such fee being in an amount equal to the fee for the execution and delivery of ADS referred to above which would have been charged as a result of the deposit of such securities, but which securities are instead distributed by the Depositary to owners.

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PART II

ITEM 13. Defaults, Dividend Arrearages and Delinquencies

This item is not applicable.

ITEM 14. Material Modifications to the Rights of Security Holders and Use of Proceeds

This item is not applicable.

ITEM 15. Controls and procedures

A. Disclosure Controls and Procedures.

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in the reports we file or submit under the Exchange Act, is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to management, including our Chief Executive Officer and Chief Financial and Administrative Officer to allow our management to make timely decisions regarding required disclosure. Any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objective. In connection with the preparation of this annual report, we carried out an evaluation under the supervision and with the participation of members of our management team, including our Chief Executive Officer and Chief Financial and Administrative Officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of June 30, 2018. Based upon this evaluation, our Chief Executive Officer and Chief Financial and Administrative Officer concluded that our disclosure controls and procedures as of the end of the period covered by this annual report were effective at the reasonable assurance level.

B. Management’s Annual Report on Internal Control Over Financial Reporting

Our management is responsible for establishing and maintaining adequate Internal Control Over Financial Reporting as defined in Rules 13a–15(f) and 15d-15(f) under the Exchange Act. Our internal control over financial reporting includes a series of procedures designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of consolidated financial statements for external purposes in accordance with IFRS and includes those policies and procedures that (1) pertain to the maintence of records, in reasonable detail, accurately and fairly reflect the transactions and dispositions of our assets, (2) provide reasonable assurance that transaction are recorded as necessary to permit preparation of consolidated financial statements in accordance with International Financial Reporting Standards and that a company´s receipts and expenditures are being made only in accordance with authorizations of our management and directors, and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisitions, use, or disposition of our assets that could have a material effect on our consolidated financial statements.

Because of its inherent limitations, Internal Control Over Financial Reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with policies and procedures may deteriorate.

Management assessed the effectiveness of our internal control over financial reporting as of June 30, 2018. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) in Internal Control–Integrated Framework (2013). Based on this evaluation, management concluded that, our internal control over financial reporting was effective as of June 30, 2018.

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C. Attestation Report of the Registered Public Accounting Firm

The effectiveness of the Company´s internal control over financial reporting as of June 30, 2018, has been audited by Price Waterhouse & Co. S.R.L., Buenos Aires, Argentina -member firm of PricewaterhouseCoopers International Limited-, an independent registered public accounting firm, as stated in their report included herein.

D. Changes in Internal Control Over Financial Reporting

During the year ended June 30, 2018, we implemented the Real Estate module for SAP and accordingly we have updated our internal controls over financial reporting, as necessary, to accommodate modifications to our business processes and to take advantage of enhanced automated controls provided by this new system.

Other than as expressly noted above, there have been no changes in our internal control over financial reporting during the year ended June 30, 2018 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

ITEM 16. Reserved

ITEM 16A. Audit Committee Financial Expert

In our annual ordinary shareholders’ meeting held on October 31, 2003, the Audit Committee regimen was unanimously approved. Pursuant the decisson, our Board of Directors appointed the members of our audit committee. The Audit Committee focuses on assisting the Board in exercising its duty of care, the enforcement of accounting policies, disclosure requirements, the management of our business risk, the management of our internal control systems, the ethical conduct of the company’s business, maintenance of the integrity of our financial statements, compliance with legal provisions, the independence and capability of our independent auditors and the performance of our internal audit function and of our external auditors. Also, our board of directors may request the audit committee to render its opinion on the conditions of a related party transactions and if it´s considered adequate according to normal market conditions.

On February 5, 2016, our board of directors officially appointed Leonardo Fernández, Enrique Antonini and Marcos Barylka, all of them whom are independent members, as members of the audit committee in accordance with Rule 10(A)-3(b)(1) of the General rules and regulations promulgated under the Securities Exchange Act of 1934. We have a fully independent audit committee as per the standard provided in Rule 10(A)-3(b) (1). Although all of them have significant corporate experience, as of the date of this annual report, the Board of Directors has not named a financial expert in accordance with the relevant SEC rules. Argentine law does not require companies to identify or designate a financial expert. As such, the Board of Directors has not designated a financial expert on the audit committee. We believe the designation of a financial expert is not necessary because all members of the audit committee have had significant corporate experience, with exposure to various financial and accounting matters.

Audit Committee Pre-Approval Policies and Procedures

Our audit committee approves, in advance, the engagement of auditors and their fees for audit and non-audit services pursuant to paragraph (c) (7) (i) (C) of Rule 2-01 of Regulation S-X.

Our Audit Committee pre-approves all services, fees and services provided by the external auditors to ensure the auditors’ independence. One of the main tasks of the Audit Committee is to give its opinion in relation to the appointment of the external auditors, proposed by the Board of Directors to the General Shareholder’s Meeting. In order to accomplish such task, the Audit Committee shall:

205

●

Require any additional and complementary documentation related to this analysis;

●

Verify the independence of the external auditors;

●

Analyze different kinds of services that the external auditor would provide to the company. This description must also include an estimate of the fees payable for such services, specifically in order to maintain the principle of independence;

●

Inform the fees billed by the external auditor, separating the audit services and other special services that could be not included in the audit services previously mentioned.

●

Take notice of any strategy proposed by of the external auditors and review it in accordance with the reality of other businesses and the risks involved;

●

Analyze and supervise the working plan of the external auditors considering the business’ reality and the estimated risks;

●

Propose adjustments (if necessary) to such working plan;

●

Hold meetings with the external auditors in order to: (a) analyze the difficulties, results and conclusions of the proposed working plan; (b) analyze eventual possible conflicts of interests, related party transactions, compliance with the legal framework and information transparency;

●

Evaluate the performance of external auditors and their opinion regarding the financial statements.

Item 16B. Code of Ethics

We have adopted a code of ethics that applies to our directors, officers and employees. Our code of ethics is freely available online in our website www.irsacp.com.ar. Information found on this website is not incorporated by reference into this document.

If we make any substantive amendment to our code of ethics or grant any waivers, including any implicit waiver to any of its provisions, we will disclose the nature of such amendment or waiver in a report on Form 6-K or in our next annual report.

Item 16C. Principal Accountant Fees and Services.

Audit Fees

During fiscal years ended June 30, 2018 and 2017, we were billed for a total amount of Ps.14,9 million and Ps.5.4 million, respectively, for professional services rendered by our principal accountants for the audit of our annual financial statements and other services normally provided in connection with regulatory filings or engagements, such as the review of our interim financial statements.

Audit-Related Fees

During the fiscal year ended June 30, 2018 and 2017, no such audit-related services were provided.

Tax Fees

During the fiscal years ended June 30, 2018 and 2017, no such services were provided.

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All Other Fees

During the fiscal years ended June 30, 2018 and 2017, we were billed for a total amount of Ps.3.0 millon and Ps.1.3 million, respectively, for other professional services rendered by our principal accountants.

Item 16D. Exemption from the Listing Standards for Audit Committees

This section is not applicable.

Item 16E. Purchase of Equity Securities by the Issuer and Affiliated Purchasers

There were no repurchases of common shares or other units of any class of our equity securities that are registered pursuant to Section 12 of the Exchange Act during fiscal years 2016, 2017 and 2018.

Item 16F. Change in Registrant´s Certifying Account.

This section is not applicable.

Item 16G. Corporate Governance.

Compliance with NASDAQ listing standards on corporate governance

Significant differences between our corporate governance practices and U.S. companies’ practices under NASDAQ Rules:

Our corporate governance practices are governed by applicable Argentine law, particularly the Argentine Companies Law No. 19,550, the Capital Markets Law No. 26,831 and the CNV Rules, as well as by our bylaws. Our ADSs are registered with the U.S. Securities and Exchange Commission and are listed on the NASDAQ Stock Market, or NASDAQ, and therefore we are subject to corporate governance requirements applicable to NASDAQ­listed non­U.S. companies, commonly referred to as “foreign private issuers.”

Pursuant to NASDAQ Rule 5615(a)(3), NASDAQ­listed non­U.S. companies that are categorized as “Foreign Private Issuers” may follow home country corporate governance practices in lieu of certain of the corporate governance requirements provided in NASDAQ Rules, provided that the foreign private issuer complies with certain mandatory sections of NASDAQ Rules, discloses each requirement of the NASDAQ Rules that it does not follow and describes the home country practice followed in lieu of such requirement. The requirements of the NASDAQ Rules and the Argentine corporate governance practices that we follow in lieu thereof are described below:

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NASDAQ standards for U.S. companies	IRSA commercial properties’ corporate practices
Rule 5250(d)—Distribution of Annual and Interim Reports.	In lieu of the requirements of Rule 5250(d), we follow Argentine law, which requires that companies make public an annual report in Spanish, including Annual Audited Consolidated Financial Statements prepared in accordance with generally accepted accounting principles in Argentina, by filing such annual report with the CNV and the stock exchange in which its securities are listed, within 70 calendar days of the end of the company’s fiscal year. Interim reports must be filed with the CNV and the Stock exchange in which its securities are listed within 42 calendar days of the end of each fiscal quarter. Our shareholders can receive copies of annual reports and any interim reports upon such shareholder’s request. English language translations of our annual reports and interim reports are furnished to the Securities and Exchange Commission. We also post the English language translation of our annual reports and quarterly press releases on website. Furthermore, under the terms of the Deposit Agreement, dated November 10, 2000, as amended and restated on July 5, 2017, among us, The Bank of New York, as depositary, and owners of ADS issued thereunder, we are required to furnish The Bank of New York with, among other things, English language translations of annual reports. Annual reports are available for inspection by ADR holders at the offices of The Bank of New York located at 101 Barclay Street, 22nd Floor West, New York, New York 10286. Finally, Argentine law requires that 20 calendar days before the date of a shareholders’ meeting, the board of directors must provide to our shareholders, at our executive office or through electronic means, all information relevant to the shareholders’ meeting, including copies of any documents to be considered by the shareholders (which includes the annual report).
Rule 5605(b)(1)—Majority of Independent Directors.	In lieu of the requirements of Rule 4605(b)(1), we follow Argentine law which does not require that a majority of the board of directors be comprised of independent directors. Argentine law instead requires that public companies in Argentina such as us have a sufficient number of independent directors to be able to form an audit committee of at least three members, the majority of which must be independent pursuant to the criteria established by the CNV.
Rule 5605(b)(2)—Executive Sessions of the Board of Directors.	In lieu of the requirements of Rule 5605(b)(2), we follow Argentine law which does not require independent directors to hold regularly scheduled meetings at which only such independent directors are present (i.e., executive sessions). Our board of directors as a whole is responsible for monitoring our affairs. In addition, under Argentine law, the Board of Directors may approve the delegation of specific responsibilities to designated directors or non­director managers of the company. Also, it is mandatory for public companies to form a Supervisory Committee (composed of syndics) which is responsible for monitoring the legality of our actions under Argentine law and the conformity thereof with its bylaws.
Rule 5605(d)—Compensation of Officers.	In lieu of the requirements of Rule 5605(d) , we follow Argentine law which does not require companies to form a compensation committee comprised solely of independent directors. For the determination of the compensation of the chief executive officer and all other executive officers no decision of a majority of independent directors or a compensation committee comprised solely of independent directors is required under Argentine law. Under Argentine law, the board of directors is the corporate body responsible for determining the compensation of the chief executive officer and all other executive officers, so long as they are not directors. In addition, under Argentine law, the audit committee shall give its opinion about the reasonableness of management’s proposals on fees and option plans for our directors or managers.
Rule 5605(e)(1)—Nomination of Directors.	In lieu of the requirements of Rule 5605(e)(1), we follow Argentine law which requires that directors be nominated directly by the shareholders at the shareholders’ meeting and that they be selected and recommended by the shareholders themselves. Under Argentine law, it is the responsibility of the ordinary shareholders’ meeting to appoint and remove directors and to set their compensation.
Rule 5605(c)(1)—Audit Committee Charter.	In lieu of the requirements of Rule 5605(c)(1), we follow Argentine law which requires that audit committees have a charter but does not require that companies certify as to the adoption of the charter, nor does it require an annual review and assessment thereof. Argentine law instead requires that companies prepare a proposed plan or course of action with respect to those matters which are the responsibility of our audit committee. Such plan or course of action could, at the discretion of our audit committee, include a review and assessment of the audit committee’s charter.
Rule 5605(c)(2)—Audit Committee Composition.	Argentine law does not require that companies have an audit committee comprised solely of independent directors and it is equally not customary business practice in Argentina to have such a committee. Argentine law instead requires that companies establish an audit committee with at least three members comprised of a majority of independent directors as defined by Argentine law. Nonetheless, although not required by Argentine law, we have a three­member audit committee comprised of entirely independent directors in accordance with Rule 10(A)­3(b)(1) of the General rules and regulations promulgated under the Securities Exchange Act, as independence is defined in Rule 10(A)­3(b)(1). Further, Argentine law does not require companies to identify or designate a financial expert. As such, although all the members of the audit committee have large corporate experience, as of the date of this annual report, the Board of Directors have not named a financial expert in accordance with the relevant SEC rules on the audit committee. In addition, we have a Supervisory Committee (comisión fiscalizadora) composed of three ‘syndics’, who are in charge of monitoring the legality, under Argentine law, of the actions of our board of directors and the conformity of such actions with our bylaws.
Rule 5620(c)—Quorum.	In lieu of the requirements of Rule 5620(c), we follow Argentine law and our bylaws, which distinguish between ordinary meetings and extraordinary meetings, both of which can be celebrated using teleconference technology, as long as the regulations related to accreditation, registration and quorum are complied with and the simultaneity of the shareholders and immediacy of the process of verbal communication and issuance of the vote is guaranteed. The audit committee shall state the regularity of the resolutions adopted. The board of directors shall establish the rules and technical matters related to remote participation pursuant to the current rules and in conformity with the National Exchange Commission regulations. Shareholders physically present at the time and those using teleconference technologies will be taken into consideration for the quorum. In connection with ordinary meetings, a quorum consists of a majority of stocks entitled to vote. If no quorum is present at the first meeting, a second meeting may be called, in which the shareholders present or communicated through teleconference technologies, regardless of their number, constitute a quorum. Resolutions may be adopted by an absolute majority of the votes present or communicated through teleconference technologies. Argentine law, and our bylaws, requires in connection with extraordinary meetings, that a quorum consist of 60% of the stock entitled to vote. However, if such quorum is not present at the first meeting, our bylaws provide that a second meeting may be called and may be held with the number of shareholders present or communicated through teleconference technologies. In both ordinary and extraordinary meetings, decisions are adopted by an absolute majority of votes present at the meeting or communicated through teleconference technologies, except for certain fundamental matters (such as mergers and spin­offs (when we are not the surviving entity and the surviving entity is not listed on any stock exchange), anticipated liquidation, change in its domicile outside of Argentina, total or partial recapitalization of its statutory capital following a loss, any transformation in our corporate legal form or a substantial change in our corporate purpose, or the issue of bonds) which require an approval by vote of the majority of all the stock entitled to vote (all stock being entitled to only one vote.
Rule 5620(b)—Solicitation of Proxies.	In lieu of the requirements of Rule 5620(b), we follow Argentine law which requires that notices of shareholders’ meetings be published, for five consecutive days, in the Official Gazette and in a widely published newspaper in Argentina no earlier than 45 calendar days prior to the meeting and at least 20 calendar days prior to such meeting. In order to attend a meeting and be listed on the meeting registry, shareholders are required to submit evidence of their book­entry share account held at Caja de Valores up to three business days prior to the scheduled meeting date. If entitled to attend the meeting, a shareholder may be represented by proxy (properly executed and delivered with a certified signature) granted to any other person, with the exception of a director, syndic, member of the Supervisory Committee, manager or employee of the issuer, which are prohibited by Argentine law from acting as proxies. In addition, our ADS holders receive, prior to any shareholders’ meeting, a notice listing the matters on the agenda, a copy of the annual report and a voting card.
Rule 5630(s)—Conflicts of Interest	In lieu of the requirements of Rule 5630(a), we follow Argentine law which requires that related party transactions be approved by the audit committee when the transaction exceeds one percent (1%) of the corporation’s net worth, measured pursuant to the last audited balance sheet. Directors can contract with the corporation only on an arm’s length basis. If the contract is not in accordance with prevailing market terms, such transaction must be pre­approved by the board of directors (excluding the interested director) and informed to the shareholders’ meeting. In addition, under Argentine law, a shareholder is required to abstain from voting on a business transaction in which its interests may be in conflict with our interests. In the event such shareholder votes on such business transaction and such business transaction would not have been approved without such shareholder’s vote, such shareholder may be liable to us for damages and the resolution may be declared void.

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Item 16H. Mine Safety Disclosures

 This section is not applicable.

209

PART III

ITEM 17. Financial Statements

We have responded to Item 18 in line of responding to this Item.

ITEM 18. Financial Statements

Reference is made to pages F-1 through F-82.

ITEM 19. Exhibits

INDEX OF EXHIBITS

Exhibit No.	Description of Exhibit
1.1(1)	Estatutos of the registrant, which serve as the registrant’s articles of incorporation and bylaws, and an English translation thereof.
1.2(4)	English translation of the amendment to the bylaws.
1.3(10)	Amended and restated English translation of the bylaws.
1.4(11)	Amended and restated English translation of the bylaws.
1.5(13)	Amended and restated English translation of the bylaws.
1.6	Amended and restated English translation of the bylaws.
2.1(1)	Form of Deposit Agreement among us, The Bank of New York, as Depositary, and the holders from time to time of American Depositary Receipts issued there under.
2.2(1)	Shareholders Agreement, dated November 18, 1997, among IRSA International Limited, Parque Arauco S.A. and Sociedad Anónima Mercado de Abasto Proveedor (SAMAP).
2.3(1)	Put Option Agreement dated November 17, 1997, among IRSA Inversiones y Representaciones Sociedad Anónima and GSEM/AP.
2.4(1)	Offering Circular, dated March 24, 2000, regarding the issuance of Ps.85,000,000 of our 14.875% Notes due 2005.
2.5(15)	Indenture, dated March 23, 2016, between us as Issuer, The Bank of New York Mellon as Trustee, Co-Registrar, Principal Paying Agent and Transfer Agent, and Banco Santander Río S.A. as Registrar, Paying Agent, Transfer Agent and Representative of the Trustee in Argentina, with respect to our US$500,000,000 Global Note Program, pursuant to which US$360,000,000 000 aggregate principal amount of our 8.750% Notes due 2023, Series No. 2, were issued.
2.6(15)	First Supplemental Indenture, dated March 23, 2016, between us as Issuer and The Bank of New York Mellon, as Trustee, Co-Registrar, Principal Paying Agent and Transfer Agent, The Bank of New York Mellon (Luxembourg) S.A., as Luxembourg Paying Agent and Luxembourg Transfer Agent and Banco Santander Río S.A., as Registrar, Paying Agent, Transfer Agent and Representative of the Trustee in Argentina to the Indenture, dated March 23, 2016, between us as Issuer, The Bank of New York Mellon as Trustee, Co-Registrar, Principal Paying Agent and Transfer Agent, and Banco Santander Río S.A. as Registrar, Paying Agent, Transfer Agent and Representative of the Trustee in Argentina, with respect to our US$500,000,000 Global Note Program, pursuant to which US$360,000,000 000 aggregate principal amount of our 8.750% Notes due 2023, Series No. 2, were issued.
2.7(16)	Form of Amended and Restated Deposit Agreement among us, The Bank of New York, as Depositary, and the holders from time to time of American Depositary Receipts issued there under.
4.1(2)	Agreement for the exchange of Corporate Service between us, IRSA and Cresud dated June 30, 2004.
4.2(4)	English translation of the Amendment to the Agreement for the exchange of Corporate Service between us, IRSA and Cresud dated August 23, 2007.
4.3(5)	English translation of the Second Agreement for the Implementation of the Amendment to the Corporate Services Master Agreement, dated August 14, 2008.
4.4(6)	English translation of the Third Agreement for the Implementation of the Amendment to the Corporate Services Master Agreement, dated November 27, 2009.
4.5(7)	English translation of the Amendment to the Agreement for the exchange of Corporate Service between us, IRSA and Cresud, dated March 12, 2010.
4.6(8)	English translation of the Amendment to the Agreement for the exchange of Corporate Service between us, IRSA and Cresud, dated July 11, 2011.
4.7(9)	English translation of the Fifth Agreement for the implementation of Amendments to the Corporate Services Master Agreement, October 15, 2012.
4.8(10)	English translation of the Sixth Agreement for the Implementation of the Amendment to the Corporate Services Master Agreement dated November 12, 2013.
4.9(10)	English translation of the Second Amendment to the Exchange of Operating Services Agreement between the Company, Cresud and Alto Palermo dated February 24, 2014.
4.10(11)	English translation of the Seventh Agreement for the Implementation of the Amendment to the Corporate Services Master Agreement dated February 18, 2015.
4.11(12)	English translation of the Eighth Agreement for the Implementation of the Amendment to the Corporate Services Master Agreement dated November 12, 2015.
4.12(14)	English translation of the Ninth Agreement for the Implementation of the Amendment to the Corporate Services Master Agreement dated May 5, 2017.
4.13(14)	English translation of the Tenth Agreement for the Implementation of the Amendment to the Corporate Services Master Agreement dated June 29, 2018.
8.1	List of Subsidiaries.
11.1(3)	Code of Ethics of the Company.
12.1	Certification pursuant to Section 302 of the Sarbanes-Oxley Act 2002.
12.2	Certification pursuant to Section 302 of the Sarbanes-Oxley Act 2002.
13.1	Certification pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
13.2	Certification pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
99.1	Consent of independent appraiser Newmark Knight Frank.
99.2	Consent of Independent Registered Public Accounting Firm.
99.3	Summary of investment properties by type as of June 30, 2018 (in accordance with Regulation S-X 12-28 (1)).

(1)	Incorporated herein by reference to the same-numbered exhibit to the registrant’s registration statement on Form 20-F (File No. 000-30982).
(2)	Incorporated herein by reference to the registrant’s registration statement on Form 6-K (SEC File No. 000-30982).
(3)	Incorporated herein by reference to the registrant’s registration statement on Form 6-K reported on August 1, 2005.
(4)	Incorporated herein by reference to the annual report on Form 20-F (File No. 128 0-30982) filed with the SEC on December 27, 2007.
(5)	Incorporated herein by reference to the annual report on Form 20-F (File No. 128 0-30982) filed with the SEC on December 30, 2008.
(6)	Incorporated herein by reference to the annual report on Form 20-F (File No. 1280-30982) filed with the SEC on December 30, 2009.
(7)	Incorporated herein by reference to the annual report on Form 20-F (File No. 1280-30982) filed with the SEC on December 30, 2010.
(8)	Incorporated herein by reference to the annual report on Form 20-F (File No. 1280-30982) filed with the SEC on December 28, 2011.
(9)	Incorporated herein by reference to the annual report on Form 20-F (File No. 1280-30982) filed with the SEC on October 26, 2012.
(10)	Incorporated herein by reference to the annual report on Form 20-F (File No. 1280-30982) filed with the SEC on October 31, 2014.
(11)	Incorporated herein by reference to the annual report on Form 20-F (File No. 1280-30982) filed with the SEC on October 23, 2015.
(12)	Incorporated herein by reference to the annual report on Form 20-F (File No. 1280-30982) filed with the SEC on October 21, 2016.
(13)	Incorporated herein by reference to the registration statement for certain foreign private issuers on Form F-1/A (File No. 333-218307) filed with the SEC on July 10, 2017.
(14)	Incorporated herein by reference to the registration statement for certain foreign private issuer on Form F-1 (File No. 333-218307) filed with the SEC on May 26, 2017.
(15)	Incorporated herein by reference to the annual report on Form 20-F (File No. 1280-30982) filed with the SEC on October 21, 2016.
(16)	Incorporated herein by reference to the registration statement for certain foreign private issuers on Form F-1/A (File No. 333-218307) filed with the SEC on July 10, 2017.

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SIGNATURES

The registrant hereby certifies that it meets all of the requirements for filing on Form 20­F and that it has duly caused and authorized the undersigned to sign this annual report on its behalf.

	IRSA Propiedades Comerciales S.A.
Date: October 22, 2018	By:	/s/ Matias I. Gaivironsky
		Name Matias I. Gaivironsky
		Title Chief Financial and Administrative Officer

211

INDEX TO THE CONSOLIDATED FINANCIAL STATEMENTS

IRSA PROPIEDADES COMERCIALES S.A.	Page
Report of Independent Registered Public Accounting Firm	F - 2
Consolidated Statements of Financial Position as of June 30, 2018 and 2017	F - 4
Consolidated Statements of Comprehensive Income for the fiscal years ended June 30, 2018, 2017 and 2016	F - 5
Consolidated Statements of Changes in Shareholders’ Equity for the fiscal years ended June 30, 2018, 2017 and 2016	F - 6
Consolidated Statements of Cash Flows for the fiscal years ended June 30, 2018, 2017 and 2016	F - 8
Notes to the Consolidated Financial Statements.	F - 9

F-1

Report of Independent Registered Public Accounting Firm

To the Board of Directors and Shareholders of

IRSA Propiedades Comerciales S.A.

Opinions on the Financial Statements and Internal Control over Financial Reporting

We have audited the accompanying consolidated statements of financial position of IRSA Propiedades Comerciales S.A. and its subsidiaries as of June 30, 2018 and 2017, and the related consolidated statements of comprehensive income, changes in shareholders’ equity and cash flows for each of the three years in the period ended June 30, 2018, including the related notes (collectively referred to as the “consolidated financial statements”). We also have audited the Company’s internal control over financial reporting as of June 30, 2018, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of June 30, 2018 and 2017, and the results of their operations and their cash flows for each of the three years in the period ended June 30, 2018 in conformity with International Financial Reporting Standards as issued by the International Accounting Standards Board. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of June 30, 2018, based on criteria established in Internal Control - Integrated Framework (2013) issued by the COSO.

Basis for Opinions

The Company's management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Annual Report on Internal Control Over Financial Reporting appearing under Item 15. Our responsibility is to express opinions on the Company’s consolidated financial statements and on the Company's internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.

Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.

Definition and Limitations of Internal Control over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the

F-2

  IRSA Propiedades Comerciales S.A.

company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. 

/s/ PRICE WATERHOUSE & Co. S.R.L

By: /s/Walter Rafael Zablocky  (Partner)

      Walter Rafael Zablocky

      Buenos Aires, Argentina

      October 22, 2018

We have served as the Company’s auditor since 1998.

F-3

Consolidated statements of financial position

as of June 30, 2018 and 2017

(All amounts in thousands of Argentine Pesos, except shares and per share data and as otherwise indicated)

Note		06.30.18	06.30.17
ASSETS
Non-current assets
Investment properties	9	54,054,811	35,916,882
Property, plant and equipment	10	109,437	120,536
Trading properties	11	61,362	61,600
Intangible assets	12	213,051	111,560
Investments in associates and joint ventures	8	1,433,522	791,626
Deferred income tax assets	20	60,734	59,455
Income tax and minimum presumed income tax credits		156,152	29
Trade and other receivables	14	955,509	777,818
Investments in financial assets	13	29,139	66,717
Total non-current assets		57,073,717	37,906,223
Current Assets
Trading properties	11	206	-
Inventories		24,882	22,722
Restricted assets	13	-	49,525
Income tax and minimum presumed income tax credits		43,269	1,933
Trade and other receivables	14	1,766,075	1,453,312
Investments in financial assets	13	5,145,463	1,180,249
Derivative financial instruments	13	47,360	-
Cash and cash equivalents	13	3,643,131	1,807,544
Total current assets		10,670,386	4,515,285
TOTAL ASSETS		67,744,103	42,421,508
SHAREHOLDERS’ EQUITY
Total capital and reserves attributable to equity holders of the parent		36,565,015	22,145,079
Non-controlling interest		1,397,872	871,169
TOTAL SHAREHOLDERS’ EQUITY		37,962,887	23,016,248
LIABILITIES
Non-current liabilities
Trade and other payables	17	483,908	406,598
Borrowings	18	15,362,726	5,918,119
Deferred income tax liabilities	20	11,425,496	11,263,341
Provisions	19	12,258	16,509
Total non-current liabilities		27,284,388	17,604,567
Current liabilities
Trade and other payables	17	1,870,552	1,104,982
Income tax and minimum presumed income tax liabilities		46,061	268,957
Payroll and social security liabilities		184,196	147,095
Borrowings	18	305,481	249,868
Derivative financial instruments	13	46,711	4,950
Provisions	19	43,827	24,841
Total current liabilities		2,496,828	1,800,693
TOTAL LIABILITIES		29,781,216	19,405,260
TOTAL SHAREHOLDERS’ EQUITY AND LIABILITIES		67,744,103	42,421,508

  The accompanying notes are an integral part of these Consolidated Financial Statements.

F-4

IRSA Propiedades Comerciales S.A. 

Consolidated statements of comprehensive income

for the fiscal years ended June 30, 2018, 2017 and 2016

(All amounts in thousands of Argentine Pesos, except shares and per share data and as otherwise indicated)

	Note	06.30.18	06.30.17	06.30.16
Income from sales, rentals and services	24	4,232,206	3,508,975	2,674,873
Income from expenses and collective promotion fund	24	1,717,000	1,488,187	1,183,627
Operating costs	25	(2,139,447)	(1,899,786)	(1,460,204)
Gross profit		3,809,759	3,097,376	2,398,296
Net gain from fair value adjustments of investment properties	9	16,690,117	3,133,413	17,092,403
General and administrative expenses	25	(415,242)	(322,176)	(221,580)
Selling expenses	25	(294,865)	(236,528)	(162,221)
Other operating results, net	26	(4,906)	(51,219)	(68,552)
Profit from operations		19,784,863	5,620,866	19,038,346
Share of profit of associates and joint ventures	8	639,525	152,703	204,299
Profit from operations before financing and taxation		20,424,388	5,773,569	19,242,645
Finance income	27	688,153	242,438	512,555
Finance cost	27	(7,438,451)	(1,313,336)	(2,938,476)
Other financial results	27	2,268,439	284,024	1,714,702
Financial results, net		(4,481,859)	(786,874)	(711,219)
Profit before income tax		15,942,529	4,986,695	18,531,426
Income tax expense	20	(286,506)	(1,609,181)	(6,278,894)
Profit for the year		15,656,023	3,377,514	12,252,532
Total comprehensive income for the year		15,656,023	3,377,514	12,252,532
Attributable to:
Equity holders of the parent		15,099,936	3,260,476	11,821,280
Non-controlling interest		556,087	117,038	431,252
Profit per share attributable to equity holders of the parent for the year (Note 28):
Basic		119.83	25.87	93.81
Diluted		119.83	25.87	93.81

The accompanying notes are an integral part of these Consolidated Financial Statements.

F-5

IRSA Propiedades Comerciales S.A. 

Consolidated statements of changes in shareholders’ equity

for the fiscal years ended June 30, 2018, 2017 and 2016

(All amounts in thousands of Argentine Pesos, except shares and per share data and as otherwise indicated)

	Share capital	Inflation adjustment of share capital	Share premium	Legal reserve	Reserve for future dividends	Special reserve CNV 609/12 (1)	Special reserve	Changes in non-controlling interest	Retained earnings	Subtotal	Non-controlling interest	Total shareholder’s equity
Balance as of June 30, 2017	126,014	69,381	444,226	39,078	356,598	2,700,192	-	(19,784)	18,429,374	22,145,079	871,169	23,016,248
Comprehensive income for the year	-	-	-	-	-	-	-	-	15,099,936	15,099,936	556,087	15,656,023
Equity contributions of the non-controling interest	-	-	-	-	-	-	-	-	-	-	253	253
Assignment of results - Shareholders’ meeting of October 31, 2017 (1)	-	-	-	-	(356,598)	-	2,627,076	-	(2,950,478)	(680,000)	-	(680,000)
Dividends distribution to non-controlling interest	-	-	-	-	-	-	-	-	-	-	(36,400)	(36,400)
Incorporation as result of business combination (Note 4)	-	-	-	-	-	-	-	-	-	-	6,763	6,763
Balance as of June 30, 2018	126,014	69,381	444,226	39,078	-	2,700,192	2,627,076	(19,784)	30,578,832	36,565,015	1,397,872	37,962,887

	Share capital	Inflation adjustment of share capital	Share premium	Legal reserve	Reserve for future dividends	Special reserve CNV 609/12 (1)	Special reserve	Changes in non-controlling interest	Retained earnings	Subtotal	Non-controlling interest	Total shareholder’s equity
Balance as of June 30, 2016	126,014	69,381	444,226	39,078	-	2,700,192	-	(19,770)	16,295,496	19,654,617	775,600	20,430,217
Comprehensive income for the year	-	-	-	-	-	-	-	-	3,260,476	3,260,476	117,038	3,377,514
Assignment of results - Shareholders’ meeting of October 31, 2016 (1)	-	-	-	-	356,598	-	-	-	(816,598)	(460,000)	-	(460,000)
Assignment of results - Shareholders’ meeting of April5, 2017 (1)	-	-	-	-	-	-	-	-	(310,000)	(310,000)	-	(310,000)
Changes in non-controlling interest	-	-	-	-	-	-	-	(14)	-	(14)	(851)	(865)
Incorporation as result of business combination (Note 4)	-	-	-	-	-	-	-	-	-	-	40,004	40,004
Dividends distribution to non-controlling interest	-	-	-	-	-	-	-	-	-	-	(60,622)	(60,622)
Balance as of June 30, 2017	126,014	69,381	444,226	39,078	356,598	2,700,192	-	(19,784)	18,429,374	22,145,079	871,169	23,016,248

F-6

  IRSA Propiedades Comerciales S.A.

Consolidated statements of changes in shareholders’ equity

for the fiscal years ended June 30, 2018, 2017 and 2016

(All amounts in thousands of Argentine Pesos, except shares and per share data and as otherwise indicated)

	Share capital	Inflation adjustment of share capital	Share premium	Legal reserve	Reserve for future dividends	Special reserve CNV 609/12 (1)	Special reserve	Changes in non-controlling interest	Retained earnings	Subtotal	Non-controlling interest	Total shareholder’s equity
Balance as of June 30, 2015	126,014	69,381	444,226	39,078	-	2,700,192	-	(19,770)	4,757,796	8,116,917	443,500	8,560,417
Comprehensive income for the year	-	-	-	-	-	-	-	-	11,821,280	11,821,280	431,252	12,252,532
Assignment of results - Shareholders’ meeting of October 31, 2015 (1)	-	-	-	-	-	-	-	-	(283,580)	(283,580)	-	(283,580)
Dividends distribution to non-controlling interest	-	-	-	-	-	-	-	-	-	-	(99,027)	(99,027)
Reduction of capital contribution of non-controlling interest	-	-	-	-	-	-	-	-	-	-	(123)	(123)
Balance as of June 30, 2016	126,014	69,381	444,226	39,078	-	2,700,192	-	(19,770)	16,295,496	19,654,617	775,602	20,430,219

(1) See Note 16.

The accompanying notes are an integral part of these Consolidated Financial Statements.

F-7

 IRSA Propiedades Comerciales S.A.

Consolidated statements of cash flows

for the fiscal years ended June 30, 2018, 2017 and 2016

(All amounts in thousands of Argentine Pesos, except shares and per share data and as otherwise indicated)

	Note	06.30.18	06.30.17	06.30.16
Operating activities:
Cash generated from operations	15	4,183,288	3,139,928	1,589,228
Income tax paid		(559,281)	(264,721)	(575,855)
Net cash generated from operating activities		3,624,007	2,875,207	1,013,373
Investing activities:
Capital contributions in associates	8	-	(10,390)	-
Capital contributions in joint ventures	8	(41,412)	(329)	(73,000)
Acquisition of investment properties	9	(1,231,932)	(703,865)	(167,665)
Proceeds from sale of investment properties		29,482	138,342	357,243
Acquisition of property, plant and equipment	10	(15,774)	(23,866)	(13,747)
Advance payments		(90,451)	(169,647)	(6,596)
Acquisition of intangible assets	12	(41,915)	(35,786)	(1,583)
Acquisitions of investments in financial assets		(11,330,046)	(2,517,631)	(9,916,383)
Proceeds from investments in financial assets		8,535,468	3,282,471	8,453,545
Loans granted, net		(7,626)	(8,953)	-
Loans granted to related parties		(1,458)	(279,042)	(533,525)
Loans repayment received from related parties		-	168,846	-
Proceeds from sale of property plant and equipment		12,379	-	-
Collection of financial assets interests		336,537	57,922	37,156
Acquisition of subsidiaries, net of cash acquired	15	(46,345)	(46,146)	-
Dividends received		31,880	-	-
Net cash used in investing activities		(3,861,213)	(148,074)	(1,864,555)
Financing activities:
Issuance of non-convertible notes		2,365,003	-	5,411,199
Borrowings obtained		715,421	104,205	729,299
Borrowings obtained from related parties		4,000	3,500	-
Payment of borrowings		(77,338)	(72,164)	(1,328,439)
Payment of borrowings with related parties		-	-	(3,715,480)
Payments of financial leasing		(4,192)	(1,338)	(2,678)
Payment of non-convertible notes		-	(407,260)	(1,139,936)
Dividends paid		(680,000)	(48,926)	(37,019)
Dividends to non-controlling interest		-	(60,622)	(77,587)
Payment of derivative financial instruments		(416,264)	(47,797)	(580,828)
Proceeds from derivative financial instruments		638,044	130,993	1,831,621
Interest paid		(724,730)	(544,280)	(278,279)
Contributions of the non-controling shareholders		253	-	-
Short-term loans, net		(19,766)	(14,065)	(232,203)
Net cash generated / (used in) from financing activities		1,800,431	(957,754)	579,670
Net increase (decrease) in cash and cash equivalents		1,563,225	1,769,379	(271,512)
Cash and cash equivalents at beginning of year	13	1,807,544	33,049	303,499
Foreign exchange gain on cash and fair value result on cash equivalents		272,362	5,116	1,062
Cash and cash equivalents at end of the year	13	3,643,131	1,807,544	33,049

The accompanying notes are an integral part of these Consolidated Financial Statements.

F-8

IRSA Propiedades Comerciales S.A.

Notes to the Unaudited Condensed Consolidated Financial Statements

 (All amounts in thousands of Argentine Pesos, except shares and per share data and as otherwise indicated)

1.

Group’s business and general information

IRSA PROPIEDADES COMERCIALES S.A. (“IRSA Propiedades Comerciales” or “the Company”) is an Argentine real estate company mainly engaged in holding, leasing, managing, developing, operating and acquiring shopping malls and office buildings and holds a predominant position within the Argentine market. IRSA Propiedades Comerciales was incorporated in 1889 under the name Sociedad Anonima Mercado de Abasto Proveedores (SAMAP) and until 1984 operated the main fresh product market in the Autonomous City of Buenos Aires. SAMAP’s core asset was the historical building of Mercado de Abasto, which served as site of the market from 1889 until 1984, when a sizable part of its operations was interrupted.

Since the Company was acquired by IRSA Inversiones y Representaciones Sociedad Anónima (hereinafter, IRSA) in 1994, it has grown through a series of acquisitions and development projects that resulted in a corporate reorganization pursuant to which the company was renamed Alto Palermo S.A. which was subrequentily changed to our current denomination

The Company holds 16 Shopping malls, operating 344,025 square meters (sqm) in 15 of them, 83,978 square meters in 7 premium offices and an extensive land reserve for future commercial developments;operates and holds a majority interest in a portfolio of 15 shopping malls in Argentina, seven of which are located in the Autonomous City of Buenos Aires (Abasto Shopping, Alcorta Shopping, Alto Palermo, Patio Bullrich, Buenos Aires Design, Dot Baires Shopping and Distrito Arcos), two in Buenos Aires province (Alto Avellaneda and Soleil Premium Outlet) and the rest are situated in different provinces (Alto Noa in the City of Salta, Alto Rosario in the City of Rosario, Mendoza Plaza in the City of Mendoza, Córdoba Shopping Villa Cabrera in the City of Córdoba, Alto Comahue in the City of Neuquén and La Ribera Shopping in the City of Santa Fe). The Company also owns the historic building where the Patio Olmos Shopping Mall is located, operated by a third party.

The Company’s shares are traded on the Buenos Aires Stock Exchange (BYMA: IRCP) and in United States of America on the NASDAQ (NASDAQ: IRCP).

IRSA Propiedades Comerciales and its subsidiaries are hereinafter referred to jointly as "the Group". See Notes 2.3 and 6 for further description of the Group’s companies and segments. Our main shareholder and parent company is IRSA and IFIS Limited is our ultimate parent company.

These consolidated financial statements (Financial Statements) have been approved by the Board of Directors to be issued on August 23, 2018.

2.

Summary of significant accounting policies

2.1

Basis of preparation of the Consolidated Financial Statements

(a)

Basis of preparation

These Consolidated Financial Statements have been prepared in accordance with IFRS issued by IASB and interpretations issued by the IFRIC. All IFRS applicable as of the date of these Consolidated Financial Statements have been applied.

IAS 29 "Financial Reporting in Hyperinflationary Economies" requires that the financial statements of an entity whose functional currency is one of a hyperinflationary economy be expressed in terms of the current unit of measurement at the closing date of the reporting period, regardless of whether they are based on the historical cost method or the current cost method. To do so, in general terms, the inflation produced from the date of acquisition or from the revaluation date, as applicable, must be calculated in the non-monetary items. This requirement also includes the comparative information of the financial statements.

In order to conclude on whether an economy is categorized as hyperinflationary in the terms of IAS 29, the standard details a series of factors to be considered, including the existence of a cumulative inflation rate in three years that approximates or exceed 100%. Bearing in mind that the downward trend in inflation observed in the previous year has reversed, noticing a significant increase in inflation during 2018, that it is also expected that the accumulated inflation rate of the last three years will exceed 100% and that the rest of the indicators do not contradict the conclusion that Argentina should be considered a hyperinflationary economy for accounting purposes, the Management understands that there is sufficient evidence to conclude that Argentina is a hyperinflationary economy in the terms of IAS 29, starting with the year initiated on July 1, 2018. Consequently, the Group should restate its next financial statements to be presented after the aforementioned date. However, it must be taken into account that, as of the date of issuance of these financial statements, Decree PEN 664/03 is in force, and it does not allow the presentation of restated for inflation financial statements before the National Securities Commission (CNV) and other bodies of corporate control.

F-9

IRSA Propiedades Comerciales S.A.

In an inflationary period, any entity that maintains an excess of monetary assets over monetary liabilities, will lose purchasing power, and any entity that maintains an excess of monetary liabilities over monetary assets, will gain purchasing power, provided that such items are not subject to an adjustment mechanism.

Briefly, the restatement method of IAS 29 establishes that monetary assets and liabilities must not be restated since they are already expressed in the current unit of measurement at the end of the reporting period. Assets and liabilities subject to adjustments based on specific agreements must be adjusted in accordance with such agreements. The non-monetary items measured at their current values at the end of the reporting period, such as the net realization value or others, do not need to be restated. The remaining non-monetary assets and liabilities must be restated by a general price index. The loss or gain from the net monetary position will be included in the net result of the reporting year / period, revealing this information in a separate line item.

As of June 30, 2018, the restatement criteria of financial information established in IAS 29 have not been applied. However, in recent years’ certain macroeconomic variables that affect the Company's businesses, such as wages and prices of inputs, have undergone annual variations of certain importance. This circumstance must be considered in the evaluation and interpretation of the financial situation and the results presented by the Company in these financial statements.

(b)

Current and non-current classification

The Group presents current and non-current assets, and current and non-current liabilities, as separate classifications in its statement of financial position according with the operating cycle of each activity.

The operating cycle for activities related to the Group’s investment properties is 12 months. Therefore, current assets and current liabilities include the assets and liabilities that are either realized or settled within 12 months from the end of the fiscal year. The operating cycle of activities related to the Group’s investment properties for sale depends on each specific project, and thus cannot be clearly defined. In general, assets and liabilities classified as investment properties for sale are realized or discharged over many fiscal years, ranging between one and three years or, in exceptional cases, over a longer period. As a result, and for purposes of classification, the Group has assumed the operating cycle of investment properties for sale to be 12 months.

All other assets and liabilities are classified as non-current. Current and deferred tax assets and liabilities (income tax payable), are presented separately from each other and from other assets and liabilities as current and non-current, respectively.

(c)

Presentation currency

The Consolidated Financial Statements are presented in thousands of Argentine Pesos. Unless otherwise stated or the context otherwise requires, references to ‘Peso amounts’ or ‘Ps.’, are to Argentine Pesos, and references to ‘USD’ or ‘US dollars’ are to United States dollars.

(d)

End of the fiscal year

The fiscal year begins on July 1 and ends on June 30 each year.

F-10

IRSA Propiedades Comerciales S.A. 

(e)

Accounting conventions

These Consolidated Financial Statements have been prepared under the deemed cost convention, except for investment properties, financial assets and financial liabilities (including derivative instruments) which have been prepared at fair value through profit or loss and share-based compensation at fair value.

(f)

Cash flows

The Group reports cash flows from operating activities using the indirect method. Interest paid is presented within cash used in financing activities. Interest received is presented within cash generated by investing activities. The acquisitions and disposals of investment properties are disclosed as cash from investing activities because this most appropriately reflects the Group’s business activities. Cash flows in respect of trading properties are disclosed as cash from operating activities because these assets are sold in the ordinary course of business.

(g)

Use of estimates

The preparation of financial statements at a certain date requires the Company’s Management to make estimations and evaluations affecting the amount of assets and liabilities recorded and contingent assets and liabilities disclosed at such date, as well as income and expenses recorded during the period. Actual results might differ from the estimates and evaluations made at the date of preparation of consolidated financial statements. The most significant judgments made by Management in applying the Group’s accounting policies and the major estimates and significant judgments are described in Note 3.

2.2.

New accounting standards

The following standards, amendments and interpretations have been published by the IASB and by the IFRIC. Below we outline the standards, amendments and interpretations that may potentially have an impact on the Group at the time of application.

Standards and amendments adopted by the Group:

Standards and amendments	Description	Date of application by the Group
Cycle of annual improvements 2014-2016. IFRS 12 “Disclosure of Interests in other entities”.	Clarifies the standard scope.	06-30-2018
Amendments to IAS 7 "Disclosure about the statement of cash flows".	The entity shall disclose information so that users of the financial statements may assess the changes in liabilities resulting from financing activities, including both cash flow and non-cash-flow derivatives.	06-30-2018
Amendments to IAS 12 "Recognition of deferred tax assets for unrealized losses".	The amendments clarify the accounting of deferred income tax assets in the case of unrealized losses on instruments measured at fair value	06-30-2018

F-11

  IRSA Propiedades Comerciales S.A.

Standards and amendments not adopted yet by the Group

Standards and amendments	Description	Date of application by the Group
Amendments to IAS 40 "Transfers of investment properties".	The amendments clarify the conditions that should be met for an entity to transfer a property to, or from, investment properties.	06-30-2019
Cycle of annual improvements 2014-2016. IAS 28 “Investments in Associates and Joint ventures”.	It clarifies that the option to measure an associate or a joint venture at fair value for a qualifying entity is available upon initial recognition	06-30-2019
IFRS 16 "Leases".	The lessees are required to account for leases under one single model in the balance sheet that is similar to the one used to account for financial leases under IAS 17. There are two exceptions to this rule: to recognize the lease of low-cost assets and short-term leases. There is almost no change to lessor accounting.	06-30-2020
IFRS 9 “Financial Instruments”.	This version adds a new impairment model based on expected losses and introduces some minor amendments to the classification and measurement of financial assets.	06-30-2019
IFRS 15 “Revenue from contracts with customers”.	Provides the new revenue recognition model derived from contracts with customers. The core principle underlying the model is satisfaction of obligations assumed with customers. Applies to all contracts with customers, other than those covered by other IFRSs, such as leases, insurance and financial instruments contracts. The standard does not address recognition of interest or dividend income.	06-30-2019
Amendments to IFRS 2 "Share-based Payment".	The amendments clarify the scope of the standard in relation to: (i) accounting for the effects that the concession consolidation conditions have on cash settled share-based payments, (ii) the classification of the share-based payment transactions subject to net settlement, and (iii) accounting for the amendment of terms and conditions of the share-based payment transaction that reclassifies the transaction from cash settled to equity settled.	06-30-2019

The future adoption of these standards, amendments and interpretations adopted, will not have a material impact on the Group, except IFRS 9.

IFRS 9: Financial instruments

The new standard includes a new model of "expected credit loss" for credits or other assets not measured at fair value. The new model presents a dual measurement approach for impairment: if the credit risk of a financial asset has not increased significantly since its initial recognition, an impairment allowance will be recorded in the amount of expected credit losses resulting from the events of non-compliance that are possible within a certain period. If the credit risk has increased significantly, in most cases the allowance will increase and the amount of the expected loss will be recorded.

In accordance with the new standard, in cases where a change in terms or exchange of financial liabilities is immaterial and does not lead, at the time of analysis, to the reduction of the previous liability and recognition of the new, the new cash flows must be discounted at the original effective interest rate, with the difference between the present value of the financial liability that has the new terms and the present value of the original financial liability that is recognized in results. As a result of the application of the new standard, the amount of the liabilities, whose terms were modified and which a new effective interest rate was calculated at the time of the change in the terms in accordance with IAS 39, will be recalculated from the date of the change in terms using the original effective interest rate.

F-12

IRSA Propiedades Comerciales S.A. 

As of date of these financial statements, our estimate of the application of IFRS 9, would generate a decrease in retained earnings and in investment in associates and joint ventures of Ps. 18.4 million, due to the impact of the application of said standard on the calculation of the allowance for uncollectible debtors in our associate Tarshop S.A.. The methodology of this estimate may vary from that which is defined in the model at the moment of the effective application of the aforementioned standard.

2.3.

Scope of consolidation

(a)

Subsidiaries

Subsidiaries are all entities (including structured entities) over which the Group has control. The Group controls an entity when the Group is exposed to, or has rights to, variable returns from its investment in the entity and has the ability to effect such returns through its power over the entity. The Group also analyzes whether there is control when it does not hold more than 50% of the voting rights of an entity, but does have capacity to define its relevant activities because of de-facto control.

There may be de-facto control where the relative size of voting rights held by the Group in an entity in relation to the size and dilution of other shareholders gives the Group power to define the relevant activities of such entity.

Subsidiaries are fully consolidated from the date on which control is transferred to the Group. They are deconsolidated from the date control ceases.

The Group uses the acquisition method of accounting to account for business combinations. The consideration transferred for the acquisition of a subsidiary is the fair value of the assets transferred, the liabilities incurred and the equity interests issued by the Group. The consideration transferred includes the fair value of any asset or liability resulting from a contingent consideration arrangement. Acquisition-related costs are expensed as incurred. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date.

IFRS 3 “Business Combination” allows up to 12 months to finalize the accounting for a business combination. Where the accounting for a business combination is not complete by the end of the reporting period in which the business combination occurred, the Group reports provisional amounts.

The Group has elected to recognize acquisition of assets or group of assets carried out between entities under common control who also qualify as “Business Combination” according to IFRS 3, using the acquisition method.

The Group recognizes any non-controlling interest in the acquiree on an acquisition-by-acquisition basis either at fair value or at the non-controlling interest’s proportionate share of the acquirer’s net assets. The Group chooses the method to be used on case-by-case basis.

The amount by which the aggregate of the fair value of consideration transferred, the acquisition date fair value of the Company's previously held interest and any non-controlling interest exceeds the fair value of the assets and liabilities acquired is recorded as goodwill. If the total of consideration transferred, non-controlling interest recognized and previously held interest measured is less than the fair value of the net assets of the subsidiary acquired in the case of a bargain purchase, the difference is recognized directly in the consolidated statements of comprehensive income as "Bargain purchase gains".

Inter-company transactions, balances and unrealized gains on transactions between or among group companies are eliminated. Unrealized losses are also eliminated. Accounting policies of subsidiaries are changed where necessary to ensure consistency with the policies adopted by the Group. The majority of subsidiaries have the same year-end as the Group, however, a small number of subsidiaries have non-coterminous year-ends. In these circumstances, special-purpose financial statements prepared as of June 30 of each year are used for purposes of the Group consolidation.

The Group conducts its business through several operating and holding subsidiaries. Unless otherwise stated, the subsidiaries listed in Note 7 have share capital consisting solely of ordinary shares, which are held directly by the Group and the proportion of ownership interests held is equal to the voting rights held by the Group. The country of incorporation or registration is also their place of business.

F-13

IRSA Propiedades Comerciales S.A.

The Group takes into account both quantitative and qualitative aspects in order to determine which non-controlling interests in subsidiaries are considered significant. In quantitative terms, the Group considers significant those investments that individually represent at least 20% of the total equity attributable to non-controlling interest in subsidiaries at each year-end. Therefore, in qualitative terms, the Group considers, among other factors, the specific risks to which each company is exposed, their returns and the importance that each of them has for the Group.

Summarized financial information on subsidiaries with material non-controlling interests and other information are included in Note 7.

(b)

Changes in ownership interests in subsidiaries without change of control

Transactions with non-controlling interests that do not result in loss of control are accounted for as equity transactions, that is to say as transactions with the owners in their capacity as owners. The amount recorded is the difference between the fair value of any consideration paid and/or collected and the relevant share acquired and/or transferred of the carrying value of net assets of the subsidiary.

(c)

Disposal of subsidiaries with loss of control

When the Group ceases to have control any retained interest in the entity is re-measured to its fair value at the date when control is lost, with the change in carrying amount recognized in profit or loss. The fair value is the initial carrying amount for the purposes of subsequently accounting for the retained interest as an associate, joint venture or financial asset. In addition, any amounts previously recognized in other comprehensive income in respect of that entity are accounted for as if the Group had directly disposed of the related assets or liabilities. This may mean that amounts previously recognized in other comprehensive income are reclassified to profit or loss.

(d)

Associates

Associates are all entities over which the Group has significant influence but not control, generally accompanying a shareholding of between 20% and less than 50% of the voting rights. Investments in associates are accounted for using the equity method of accounting. Under the equity method, the investment is initially recognized at cost, and the carrying amount is increased or decreased to recognize the investor’s share of the profit or loss of the investee after the date of acquisition. The Group’s investment in associates includes goodwill identified on acquisition.

If the ownership interest in an associate is reduced but significant influence is retained, only a proportionate share of the amounts previously recognized in other comprehensive income is reclassified to profit or loss where appropriate.

The Group’s share of post-acquisition profit or loss is recognized in the consolidated statements of comprehensive income, and its share of post acquisition movements is recognized in other comprehensive income with a corresponding adjustment to the carrying amount of the investment. When the Group’s share of losses in an associate equals or exceeds its interest in the associate, including any other unsecured receivables, the Group does not recognize further losses, unless it has incurred legal or constructive obligations or made payments on behalf of the associate.

The Group determines at each reporting date whether there is any objective evidence that the investment in the associate is impaired. If this is the case, the Group calculates the amount of any impairment as the difference between the recoverable amount of the associate and its carrying value and recognizes the impairment loss within “share of profit of associates and joint ventures line item” in the Statements of comprehensive income.

Profits and losses resulting from upstream and downstream transactions between the Group and its associate are recognized in the Group’s financial statements only to the extent of any unrelated investor’s interests in the associates. Unrealized losses are eliminated unless the transaction provides evidence of an impairment of the asset transferred. Accounting policies of associates have been changed where necessary to ensure consistency with the policies adopted by the Group.

For purposes of including the earnings of associates by applying the equity method, the Group uses financial statements of the associates as of the same date or a later date, provided the difference between the reporting date of the associate and that of the Group is no longer than three months. In these cases, the Group assesses and adjusts the results of such associates for material transactions or other material events occurred during the interim period.

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The Group takes into account both quantitative and qualitative aspects in order to determine which non-controlling interests in associates are considered significant.In quantitative terms, investments that individually represent at least 20% of equity in earnings of joint ventures in the consolidated statements of comprehensive income and, simultaneously, at least 20% of all investments in joint ventures total equity attributable to non-controlling interest in associates at each year-end are considered significant. Therefore, in qualitative terms, the Group considers, among other factors, the specific risks to which each company is exposed, their returns and the importance that each company has for the Group.

Summarized financial information and other information for associates is included in Note 8.

(e)

Joint arrangements

Joint arrangements are arrangements of which the Group and other party or parties have joint control bound by a contractual arrangement. Under IFRS 11, investments in joint arrangements are classified as either joint ventures or joint operations depending on the contractual rights and obligations each investor has rather than the legal structure of the joint arrangement. A joint venture is a joint arrangement whereby the parties that have joint control of the arrangement have rights to the net assets of the arrangement. A joint operation is a joint arrangement whereby the parties that have joint control of the arrangement have rights to the assets and obligations for the liabilities, relating to the arrangement. The Group has assessed the nature of its joint arrangements and determined them to be joint ventures.

Investments in joint ventures are accounted for under the equity method. Under the equity method of accounting, interests in joint ventures are initially recognized in the consolidated statement of financial position at cost and adjusted thereafter to recognize the Group’s share of the post-acquisition of profits or losses and movements in other comprehensive income in the consolidated statements of comprehensive income and in other comprehensive income, respectively.

When the Group’s share of losses in a joint venture equals or exceeds its interests in the joint ventures (which includes any long-term interests that, in substance, form part of the Group’s net investment in the joint ventures), the Group does not recognize further losses, unless it has incurred obligations or made payments on behalf of the joint ventures.

The Group determines at each reporting date whether there is any objective evidence that the investment in a joint venture is impaired. If this is the case, the Group calculates the amount of impairment as the difference between the recoverable amount of the joint venture and its carrying value and recognizes the amount adjacent to share of profit of associates and joint ventures in the statements of comprehensive income.

Unrealized gains on transactions between the Group and its joint ventures are eliminated to the extent of the Group’s interest in the joint ventures. Unrealized losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred. Accounting policies of the joint ventures have been changed where necessary to ensure consistency with the policies adopted by the Group.

The Group takes into account both quantitative and qualitative aspects in order to determine which non-controlling interests in joint ventures are considered significant.In quantitative terms, the investments that individually represent at least 20% of equity in earnings of joint ventures in the consolidated statements of comprehensive income and, simultaneously, at least 20% the total equity attributable to non-controlling interest in joint ventures at the each year-end are considered significant. Therefore, in qualitative terms the Group considers, among other factors, the specific risks to which each company is exposed to, their returns and the importance that each company has for the Group.

Summarized financial information and other information for significant joint ventures is included in Note 8.

2.4.

   Segment reporting

Operating segments are reported in a manner consistent with the internal reporting provided to the Chief Operating Decision Maker (“CODM”) the Group’s Executive Committee. This CODM is responsible for allocating resources and assessing performance of the operating segments. The operating segments are described in Note 6.

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2.5.

Foreign currency translation

(a)

Functional and presentation currency

Items included in the financial statements of each of the Group’s entities are measured using the currency of the primary economic environment in which the entity operates (‘the functional currency’). These Financial Statements are presented in Argentine Pesos, which is the Group’s presentation currency.

(b)

Transactions and balances in foreign currency

Foreign currency transactions are translated into Argentine Pesos using the exchange rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognized in the profit or loss for the year.

Foreign exchange gains and losses are presented in the statements of comprehensive income within finance income and finance costs, as appropriate, unless they are capitalized as explained in Note 2.19.

2.6.

Investment properties

Investment properties are those properties owned by the Group that are held either to earn long-term rental income or for capital appreciation and that are not occupied by the Group for its own operations. Properties occupied by associates or joint ventures are accounted for as investment properties in these Consolidated Financial Statements.

Investment property also includes properties that are being constructed or developed for future use as investment property. The Group also classifies land whose future use has not been determined yet as investment property.

When a property is partially owner-occupied, with the rest being held for rental income or capital appreciation, the Group accounts for the portions separately. The portion that is owner-occupied is accounted for as property, plant and equipment under IAS 16 “Property, Plant and Equipment” and the portion that is held for rental income or capital appreciation, or both, is treated as investment property under IAS 40 “Investment Property”.

The Group’s investment properties primarily comprise the Group’s portfolio of shopping malls and offices, certain property under development and other undeveloped land.

Investment property is measured initially at cost. Cost comprises the purchase price and directly attributable expenditures, such as legal fees, certain direct taxes, commissions and in the case of properties under construction, the capitalization of financial costs.

For properties under development, capitalization of costs includes not only financial costs, but also all costs directly attributable to works in process, from commencement of construction until it is completed and property is in conditions to start operating. Capitalized costs include mainly the part attributable to third-party service costs, as well as the materials necessary for construction. Capitalization of such costs ceases when the property reaches the operating conditions indicated above. 

Direct expenses related to lease contract negotiation (as well as payment to third parties for services rendered and certain specific taxes related to execution of such contracts) are capitalized as part of the book value of the relevant investment properties and amortized over the term of the lease.

Borrowing costs associated with properties under development or undergoing major refurbishment are capitalized. The finance cost capitalized is calculated using the Group’s weighted average cost of borrowings after adjusting for borrowings associated with specific developments. Where borrowings are associated with specific developments, the amount capitalized is the gross interest incurred on those borrowings less any investment income arising on their temporary investment. Finance cost is capitalized from the commencement of the development work until the date of practical completion. The capitalization of finance costs is suspended if there are prolonged periods when development activity is interrupted. Finance cost is also capitalized on the purchase cost of land or property acquired specifically for redevelopment in the short term but only when activities necessary to prepare the asset for redevelopment are in progress.

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After initial recognition, investment property is carried at fair value. Investment property that is being redeveloped for continuing use as investment property or for which the market has become less active, continues to be measured at fair value. Investment properties under construction are measured at fair value if the fair value is considered to be reliably determinable. Investment properties under construction for which the fair value cannot be determined reliably, but for which the Group expects that the fair value of the property will be reliably determinable when construction is completed, are measured at cost less impairment until the fair value becomes reliably determinable or construction is completed, whichever is earlier.

Fair values are determined differently depending on the type of property being measured.

Generally, fair value of office buildings and land reserves is based on active market prices, adjusted, if necessary, for differences in the nature, location or condition of the specific asset. If this information is not available, the Group uses alternative valuation methods, such as recent prices on less active markets or discounted cash flow projections (Level 2).

The fair value of the Group’s portfolio of Shopping Malls is based on discounted cash flow projections. This method of valuation is commonly used in the shopping mall industry in the region where the Group conducts its operations (Level 3).

As required by Resolution 576/10 of the CNV, valuations are performed as of the financial position date by accredited professional appraisers who have recognized and relevant professional qualifications and have recent experience in the location and category of the investment property being valued. These valuations form the basis for the carrying amounts in the consolidated Financial Statements. The fair value of investment property reflects, among other things, rental income from current leases and other assumptions market participants would make when pricing the property under current market conditions.

Subsequent expenditure is capitalized to the asset’s carrying amount only when it is probable that future economic benefits associated with the expenditure will flow to the Group and the cost of the asset can be measured reliably. All other repairs and maintenance costs are expensed when incurred. When part of an investment property is replaced, the carrying amount of the replaced part is derecognized.

Changes in fair values are recognized in the consolidated statements of comprehensive income under the line item “Net gain from fair value adjustments of investment properties”.

Asset transfers, including assets classified as investments properties which are reclassified under other items or vice-versa, may only be carried out when there is a change of use evidenced by: a) commencement of occupation of real property by the Group, where investment property is transferred to property, plant and equipment; b) commencement of development activities for sale purposes, where investment property is transferred to property for sale; c) the end of Group occupation, where it is transferred from property, plant and equipment to investment properties; or d) commencement of an operating lease transaction with a third party, where properties for sale are transferred to investment property. The value of the transfer is the one that the property had at the time of the transfer and subsequently is valued in accordance with the accounting policy related to the item.

The Group may sell its investment property when it considers they are not core to its ongoing rental business activities. Where the Group disposes of a property at fair value in an arm’s length transaction, the carrying value immediately prior to the sale is adjusted to the transaction price, and the adjustment is recorded in the other comprehensive consolidated statements of comprehensive income in the line “Net gain from fair value adjustments of investment properties”.

Investment properties are derecognized when they are disposed of or when they are permanently withdrawn from use and no future economic benefits are expected to arise from their disposal. The disposal of properties is recognized when the significant risks and rewards have been transferred to the buyer. As for unconditional agreements, proceeds are recognized when legal title to property passes to the buyer and the buyer intends to make the respective payment therefor. In the case of conditional agreements, the disposal is accounted for where such conditions have been met. Where consideration receivable for the sale of the properties is deferred, it is discounted to present value.

The difference between the discounted amount and the amount receivable is treated as interest income and recognized over the period using the effective interest method. Direct expenses related to the sale are recognized in the line "other operating results, net" in the consolidated statements of comprehensive income at the time they are incurred.

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2.7.

Property, plant and equipment

This category primarily comprises buildings or portions of a building used for administrative purposes, machines, computers and other equipment, motor vehicles, furniture, fixtures and fittings and improvements to the Group’s corporate offices.

All property, plant and equipment (“PPE”) is stated at historical cost less depreciation and accumulated impairment, if any. Historical cost includes expenditure that is directly attributable to the acquisition of the items. For properties under development, capitalization of costs includes not only financial costs, but also all costs directly attributable to works in process, from commencement of construction until it is completed and property is in conditions to start operating. Capitalized costs include mainly the part attributable to third-party service costs, as well as the materials necessary for construction. Capitalization of such costs ceases when the property reaches the operating conditions indicated above. 

Borrowing costs are directly incurred for the purpose of acquiring, constructing or producing a qualifying PPE are capitalized as part of its cost. A qualifying PPE is an asset that necessarily takes a substantial period of time to get ready for its intended use. Borrowing costs are capitalized during the period of construction or production of the eligible asset; such capitalization ceases once the necessary activities for the asset to have the intended use have been completed, or else capitalization is suspended while construction activity is suspended.

Subsequent costs are included in the asset’s carrying amount or recognized as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Group and the cost of the item can be measured reliably. Such costs may include the cost of improvements and replacement of parts as they meet the conditions to be capitalized the carrying amount of those parts that are replaced is derecognized. Repairs and maintenance are charged to the consolidated statements of comprehensive income during the financial period in which they are incurred. Depreciation, based on a component approach, is calculated using the straight-line method to allocate the cost over the assets’ estimated useful lives.

As of June 30, 2018 useful lives are as follows:

Other buildings and facilities	Between 1 and 22 years
Furniture and fixtures	Between 3 and 10 years
Machinery and equipment	Between 1 and 10 years
Vehicles	5 years
Other	3 years

As of each period-end, an evaluation is performed to determine the existence of indicators of any decrease in recoverable value or useful life of assets. If there are any indicators, the recoverable amount and/or residual useful life of impaired asset(s) is estimated, and an impairment adjustment is made, if applicable. As of each year-end, the residual useful life of assets is estimated and adjusted, if necessary.

An asset’s carrying amount is written down immediately to its recoverable amount if its carrying amount is greater than its estimated recoverable amount (see Note 2.10.).

Gains from the sale of these assets are recognized when the significant risks and rewards have been transferred to the buyer. This will normally take place on unconditional exchange, generally when legal title passes to the buyer and it is probable that the buyer will pay. For conditional exchanges, sales are recognized when these conditions are satisfied.

Gains and losses on disposals are determined by comparing the proceeds, net of direct expenses related to those proceeds, with carrying amount at the date of each transaction. Gains and losses from the disposal of property, plant and equipment items are recognized within “Other operating results, net” in the consolidated statements of comprehensive income.

2.8.

        Leases

Leases are classified at their inception as either operating or finance leases based on the economic substance of the agreement.

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A Group company is the lessor: Operating lease – properties leased to tenants under operating leases are included in “Investment properties” in the statements of financial position. See Note 2.25 for the recognition of rental income.

Finance lease – the Group does not have any finance leases.

A Group company is the lessee: Operating lease – leases in which substantially all risks and rewards of ownership are retained by another party, as lessor, are classified as operating leases.

Payments, including prepayments, made under operating leases (net of any incentives received from the lessor) are charged to the consolidated statements of comprehensive income on a straight-line basis over the period of the lease. Significant leases where the Group acts as lessee under operating leases mainly include principal offices.

Finance lease - leases of assets where the Group has substantially all the risks and rewards of ownership are classified as finance leases. Finance leases are capitalized at the commencement of the lease at the lower of the fair value of the property and the present value of the minimum lease payments. Capitalized lease assets are depreciated over the shorter of the estimated useful life of the assets and the lease term. The finance charges are charged over the lease period so as to produce a constant periodic rate of interest on the remaining balance of the liability for each period. Liabilities corresponding to finance leases, measured at discounted value, are included in current and non-current borrowings. Significant leases where the Group acts as lessee under finance leases include machinery and computer equipment.

2.9.

        Intangible assets

(a)

Goodwill

Goodwill represents future economic benefits arising from assets that are not capable of being individually identified and separately recognized by the Group on an acquisition. Goodwill is initially measured as the difference between the fair value of the consideration transferred, plus the amount of non-controlling interest in the acquisition and, in business combinations achieved in stages, the acquisition-date fair value of the previously held equity interest in the acquisition; and the net fair value of the identifiable assets and liabilities assumed on the acquisition date.

At acquisition goodwill is allocated to those cash generating units expected to benefit from the acquisition for the purpose of impairment (see Note 2.10.). Following initial recognition, goodwill is measured at cost less any accumulated impairment losses. Goodwill arising on the acquisition of subsidiaries is included within “Intangible assets” in the statements of financial position.

Goodwill may also arise upon investments in associates and joint ventures, being the surplus of the cost of investment over the Group’s share of the fair value of the net identifiable assets. Such goodwill is recorded within investments in associates or joint ventures.

Goodwill is not amortized but tested for impairment at each fiscal year end, or more frequently if there is an indication of impairment.

(b)

Software

Acquired computer software licenses are capitalized on the basis of the costs incurred to acquire and bring to use the specific software. These costs are amortized over their estimated useful lives between 3 and 5 years.

Costs associated with maintaining computer software programs are recognized as an expense as incurred. Development costs that are directly attributable to the design and testing of identifiable and unique software products controlled by the Group are recognized as intangible assets when the following criteria are met: (i) it is technically feasible to complete the software product so that it will be available for use; (ii) management intends to complete the software product and use or sell it; (iii) there is an ability to use or sell the software product; (iv) it can be demonstrated how the software product will generate probable future economic benefits; (v) adequate technical, financial and other resources to complete the development and to use or sell the software product are available; and (vi) the expenditure attributable to the software product during its development can be reliably measured.

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Directly attributable costs that are capitalized as part of the software product include the software development employee costs and an appropriate portion of relevant overheads.

Other development expenditures that do not meet these criteria are recognized as an expense as incurred. Development costs previously recognized as an expense are not recognized as an asset in a subsequent period.

Computer software development costs recognized as assets are amortized over their estimated useful lives, which does not exceed 5 years.

(c)

Rights of use

The Group acquired certain rights to develop a plot of land and facilities. These rights primarily comprise the right to develop the land and attached buildings and facilities known as Distrito Arcos (“Arcos”).

The Arcos land and attached facilities is owned by Administration of Railway Infrastructure (“ADIF”, as per its Spanish acronym), a governmental agency created for the management of certain State’s properties, particularly assets pertaining to the railway system. Arcos are the old warehouse and adjacent spaces below the tracks of the San Martin railway lines. The right was acquired as part of the Arcos acquisition and is carried at acquisition cost less accumulated amortization. Amortization is calculated using the straight-line method over the period in which the economic benefits of use accrue. The Group must pay ADIF a fee on a monthly basis.

(d)

Right to receive future units under barter agreements

The Group also enters into barter transactions where the Group normally exchanges undeveloped parcels of land with third-party developers for future property to be constructed on the bartered land. The Group generally receives monetary assets as part of the transactions and/or a right to receive future units to be constructed by developers. Such rights are initially recognized at cost (which is the fair value of the land assigned) and such rights are not adjusted later, unless there is any sign of impairment.

2.10.

Impairment of assets

(a)

Goodwill

For the purpose of impairment testing, assets are grouped at the lowest levels for which there are separately identifiable cash flows, referred to as cash-generating units. In order to determine whether any impairment loss should be recognized, the book value of cash-generating units or cash generating unit groups is compared against its recoverable value. Net book value of cash-generating units and cash generating unit groups include goodwill and assets with limited useful life (such as, investment properties, property, plant and equipment, intangible assets and working capital).

If the recoverable amount of the cash-generating unit is less than the carrying amount of the unit, the impairment loss is allocated first to reduce the carrying amount of any goodwill allocated to the unit and then to the other assets of the unit pro rata on the basis of the carrying amount of each asset in the unit. Impairment losses recognized for goodwill are included in the statements of comprehensive income and are not reversed in a subsequent period.

The recoverable amount of a cash-generating unit is the higher of fair value less costs-to-sell and value-in-use. The fair value is the amount at which a cash-generating unit may be sold in a current transaction between unrelated, willing and duly informed parties. Value-in-use is the present value of all estimated future cash flows expected to be derived from cash-generating units or cash-generating unit groups.

(b)

Properties, plant and equipment and defined-lived intangible assets

At the date of each statement of financial position, the Group reviews the carrying amounts of its property, plant and equipment, and limited-duration intangible assets to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent, if any, of the impairment loss.

When the asset does not generate cash flows independently of other assets, the Group estimates the recoverable amount of the cash-generating unit to which the asset belongs.

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If the recoverable amount of an asset or cash-generating unit is estimated to be less than its carrying amount, the carrying amount of the asset or cash-generating unit is reduced to its recoverable amount. An impairment loss is recognized immediately in the statements of comprehensive income.

Assets or cash-generating units that have suffered an impairment loss are revised as of each year-end date to assess a potential reversal of such impairment. The impairment loss recognized in prior fiscal years may only be reversed if there has been a change in the estimates used to assess the recoverable value of assets or the cash-generating unit since the recognition of the impairment loss.

Where an impairment loss subsequently reverses the carrying amount of the asset or cash-generating unit is increased to the revised estimate of its recoverable amount, not to exceed the carrying amount that would have been determined if no impairment loss had been recognized for the asset or cash-generating unit in prior years. A reversal of an impairment loss is recognized in the statements of comprehensive income.

2.11.

        Trading properties

Trading properties comprise those properties either intended for sale or in the process of construction for sale. Trading properties are carried at the lower of cost and net realizable value. Where there is a change in use of investment properties evidenced by the commencement of development with a view to sale, the properties are reclassified as trading properties at cost, which is the carrying value at the date of change in use. They are subsequently carried at the lower of cost and net realizable value.

Cost comprises all direct costs of purchase, costs of conversion and other costs incurred in bringing the trading properties to their present location and condition.

Borrowing costs incurred for the purpose of acquiring, constructing or producing a qualifying trading property are capitalized as part of its cost. A qualifying trading property is an asset that necessarily takes a substantial period of time to get ready for its intended use. Borrowing costs are capitalized while acquisition, construction or production is underway and cease once the asset is substantially complete or suspended if development of the asset is suspended.

Net realizable value is the estimated selling price of a property in the ordinary course of business less costs to complete and selling expenses. If the net realizable value is lower than the carrying amount, a write-down is recognized in the amount by which the carrying amount exceeds its net realizable value. Write-downs are reversed when circumstances that caused the write-down cease to exist, or when net realizable value increases.

2.12.

Inventories

Inventories mainly include materials, supplies or other assets required to offer different services.

Supplies and other of materials and assets classified in this category are measured at the lower of cost or net realizable value. The cost of supplies, materials and other assets is determined using the weighted average cost method.

2.13.

      Financial instruments

Classification

The Group classifies financial assets in the following categories: those to be measured at fair value and those to be measured at amortized cost. This classification depends on whether the financial asset is a debt or equity instrument.

Debt instruments

A debt instrument is classified at amortized cost only if both of the following criteria are met: i) the objective of the Group’s business model is to hold the asset to collect the contractual cash flows; and (ii) the contractual terms give rise on specified dates to cash derived solely from payments of principal and interest due on the principal outstanding. The nature of any derivatives embedded in the debt instrument are considered in determining whether the cash flows of the instrument are derived solely from payment of principal and interest due on the principal outstanding and are not accounted for separately.

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If either of the two criteria above is not met, the debt instrument is classified at “fair value through profit or loss”. The Group has not designated any debt investment as measured at fair value through profit or loss to eliminate or significantly reduce an accounting mismatch. Changes in fair values and gains from disposal of financial assets at fair value through profit or loss are recorded within “Financial results, net” in the statements of comprehensive income.

Equity instruments

All equity instruments, which are neither subsidiaries, associate companies nor joint ventures of the Group, are measured at fair value. Equity investments that are held for trading are measured at fair value through profit or loss. For all other equity investments, the Group can make an irrevocable election at initial recognition to recognize changes in fair value through other comprehensive income rather than profit or loss. The Group decided to recognize changes in fair value of equity instruments through changes in profit or loss.

Changes in fair values and results from disposal of equity investments at fair value through profit or loss and dividends income are recorded within ”Financial results, net” in the statements of comprehensive income.

Regular purchases and sales of financial assets are recognized on the trade date–the date on which the Group commits to purchase or sell the asset. Financial assets are derecognized when the rights to receive cash flows from the investments have expired or have been transferred and the Group has transferred substantially all risks and rewards of ownership.

At initial recognition, the Group measures a financial asset at its fair value plus, in the case of a financial asset not at fair value through profit or loss, transaction costs that are directly attributable to the acquisition of the financial asset. Transaction costs of financial assets carried at fair value through profit or loss are expensed in the statements of comprehensive income.

Results on debt instruments measured at amortized cost and not identified for hedging purposes are charged to income where the financial assets are derecognized or an impairment loss is recognized and during the amortization process under the effective interest method.

All equity investments, which are neither subsidiary associate companies nor joint venture of the Group, are measured at fair value.

The Group is required to reclassify all affected investments in debt instruments when and only when its business model for managing those assets changes.

The Group assesses at the end of each reporting period whether there is objective evidence that a financial asset or group of financial assets measured at amortized cost is impaired. A financial asset or a group of financial assets is impaired and impairment losses are incurred only if there is objective evidence of impairment as a result of one or more events that occurred after the initial recognition of the asset (a ‘loss event’) and that loss event (or events) can be reliably estimated.

Evidence of impairment may include indications that the debtors or a group of debtors is experiencing significant financial difficulties, defaults or delinquency in interest or principal payments, the probability that they will enter bankruptcy or other financial reorganization, and where observable data indicate that there is a measurable decrease in the estimated future cash flows.

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The amount of the impairment is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows (excluding future credit losses that have not been incurred) discounted at the financial asset’s original effective interest rate. The carrying amount of the asset is reduced and the amount of the loss is recognized in the consolidated statements of comprehensive income. As a practical expedient, the Group may measure impairment on the basis of an instrument’s fair value using an observable market price. If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognized, the reversal of the previously recognized impairment loss is recognized in the consolidated statements of comprehensive income.

Financial assets and liabilities are offset and the net amount reported in the statement of financial position when there is a legally enforceable right to offset the recognized amounts and there is an intention to settle on a net basis, or realize the asset and settle the liability simultaneously.

2.14.

Derivative financial instruments and hedging activities

Derivative financial instruments are initially recognized at fair value. The method of recognizing the resulting gain or loss depends on whether the derivative is designated as a hedging instrument, and if so, the nature of the item being hedged.

The Group manages exposures to various risks using hedging instruments that provide the appropriate economic outcome. The Group does not use derivative financial instruments for speculative purposes. To date, the Group has used future and forward contracts, as appropriate.

The Group’s policy is to apply hedge accounting to hedging relationships where it is permissible under IFRS 9, practical to do so and its application reduces volatility, but transactions that may be effective hedges in economic terms may not always qualify for hedge accounting under IFRS 9. To date the Group has not applied hedge accounting to any of its derivative financial instruments. Trading derivatives are classified as a current asset or liability on the statement of financial position. Gains and losses on other derivatives are classified in “Financial results, net”, in the statements of comprehensive income.

The fair values of financial instruments that are traded in active markets are computed by reference to market prices. The fair value of derivative financial instruments that are not traded in an active market is determined by using valuation techniques. The Group uses its judgment to select a variety of methods and make assumptions that are mainly based on market conditions existing at the end of each reporting period.

2.15.

Trade and other receivables

Trade receivables are recognized initially at fair value and subsequently measured at amortized cost using the effective interest method.

A provision of doubtful accounts is recorded when there is objective evidence that the Group may not be able to collect all receivables within their original payment term. Indicators of doubtful accounts include significant financial distress of the debtor, the debtor potentially filing a petition for reorganization or bankruptcy, or any event of default or past due account.

In the case of larger non-homogeneous receivables, the Group generally measures the impairment provision on an individual basis. When assessed individually, the Group records a provision for impairment which amounts to the difference between the value of the discounted expected future cash flows of the receivable and its carrying amount, taking into account the existing collateral, if any. This provision takes into consideration the financial situation of the debtor, the resources, payment track-record and, if applicable, the value of collateral.

The Group collectively evaluates for impairment smaller-balance homogeneous receivables, which are grouped on the basis of similar risk characteristics, taking into account asset type, collateral type, past-due status and other relevant factors. The Group applies allowance factors, which in the judgment of management represent the expected losses over the life of the receivables. In determining those factors, the Group considers the following: (i) delinquencies of the credits, (ii) loss history and the general behaviour of clients, (iii) trends in volume and terms of receivables, (iv) the experience and depth of the debtors’ management, (v) national and local economic trends, (vi) concentrations of credit by individual credit size and by class of receivable, and (vii) the effect of other external factors.

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The amount of the provision for doubtful accounts is the difference between the asset’s carrying amount and the present value of estimated future cash flows, discounted at the original effective interest rate. The carrying amount of the asset is reduced through the use of an allowance account, and the amount of the loss is recognized in the statements of comprehensive income within “Selling expenses”. Subsequent recoveries of amounts previously written off are credited against “Selling expenses” in the statements of comprehensive income.

2.16.

Trade and other payables

Trade payables are initially recognized at fair value and subsequently measured at amortized cost using the effective interest method.

2.17.   Tenant deposits

The Group generally obtains deposits from tenants as a guarantee for returning the property at the end of the lease term in a specified good condition or for the lease payments for a period of generally 3 years. The deposits are generally equivalent to one month of lease rentals. Such deposits are treated as both a financial asset and a financial liability in accordance with IFRS 9, and they are initially recognized at fair value. The difference between fair value and cash received is considered to be part of the minimum lease payments received for the operating lease (refer to Note 2.25. for the recognition of rental income). The deposits are subsequently measured at amortized cost.

2.18.

Borrowings

Borrowings are recognized initially at fair value, net of transaction costs incurred. Borrowings are subsequently stated at amortized cost; any difference between the proceeds (net of transaction costs) and the redemption value is recognized as finance cost over the period of the borrowings using the effective interest method.

2.19.

Borrowing costs

General and specific borrowing costs (interest and foreign exchange differences) directly attributable to the acquisition, construction or production of qualifying assets, which are assets that necessarily take a substantial period of time to get ready for their intended use or sale, are added to the cost of those assets, until such time as the assets are substantially completed.

Investment income earned on the temporary investment of specific borrowings pending their expenditure on qualifying assets is deducted from the borrowing costs eligible for capitalization. All other borrowing costs are recognized in profit or loss in the period in which they are incurred.

The Group capitalizes borrowing costs on qualifying investment properties, property, plant and equipment and trading properties.

2.20.

Provisions

Provisions are recognized when: (i) the Group has a present legal or constructive obligation as a result of past events; (ii) it is probable that an outflow of resources will be required to settle the obligation; and (iii) a reliable estimate of the amount of the obligation can be made. Provisions are not recognized for future operating losses.

The amount of its accruals is based on up-to-date developments, estimates of the outcomes of the matters and legal counsel’s experience in contesting, litigating and settling matters. As the scope of the liabilities becomes better defined or more information is available, the Group may be required to change its estimates of future costs, which could have a material adverse effect on its results of operations and financial condition or liquidity.

Provisions are measured at the present value of the cash flows expected to be required to settle the obligation using a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the obligation. The increase in provisions due to passage of time is recognized in the statements of comprehensive income.

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IRSA Propiedades Comerciales S.A. 

2.21.

Employee benefits

(a)

Pension plans obligations

The Group operates a defined contribution plan. A defined contribution plan is a pension plan under which the Group pays fixed contributions into a separate entity. The Group has no legal or constructive obligations to pay further contributions if the fund does not hold sufficient assets to pay all employees the benefits relating to employee service in the current and prior periods. The contributions are recognized as employee benefit expense in the statement of comprehensive income when they are due.

(b)

Termination benefits

Termination benefits are payable when employment is terminated by the Group before the normal retirement date, or whenever an employee accepts voluntary redundancy in exchange for these benefits. The Group recognizes termination benefits when it is demonstrably committed to either terminating the employment of current employees according to a detailed formal plan without possibility of withdrawal; or providing termination benefits as a result of an offer made to encourage voluntary redundancy.

(c)

Bonus plans

The Group recognizes a liability and an expense for bonuses based on a formula that takes into consideration the profit attributable to the Company’s shareholders after certain adjustments. The Group recognizes a provision where contractually obliged or where there is a past practice that has created a constructive obligation.

2.22.

Shared based payments

The Group operates an incentive plan, under which certain selected employees, directors and top management of IRSA Propiedades Comerciales S.A., IRSA and Cresud have a right to matching shares of IRSA and Cresud, although they must hold their purchased shares and remain with the employer entity for a specified period of time.

The fair value of the equity settled awards is measured at the date of grant. Management measures the fair value using the valuation technique that it considers to be the most appropriate to value each class of award. Methods used may include Black-Scholes calculations or other models as appropriate. The valuations take into account factors such as non-transferability, exercise restrictions and behavioural considerations.

The fair value of the share-based payment is recognized in the statements of comprehensive income under the straight-line method over the vesting period in which the right to receive shares of IRSA and Cresud becomes irrevocable (“vesting period”); such value is based on the best available estimate of the number of shares expected to vest.

Such estimate is revised if subsequent information becomes available indicating that the number of shares expected to vest differs from original estimates.

2.23.

Current income tax, deferred income tax and minimum presumed income tax

Tax expense for the year comprises the charge for tax currently payable and deferred taxation. Tax is recognized in the statement of income, except to the extent that it relates to items recognized in other comprehensive income or directly in equity, in which case, the tax is also recognized in other comprehensive income or directly in equity, respectively.

Current income tax charge is calculated on the basis of the tax laws enacted or substantially enacted at the date of the statement of financial position in the countries where the Company and its subsidiaries operate and generate taxable income. Management periodically evaluates positions taken in tax returns with respect to situations in which applicable tax regulation is subject to interpretation. The Group establishes provisions where appropriate on the basis of amounts expected to be paid to the tax authorities.

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 IRSA Propiedades Comerciales S.A.

Deferred income tax is recognized, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the consolidated Financial Statements. However, deferred tax liabilities are not recognized if they arise from the initial recognition of goodwill; deferred income tax is not accounted for if it arises from initial recognition of an asset or liability in a transaction other than a business combination that at the time of the transaction affects neither accounting nor taxable profit or loss. Deferred income tax is determined using tax rates (and laws) that have been enacted or substantively enacted by the date of the statement of financial position and are expected to apply when the related deferred income tax asset is realized or the deferred income tax liability is settled.

Deferred income tax assets are recognized only to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilized.

Deferred income tax is provided on temporary differences arising on investments in subsidiaries, associates and joint ventures, except for deferred income tax liabilities where the timing of the reversal of the temporary difference is controlled by the Group and it is probable that the temporary difference will not reverse in the foreseeable future.

Deferred income tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets against current tax liabilities and when the deferred income tax assets and liabilities relate to income taxes levied by the same taxation authority on either the same taxable entity or different taxable entities where there is an intention to settle the balances on a net basis.

Entities in Argentina are subject to the Minimum Presumed Income Tax (“MPIT”). Pursuant to this tax regime, an entity is required to pay the greater of the income tax or the MPIT. The MPIT provision is calculated on an individual entity basis at the statutory asset tax rate of 1% and is based upon the taxable assets of each company as of the end of the year, as defined by Argentine law. Any excess of the MPIT over the income tax may be carried forward and recognized as a tax credit against future income taxes payable over a 10-year period. When the Group assesses that it is probable that it will use the MPIT payment against future taxable income tax charges within the applicable 10-year period, the Group recognizes the MPIT as a current or non-current receivable, as applicable, within “Trade and other receivables” in the statements of financial position.

Minimum presumed income tax was repealed by the Law No. 27,260 in section 76 for the annual periods beginning on January 1, 2019.

In this respect, considering recent Instruction No. 2 issued by the Federal Administration of Public Revenue (AFIP), if the Company posts financial and tax losses, no provision for income tax would be recorded.

2.24.

Cash and cash equivalents

Cash and cash equivalents includes cash on hand, deposits held with banks, and other short-term highly liquid investments with original maturities of three months or less. Cash equivalents do not include bank overdrafts.

2.25.   Revenue recognition

Revenue from Group’s activities is principally derived from business activities carried out in shopping malls and in rental buildings and mainly include rental income from shopping mall properties and offices leased under operating leases, admission rights, commissions and revenue from several services provided to the Group’s lessees.

Revenue from the sale of properties is recognized when: (a) material risks and benefits derived from title to property have been transferred; (b) the Company does not retain any management function on the assets sold nor does it have any control whatsoever on such assets; (c) the amount of revenues and costs associated to the transaction may be measured on a reliable basis; and (d) the Company is expected to accrue the economic benefits associated to the transaction.

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IRSA Propiedades Comerciales S.A.

Revenue from the provision of services is recognized when: (a) the amount of revenue and costs associated to the services may be measured on a reliable basis; (b) the Company is expected to accrue the economic benefits associated to the transaction, and (c) the level of completion of services may be measured on a reliable basis.

●

Shopping malls portfolio

Primarily comprises rental income from shopping mall properties lease out over operating leases, admission rights, commissions and revenue from several services provided to the Group’s lessees.

The Argentine Civil and Commercial Code section 1221 provides that tenants may rescind commercial lease within the initial six months by means of written notification. If option is used within the first year of the lease, the Tenant shall pay the Lessor, as compensation, the equivalent of one-and-a-half month’s rent, and one month’s rent if the tenant makes use of the option after that period. Given that the rule does not provide for advance notice, Lease Agreements include a provision whereby the lessee must give at least 60 days advance notice of its intention to terminate the lease. The exercise of such early termination could materially and adversely affect the Group.

The Group analyzed the definition of leasing term in IAS 17 wich provides that a non-cancellable lease is a lease that is cancellable only (a) upon the occurrence of some remote contingency, (b) with the permission of the lessor, (c) if the lessee enters into a new lease with the same lessor or (d) upon payment by the lessee of such an additional amount that, at inception of the lease, continuation of the lease is reasonably certain.

The Group has determined that, in all operating leases, the lease term for accounting purposes matches the term of the contract. The Group concluded that, even though a lease is cancellable under law, tenants would incur significant “economic penalties” if the leases are terminated prior to expiry. The Group considered that these economic penalties are of such amount that continuation of the lease contracts by tenants appears to be reasonably certain at the inception of the respective agreements. The Group reached this conclusion based on factors such as: (i) the strategic geographical location and accessibility to customers of the Group’s investment properties; (ii) the nature and tenure of tenants (mostly well-known local and international retail chains); (iii) limited availability of identical revenue-producing space in the areas where the Group’s investment properties are located; (iv) the tenants’ brand image and other competitive considerations; (v) tenants’ significant expenses incurred in renovation, maintenance and improvements on the leased space to fit their own image; (vi) the majority of the Group’s tenants only have stores in shopping malls with a few or none street stores. See datails in Note 24.

                Lessees of shopping malls are generally required to pay the higher of: (i) a base monthly rent (the “Base Rent”) and (ii) a specific percentage of gross monthly sales recorded by the Lessee (the “Contingent Rent”), which generally ranges between 2% and 10% of gross sales. Moreover, in accordance with agreements entered into for most locations, the Base Rent is subject to scheduled increases, typically between 10% on a semi-annually over the term of the lease.

In addition, some lease contracts include provisions that set forth variable rent based on specific volumes of sales and other types of ratios.

Rental income from shopping mall properties leased out under operating leases is recognized in the consolidated statements of comprehensive 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, being 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.

Tenants in the Group’s shopping mall are also generally charged a non-refundable admission right upon entering a lease contract or renewing an existing one. Admission rights are treated as additional rental income and recognized in the statement of comprehensive income under a straight-line basis over the term of the respective lease agreement.

The Group acts as its own leasing agent for arranging and closing lease agreements in its shopping malls properties and consequently earns letting fees. Letting fees are paid by tenants upon the successful closing of an agreement. A transaction is considered successfully concluded when both parties have signed the related lease contract. Letting fees received by the Group are treated as additional rental income and are recognized in the statement of comprehensive income on a straight-line basis over the term of the lease agreements.

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IRSA Propiedades Comerciales S.A.

Lease contracts also provide that common area maintenance (“CAM”) of the Group’s shopping malls are borne by the corresponding lessees, generally on a prorrata basis. CAM include all such expenses convenient and 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 service charge. The Group makes the original payment for such expenses, which are then reimbursed by the lessees. The Group considered that it acts as a principal in these cases.

Service charge income related to can is presented separately from property operating expenses. Property operating expenses are expensed as incurred.

Under the lease contracts entered into, lessees also agree to participate in collective promotion funds (“CPF”) to be used in advertising and promoting the Group’s shopping malls. Each lessee’s participation is generally calculated as a percentage of the 15% monthly rent accrued.

Revenue so derived is also included under rental income and services segregated from advertising and promotion expenses. Such expenses are charged to income when incurred.

On the other hand, revenue includes income from managed operations and other services such as car parking lots. Those revenues are recognized on an accrual basis as services are provided.

●

Office and other rental properties portfolio

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

Rental income from office and other rental properties leased out under operating leases is recognized in the consolidated statements of comprehensive income on a straight-line basis over the term of the leases (‘rent averaging’). 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, are recorded as income in the periods in which they are collected. Rent reviews are recognized when such reviews have been agreed with tenants.

Lease contracts also provide that common area service charges of the Group’s office and other rental properties are borne by the corresponding lessees, generally on a proportionally basis. These common area service charges include all such expenses convenient and 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 Group acts as the management of rental properties. The Group makes the original payment for such expenses, which are then reimbursed by the lessees. The Group considered that it acts as a principal in these cases. The Group accrues reimbursements from tenants for recoverable portions of all these expenses 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.

●

Sales and Development activities

Revenue from sale and developments of real estate properties primarily comprises the results from the sale of trading properties. Results from the sale of properties are recognized only when the significant risks and rewards have been transferred to the buyer. This normally takes place on unconditional exchange of contracts (except where payment or completion is expected to occur significantly after exchange). For conditional exchanges, sales are recognized when these conditions are satisfied.

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IRSA Propiedades Comerciales S.A.

The Group applies IFRIC 15 “Agreements for the Construction of Real Estate”. IFRIC 15 gives guidance as to which standard applies when accounting for the construction of real estate; that is IAS 11 “Construction Contracts” or IAS 18 “Revenue”. IFRIC 15 interprets that an agreement meets the definition of a construction contract under IAS 11 when the buyer is able to specify the major structural elements of the design of the property either before or during construction. Furthermore, IFRIC 15 interprets that an agreement is for the sale of goods under IAS 18 when construction takes place independently of the agreement and the buyer has only a limited ability to influence the design. The Group has assessed the nature of its agreements and determined that they are within the scope of IAS 18. As a result, the Group recognizes revenue from the sale of open market private homes and commercial units entirely at the delivery in accordance with IAS 18.

The Group also enters into barter transactions where the Group normally exchanges undeveloped parcels of land with third-party developers for future property to be constructed on the bartered land and on occasion, the Group also receives cash as part of the transactions. Legal title to the land together with all risks and rewards of ownership are transferred to the developer upon sale. The Group generally requires the developer to issue insurances or to mortgage the land in favor of the Group as performance guarantee. In the event the developer does not fulfil its obligations, the Group forecloses on the land through the execution of the mortgage or the surety insurances, together with a cash penalty.

The Group may sell the residential apartments to third-party homebuyers once they are finalized and transferred from the developer. In these circumstances, revenue is recognized when the significant risks and rewards are transferred to the buyer. This will normally take place when the deeds of title are transferred to the homebuyer.

However, the Group may market residential apartments during construction or even before construction commences. In these situations, buyers generally surrender a down payment to the Group with the remaining amount being paid when the developer completes the property and transfers it to the Group, and the Group in turn transfers it to the buyer. In these cases, revenue is not recognized until the apartments are completed and the transaction is legally completed, that is when the apartments are transferred to the homebuyers and deeds of title are executed. This is because in the event the residential apartments are not completed by the developer and consequently not delivered to the homebuyer, the Group is contractually obligated to return to the homebuyer any down payment received plus a penalty amount. The Group may then seek legal remedy against the developer for non-performance of its obligations under the agreement. The Group exercised judgment and considers that the most significant risk associated with the asset the Group holds (i.e. the right to receive the apartments) consisting of the unfulfillment of the developer's obligations (i.e. to complete the construction of the apartments) has not been transferred to the homebuyers upon reception of the down payment.

2.26.

      Share capital

Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new ordinary shares or options are shown in equity as a deduction, net of tax, from the proceeds.

When any of Group’s subsidiaries purchase the Company’s equity share capital (treasury shares), the consideration paid, including any directly attributable incremental costs (net of tax) is deducted from equity attributable to the Company’s equity holders until the shares are cancelled or reissued. When such ordinary shares are subsequently reissued, any consideration received, net of any directly attributable incremental transaction costs and related income tax effects, is included in equity attributable to the Company’s equity holders.

Instruments issued by the Group that will be settled by the Company delivering a fixed number of its own equity instruments in exchange for a fixed amount of cash or another financial asset are classified as equity.

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IRSA Propiedades Comerciales S.A. 

2.27.

Earnings per share

Earnings per share is calculated by dividing the profit for the year attributable to equity holders of the parent by the weighted average of common shares outstanding during the year. Diluted earnings per share is computed by dividing the profit for the year by the weighted average of common shares outstanding, and when dilutive, adjusted for the effect of all potentially dilutive shares, including share options, on an as-if converted basis.

In computing diluted earnings per share, income available to common shareholders used in the basic earnings per share calculation is adjusted to add back the after-tax amount of interest recognized in the year with respect to any debt convertible to common stock. The weighted-average number of common shares outstanding is adjusted to include the number of additional common shares that would have been outstanding if the dilutive potential common shares had been issued. Diluted earnings per share is based on the most advantageous conversion rate or exercise price over the entire term of the instrument from the standpoint of the security holder. The calculation of diluted earnings per share excludes potential common shares if their effect is anti-dilutive (Note 28).

2.28.      

Dividend distribution

Cash dividend distribution to the Group’s shareholders is recognized as a liability in the period in which the dividends are approved. Such amounts have been recorded either under Retained Earnings, if already forfeited or under Trade and Other Payables, if not forfeited.

2.29.

Dividends income

Dividends earned are recorded when declared.

2.30.

Comparative information

Balance items as of June 30, 2017 and 2016 shown in these Financial Statements for comparative purposes arise from Financial Statements then ended. Reclassifications have been made in the comparative information as of June 30, 2017 and 2016.

During the fiscal year ended June 30, 2018, 2017 and 2016, there was a devaluation of the Argentine peso in relation to the US Dollar that accounted for approximately 74%, 11% and 65%, respectively. This situation affects the comparability of figures disclosed in these Financial Statements, arising mainly from the impact of the exchange rate on our assets and liabilities in foreign currency.

2.31.       Seasonal effects on operations

The operations of the Group’s shopping mall are subject to seasonal effects, which affect the level of sales recorded by tenants. During summer time (January and February), the tenants of shopping mall experience the lowest sales levels in comparison with the winter holidays (July) and during the period of Christmas’ Seasons (December) when they tend to record peaks of sales. Apparel stores generally change their collections during the spring and the fall, which impacts positively on shopping mall sales. Sale discounts at the end of each season also impact in the business. As a consequence, a higher level of revenues is generally expected in shopping mall operations during the second half of the year rather than the first.

3.

 Significant judgments, key assumptions and estimates

Not all of these significant accounting policies require management to make subjective or complex judgments or estimates. 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 Consolidated Financial Statements. These judgments involve assumptions or estimates in respect of future events. Actual results may differ from these estimates.

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IRSA Propiedades Comerciales S.A. 

Estimation	Main assumptions	Potential implications	Main references
Business combination - Allocation of acquisition prices	Assumptions regarding timing, amount of future revenues and expenses, revenue growth, expected rate of return, economic conditions, discount rate, among other.	If the assumptions made be inaccurate, the recognized combination may not be correct.	Note 4 – Acquisitions and dispositions
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).	If any of the assumptions made be inaccurate, this could lead to differences in the recoverable values of cash-generating units.	Note 10 – Property, plant and equipment Note 12 – Intangible assets
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).	Note 10 – Property, plant and equipment Note 12 – Intangible assets
Fair value valuation of investment properties	Fair value valuation made by external appraisers and valuators. See Note 9.	Incorrect valuation of investment property values	Note 9 – Investment properties
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.	Note 20 – Taxes
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.	Incorrect recognition of charges / reimbursements of the allowance for bad debt.	Note 14 – Trade and other receivables
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).	Note 13 – Financial instruments by category
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.	Note 19 – Provisions

4.

Acquisitions and disposals

Fiscal year ended as of June 30, 2018

Acquisition of La Arena

On February 20, 2018 IRSA Propiedades Comerciales, through its subsidiary Ogden Argentina S.A. ("OASA"), which the Company controlled thorugh Entertainment Holdings S.A., acquired a 60% equity interest in La Arena, which developed and operates the stadium known as "DIRECTV ARENA", located in Tortuguitas, province of Buenos Aires.

The price set for the transaction amounted to USD 4.2 million, of which USD 1.9 million were outstanding as of the date of this annual report.

See in Note 15 the balances of business combination.

Acquisition of plot of land La Plata

On March 22, 2018 IRSA Propiedades Comerciales acquired, directly and indirectly, 100% of a plot of land of 78,614 sqm of surface located in Camino General Belgrano, between 514th Av., 19th Av. and 511 Street, in the town of La Plata, province of Buenos Aires.  

The operation was made through the purchase of 100% of the shares of common stock of the company Centro de Entretenimientos La Plata SA ("CELAP"), owner of 61.85% of the property and the direct purchase of the remaining 38.15% share of common stock from non-related third parties.

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IRSA Propiedades Comerciales S.A. 

The total price of the transaction was USD 7.5 million, which has been fully paid.

The purpose of this acquisition is the future development of a mixed-use project.

Acquisition of plot of land in Mendoza

On March 14, 2018 the Company acquired a 3,641 sqm of plot of land adjacent to Mendoza Shopping, for an amount of USD 1.2 million. As of the date of these Financial Statements, USD 0.8 million were outstanding.

Sale of units in Intercontinental Building

IRSA Propiedades Comerciales sold 851,79 square meters corresponding to one floor of office and eight parking lots in the Intercontinental Plaza buildingThe consideration was USD 3 million, which was fully paid.

Fiscal year ended as of June 30, 2017

Acquisition of control over Entertainment Holdings S.A. (EHSA)

In July 2016, IRSA Propiedades Comerciales, acquired 20% shareholding in EHSA, a company where it already owned 50%. It also acquired 1.25% interest in Entretenimiento Universal S.A. (“ENUSA”). The amount paid for the acquisition was Ps. 53 million. As a result, the Group now holds 70% of the voting stock of EHSA.

EHSA holds, both directly and indirectly, 100% of the shares of OGDEN Argentina S.A. (“OASA”) and 95% of the shares of ENUSA.

OASA holds 50% of the voting stock of La Rural S.A. (“LRSA”), a company that holds the right to commercially operate the emblematic “Predio Ferial de Palermo” in the Autonomous City of Buenos Aires, where the Sociedad Rural Argentina (“SRA”) holds the remaining 50%.

See in Note 15 the balances of business combination.

Purchase of Philips Building

On June 5, 2017, IRSA Propiedades Comerciales acquired the Philips Building located in Saavedra, Autonomous City of Buenos Aires, next to the DOT Shopping Mall. The building has a constructed area of 10,142 square meters and is intended for office development and lease. The acquisition price was USD 29 million, which was fully paid up as of June 30, 2017.

Furthermore, the Company has signed an agreement with the seller which allow them to remain leasing the building for a term of 7 months and 15 days, which expire on January 19, 2018.

Sale of units in Intercontinental Building

IRSA Propiedades Comerciales sold 2,432 square meters corresponding to three floors of office and 24 parking lots in the Intercontinental Plaza building. The Company still holds 3,876 square meters profitable of the building. The consideration was USD 9 million, which was fully paid by the purchaser as of June 30, 2017.

Catalinas Tower

On November 16, 2016, IRSA signed an agreement with DYCASA S.A., the primary building contractor for the development of Catalinas Tower who, on November 29, 2016, started the corresponding works. The execution term is 28 months and completion is scheduled for March 2019. On April 6, 2016, IRSA Propiedades Comerciales has purchased from IRSA a portion of the future units to be built.

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IRSA Propiedades Comerciales S.A. 

5.

Financial risk management

Risk management principles and procedures

The risk management function within the Group is carried out in respect of financial risks. Financial risks are risks arising from financial instruments to which the Group is exposed during or at the end of the reporting period. Financial risk comprises market risk (including foreign currency risk, interest rate risk and other price risk), credit risk, liquidity risk and capital risk.

The Group’s diverse activities are exposed to a variety of financial risks in the normal course of business. The Group’s overall risk management program focuses on the unpredictability of financial markets and seeks to minimize the Group’s capital costs by using suitable means of financing and to manage and control the Group’s financial risks effectively. The Group uses financial instruments to hedge certain risk exposures when deemed appropriate based on its internal management risk policies.

The Group’s principal financial instruments comprise cash and cash equivalents, receivables, payables, interest bearing assets and liabilities, other financial liabilities, other investments and derivative financial instruments. The Group manages its exposure to key financial risks in accordance with the Group’s risk management policies.

The Group’s risk management policies are implemented at all its subsidiaries companies in order to identify and analyze the risks faced by the Group, to set appropriate risk limits and controls to monitor risks and adherence to limits. Risk management policies and systems are reviewed regularly to reflect changes in market conditions and the Group’s activities. The Group’s management framework includes policies, procedures, limits and allowed types of derivative financial instruments.

The Group has established a Risk Committee, comprising Senior Management and a member of the Audit Committee of Cresud (IRSA’s parent company), which reviews and oversees management’s compliance with these policies, procedures and limits and has overall accountability for the identification and management of risk across the Group.

This section provides a description of the principal risks and uncertainties that could have a material adverse effect on the Group’s strategy, performance, results of operations and financial condition. The principal risks and uncertainties facing the businesses, set out below, do not appear in any particular order of potential materiality or probability of occurrence.

(a)

Market risk management

Market risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market prices. The Group’s market risks arise from open positions in foreign currencies, interest-bearing assets and liabilities, and risk of market price of equity securities, to the extent that these are exposed to general and specific market movements. The Group sets limits on the exposure to these risks that may be accepted, which are monitored on a regular basis.

The examples of sensitivities to market risks included below are based on a change in one factor while holding all other factors constant. In practice this is unlikely to occur, and changes in some of the factors may be correlated – for example, changes in interest rate and changes in foreign currency rates.

Foreign exchange risk and associated derivative financial instruments

The Group publishes its consolidated Financial Statements in Argentine Pesos but conducts business in many foreign currencies. As a result, the Group is subject to foreign currency exchange risk due to exchange rate movements, which affect the Group’s transaction costs. Foreign exchange risk arises when future commercial transactions or recognized assets or liabilities are denominated in a currency that is not the entity’s functional currency, that is, Argentine Pesos.

The real estate activities of the Group’s subsidiaries are primarily located in Argentina where the Argentine Peso is the functional currency. A significant majority of the Group’s business activities is conducted in the respective functional currencies of the subsidiaries (the Argentine Peso), thus not exposing the Group to foreign exchange risk. However, in the ordinary course of business, the Group transacts in currencies other than the respective functional currencies of the subsidiaries. These transactions are primarily denominated in US dollars. The Group’s net financial position exposure to the US dollar is managed on a case-by-case basis, by entering into different derivative instruments and/or by borrowing in foreign currencies. Exposure to other foreign currencies has not been significant to date.

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IRSA Propiedades Comerciales S.A.

Financial instruments are only considered sensitive to foreign exchange rates where they are not in the functional currency of the entity that holds them. The following table shows the US dollar-denominated net amounts of the financial instruments for the years ended June 30, 2018 and 2017. All amounts are presented in Argentine Pesos, the presentation currency of the Group:

	Net monetary position liability
	06.30.18	06.30.17
Borrowing position with third parties	(9,697,165)	(5,267,218)
Lending position with related parties	360,966	315,194
Net monetary position	(9,336,199)	(4,952,024))

The Group estimates that, other factors being constant, a 10% oscillation of the US dollar against the Argentine Peso at year-end would impact in the profit before income tax in an amount of Ps. 933,620 and Ps. 495,202 for the years ended June 30, 2018 and 2017, respectively.

This sensitivity analysis provides only a limited, point-in-time view of the sensitivity of the foreign exchange risk associated with Group’s financial instruments. The actual impact of the foreign exchange rate changes on the Group’s financial instruments may differ significantly from the impact shown in the sensitivity analysis.

Furthermore, the Group also uses derivative instruments, such as foreign currency forward contracts, to manage exposure to foreign exchange risk. As of June 30, 2018 and 2017 there were foreign-currency forward contracts in the amount of Ps. 47,360 (assets) and Ps. 4,950 (liabilities), respectively.

Interest rate risk

The Group is exposed to interest rate risk on its investments in debt instruments, short-term and long-term borrowings and derivative financial instruments.

The primary objective of the Group’s investment activities is to preserve principal while at the same time maximizing yields without significantly increasing risk. To achieve this objective, the Group diversifies its portfolio in accordance with the limits set by the Group. The Group maintains a portfolio of cash equivalents and short-term investments in a variety of securities, including both government and corporate obligations and money market funds and ETF funds.

As the Group’s investments in this type of financial instrument subject to this risk are not significant, changes in market interest rates do not have any significant direct effect on the Group’s income.

The Group’s interest rate risk principally arises from long-term borrowings (Note 18). Borrowings issued at floating rates expose the Group to the risk that the actual cash flows differ from those expected. Borrowings issued at fixed rates expose the Group to the risk that the fair values of these differ from those expected. The Group manages this risk by maintaining an appropriate mix between fixed and floating rate interest bearing liabilities. These activities are evaluated regularly to determine that the Group is not exposed to interest rate movements that could adversely impact its ability to meet its financial obligations and to comply with its borrowing covenants.

The Group’s interest rate risk policy is approved by its management. The Group analyzes its interest rate exposure on a dynamic basis. Various scenarios are simulated, taking into consideration refinancing, renewal of existing positions and alternative financing sources. Based on these scenarios, the Group calculates the impact on profit and loss of a defined interest rate shift. The scenarios are run only for liabilities that represent the major interest-bearing positions. Trade payables are normally interest-free and have settlement dates within one year. The simulation is done on a regular basis to verify that the maximum potential loss is within the limits set by Management.

See in Note 18 the breakdown of the Group’s fixed-rate and floating-rate borrowings per currency denomination (excluding finance leases) for the years ended June 30, 2018 and 2017:

  The Group estimates that, other factors being constant, a 1% oscillation in floating rates at year-end would impact the profit before income tax for the year ended June 30, 2018 and 2017 by Ps. 10.89 million and Ps. 0.96 million, respectively. Additionally, the variation of 1% in the swap rate would impact in the statement of comprehensive income before taxes in Ps. (16) million.

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IRSA Propiedades Comerciales S.A.

Other price risk

The Group is exposed to price risk inherent in equity investments, which are classified on the consolidated statement of financial position at fair value through profit or loss. The Group regularly reviews the prices evolution of these equity securities in order to identify significant movements. (Note 13)

As of June 30, 2018 and 2017, the total value of the investment in equity securities issued by other companies equals to Ps. 201.7 million and Ps. 157.7 million, respectively.

The Group estimates that, other factors being constant, a 10% oscillation in equity indexes at fiscal year-end would decrease profit before income tax for the years ended June 30, 2018 and 2017 by Ps. 20.2 million and Ps. 15.8 million, respectively.

(b)

Credit risk management

Credit risk refers to the risk that counterparty will default on its contractual obligations resulting in a financial loss to the Group. Credit limits have been established to ensure that the Group deals only with approved counterparties and that counterparty concentration risk is addressed and the risk of loss is mitigated. Counterparty exposure is measured as the aggregate of all obligations of any single legal entity or economic entity to the Group.

              The Group is subject to credit risk arising from deposits with banks and financial institutions, investments of surplus cash balances, the use of derivative financial instruments and from outstanding receivables. Credit risk is managed on a country-by-country basis.

The Group’s policy is to manage credit exposure from deposits, short-term investments and other financial instruments by maintaining diversified funding sources in various financial institutions. All the institutions that operate with the Group are well known because of their experience in the market and high credit quality. The Group places its cash and cash equivalents, investments, and other financial instruments with various high credit quality financial institutions, thus mitigating the amount of credit exposure to any one institution. The maximum exposure to credit risk is represented by the carrying amount of cash and cash equivalents and short-term investments in the statement of financial position.

The Group’s primary objective for holding derivative financial instruments is to manage currency exchange rate risk and interest rate risk. The Group generally enters into derivative transactions with high-credit-quality counterparties and, by policy, limits the amount of credit exposure to each counterparty. The amounts subject to credit risk related to derivative instruments are generally limited to the amounts, if any, by which counterparty’s obligations exceed the obligations that the Group has with that counterparty. The credit risk associated with derivative financial instruments is represented by the carrying value of the assets positions of these instruments.

The Group’s policy is to manage credit risks associated with trade and other receivables within defined trading limits. All Group’s significant counterparties have internal trading limits.

Trade receivables from investment and development property activities are primarily derived from leases and services from shopping malls, office and other rental properties; receivables from the sale of trading properties and investment properties (primarily undeveloped land and non-retail rental properties). The Group has a large customer base and is not dependent on any single customer.

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IRSA Propiedades Comerciales S.A. 

The Group has specific policies to ensure that rental contracts are transacted with counterparties with appropriate credit quality. The majority of the Group’s shopping mall, office and other rental properties’ tenants are well-recognized retailers, diversified companies, professional organizations, and others. Owing to the long-term nature and diversity of its tenancy arrangements, the credit risk of this type of trade receivables is considered to be low. Generally, the Group has not experienced any significant losses resulting from the non-performance of any counterpart to the lease contracts. As a result, the allowance for doubtful accounts balance is low. Individual risk limits are set based on internal or external ratings in accordance with limits set by the Group, as applicable. If customers are independently rated, these ratings are used. If there is no independent rating, risk control assesses the credit quality of the customer, taking into account its past experience, financial position, actual experience and other factors. Based on the Group’s analysis, the Group determines the amount of the deposit that is required from the tenant at inception of the lease. Management does not expect any losses from non-performance by these counterparties (Note 14).

(c)

Liquidity risk management

The Group is exposed to liquidity risks, including risks associated with refinancing borrowings as they mature, the risk that borrowing facilities are not available to meet cash requirements, and the risk that financial assets cannot readily be converted to cash without loss of value. Failure to manage liquidity risks could have a material impact on the Group’s cash flow and statement of financial position. Prudent liquidity risk management implies maintaining sufficient cash, the availability of funding through an adequate amount of committed credit facilities and the ability to close out market positions. Due to the dynamic nature of the underlying businesses, the Group aims to maintain flexibility in funding its existing and prospective debt requirements by maintaining diversified funding sources with adequate committed funding lines from high quality lenders.

The Group monitors its current and projected financial position using several key internally generated reports: cash flow; debt maturity; and interest rate exposure. The Group also undertakes sensitivity analysis to assess the impact of proposed transactions, movements in interest rates and changes in property values on the key profitability, liquidity and balance sheet ratios.

The Group’s debt and derivative positions are continually reviewed to meet current and expected debt requirements. The Group maintains a balance between longer-term and shorter-term financings. Short-term financing is principally raised through bank facilities and overdraft positions. Medium- to longer-term financing comprises public and private bond issues, including private placements. Financing risk is spread by using a variety of types of debt. The maturity profile is managed by spreading the repayment dates and extending facilities.

The tables below analyze the Group’s non-derivative financial liabilities and derivative financial liabilities into relevant maturity groupings based on the remaining period at the statement of financial position to the contractual maturity date. The amounts disclosed in the tables are the contractual undiscounted cash flows and as a result, they do not reconcile to the amounts disclosed on the statement of financial position. However, undiscounted cash flows in respect of balances due within 12 months generally equal their carrying amounts in the statement of financial position, as the impact of discounting is not significant. The tables include both interest and principal flows.

Where the interest payable is not fixed, the amount disclosed has been determined by reference to the conditions existing at each reporting date.

At June 30, 2018	Less than 1 year	Between 1 and 2 years	Between 2 and 3 years	Between 3 and 4 years	More than 4 years	Total
Trade and other payables	776,952	71,444	3,670	2,498	-	854,564
Borrowings (excluding finance lease liabilities)	1,138,838	1,387,782	5,374,580	1,235,747	11,381,419	20,518,366
Finance leases	6,945	6,498	1,803	-	-	15,246
Derivative financial instruments	264	-	-	-	46,447	46,711
Total	1,922,999	1,465,724	5,380,053	1,238,245	11,427,866	21,434,887

At June 30, 2017	Less than 1 year	Between 1 and 2 years	Between 2 and 3 years	Between 3 and 4 years	More than 4 years	Total
Trade and other payables	480,612	5,940	4,570	1,497	1,489	494,108
Borrowings (excluding finance lease liabilities)	787,406	523,845	523,845	523,845	6,748,934	9,107,875
Finance leases	1,690	968	668	-	-	3,326
Derivative financial instruments	4,950	-	-	-	-	4,950
Total	1,274,658	530,753	529,083	525,342	6,750,423	9,610,259

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IRSA Propiedades Comerciales S.A. 

(d)

Capital risk management

The capital structure of the Group consists of shareholder’s equity and short-term to long-term net borrowings. The type and maturity of the Group’s borrowings are analyzed further in Note 18. The Group’s equity is analyzed into its components in the consolidated statement of changes in equity. Capital is managed so as to promote the long-term success of the business and to maintain sustainable returns for shareholders.

The Group seeks to manage its capital requirements to maximize value through the mix of debt and equity funding, while ensuring that Group entities continue to operate as going concerns, comply with applicable capital requirements and maintain strong credit ratings.

The Group assesses the adequacy of its capital requirements, cost of capital and gearing (i.e., debt/equity mix) as part of its broader strategic plan. The Group continuously reviews its capital structure to ensure that (i) sufficient funds and financing facilities are available to implement the Group’s property development and business acquisition strategies, (ii) adequate financing facilities for unforeseen contingencies are maintained, and (iii) distributions to shareholders are maintained within the Group’s dividend distribution policy. The Group also protects its equity in assets by contracting insurance.

The Group’s strategy is to maintain key financing metrics (namely, net debt to total equity ratio (gearing) and loan-to-value ratio (“LTV”) in order to ensure that asset level performance is translated into enhanced returns for shareholders while maintaining an appropriate risk reward balance to accommodate changing financial and operating market cycles.

The following table details a number of the Group’s key metrics in relation to managing its capital structure. The ratios are within the ranges previously established by the Group’s strategy.

	06.30.18	06.30.17
Gearing ratio (i)	29.21%	21.13%
Debt ratio (ii)	28.66%	16.94%

(i) Calculated as total current and non-current borrowings divided by total current and non-current borrowings plus equity.

(ii) Calculated as total current and non-current borrowings divided by total properties at fair value (including trading properties, property, plant and equipment, investment properties and units to be received under barter agreements).

5.1

Other non-financial risks

Property risk:

There are several risks affecting the Group’s property investments. The composition of the Group’s property portfolio including asset concentration and lot size may impact liquidity and relative property performance. The Group has a large multi-asset portfolio and monitors its concentration and the average size of its plots of land.

A change in trends and economic conditions causes shifts in customer demands for properties with impact on new lettings, renewal of existing leases and reduced rental growth. Also changes increase risk of tenant insolvencies. The Group conducts several actions to mitigate some of these risks whenever possible. The variety of asset types and geographical spread as well as a diversified tenant base, with monitoring of tenant concentration, helps mitigating these risks.

The development, administration and profitability of shopping malls are impacted by various factors including: the accessibility and the attractiveness of the area where the shopping mall is located, the intrinsic attractiveness of the shopping mall, the flow of people, the level of sales of each shopping mall rental unit, the increasing competition from internet sales, the amount of rent collected from each shopping mall rental unit and the fluctuations in their occupancy levels in the shopping malls. In the event that there is an increase in operational costs, caused by inflation or other factors, it could have a material adverse effect on the Group if its tenants are unable to pay their higher rent obligations due to the increase in expenses. The Argentine Civil and Commercial Code provides that tenants may rescind commercial lease agreements after the initial six months by means of reliable notification. If the resolutory option is used within the first year of the lease, the Tenant shall pay the Lessor, as compensation, the sum equivalent to one-and-a-half month’s rent, and one month’s rent if he makes use of the option after that period. Given that the rule does not provide for advance notice, Lease Agreements include a provision whereby the lessee should give at least sixty days advance notice of its intention to terminate the lease. The exercise of such rescission rights could materially and adversely affect the Group.

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IRSA Propiedades Comerciales S.A. 

Risks associated with development of properties include the following: the potential abandonment of development opportunities; construction costs exceeding original estimates, possibly making a project uneconomical; occupancy rates and rents at newly completed projects may be insufficient to make the project profitable; the Group’s inability to obtain financing on favorable terms for the development of the project; construction and lease-up may not be completed on schedule, resulting in increased debt service expense and construction costs; the Group’s inability to obtain, or the delays in obtaining, all necessary zoning, land-use, building, occupancy and other required governmental permits and authorizations; preconstruction buyers may default on their purchase contracts or units in new buildings may remain unsold upon completion of constructions; prices for residential units may be insufficient to cover development costs. The Group also takes several actions to monitor these risks and respond appropriately whenever it is under its control. The Group has in-house property market research capability and development teams that monitor development risks closely.

The Group generally adopts conservative assumptions on leasing and other variables and monitors the level of committed future capital expenditure on development programs relative to the level of undrawn facilities.

6.

Segment reporting

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 chief operating decision maker (“CODM”) in deciding how to allocate resources and in assessing performance, without prejudice of the powers and responsibilities of the Board of Directors. The CODM evaluates the business based on the differences in the nature of its products, operations and risks. The amount reported for each segment is the measure reported to the CODM for these purposes and later to the Board of Directors. In turn, the Board of Directors’ performance is assessed by the Shareholders’ Meeting, which is the Company’s governance body.

Operating segments identified are disclosed as reportable segments if they meet any of the following quantitative thresholds:

●

The operating segment’s reported revenue, including both sales to external customers and inter-segment sales or transfers, is 10% or more of the combined revenue, internal and external, of all operating segments.

●

The absolute amount of its reported profit or loss is 10% or more of the greater, in absolute amount, of:

o

the combined reported profit of all operating segments that do not report a loss; and

o

the combined reported loss of all operating segments that report a loss.

●

Its assets are 10% or more of the combined assets of all operating segments.

In addition, the operating segments that do not meet any of the quantitative thresholds could be considered as reportable segments if management estimates that this information could be useful for the users of the financial statements.

If, after determining reportable segments in accordance with the preceding quantitative thresholds, the total external revenue attributable to those segments is less than 75% of the Group’s consolidated external revenue, additional segments are identified as reportable segments, even if they do not meet the thresholds described above, until at least 75% of the Group’s consolidated external revenue is included in reportable segments. Once 75% of the Group’s consolidated external revenue is included in reportable segments, the remaining operating segments are aggregated in “Other segments”.

F-38

  IRSA Propiedades Comerciales S.A.

Segment information has been prepared and classified according to different types of businesses in which the Group conducts its activities. The Group’s Investment and Development Properties business is comprised of the following segments:

●

 “Shopping Malls” includes the operation and development of shopping malls, through which we generate rental income and fees charged for services related to the lease of retail stores and other spaces. Our Shopping Malls segment includes highly diversified, multi-format assets with a particular focus on retailers that cater to middle- to high-income consumers.

●

 “Offices” includes the lease of offices and other rental properties and services related to these properties.

●

 “Sales and Developments” includes the sales of undeveloped parcels of land and properties, and activities related to the development and maintenance of such properties.

●

 “Others” includes the financing activities developed through our associated company Tarshop S.A., our residual consumer financing transactions and the operations developed by our subsidiary Entertainment Holdings S.A.

Group’s shopping malls, offices and other rental properties, and trading properties, are located in Argentina.

The CODM evaluates performance of business segments based on segment profit, defined as profit or loss from operations before financing and taxation. The measurement principles for the segment reporting structure are based on the IFRS principles adopted in the consolidated Financial Statements, except for:

●The operating income from the joint ventures Nuevo Puerto Santa Fe S.A. and Quality Invest S.A. are reported under the proportional consolidation method. Under this method, the income/loss generated by joint ventures is reported in the statements of comprehensive income line-by-line, 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, because the assets and income/loss generated by consolidated operations are similar to the assets and income/loss booked under the equity method. This is due to the fact that under the proportional consolidation method, revenues and expenses are reported separately, instead of offsetting and reporting them as a single item in the statements of comprehensive income. Therefore, the proportional consolidation method is used by the CODM to assess and understand the return and the results of operations of these businesses as a whole. Operating results of La Rural S.A. joint venture is accounted for under the equity method. Management believes that, in this case, this method provides more adequate information for this type of investment.

●Operating results does not include the amounts pertaining to building administration expenses and collective promotion funds, and excludes total recovered costs, whether by way of building administration expenses or other concepts included under financial results (for example default interest and other concepts) and not analyzed to assess the operating performance of the segment. The CODM examines the net amount from both concepts (total surplus or deficit between building administration expenses and collective promotion funds and recoverable expenses).

Revenues generated and goods and services exchanged between segments are calculated on the basis of market prices. Intercompany transactions between segments, if any, are eliminated.

These costs and income are presented now for reconciliation of all segments and their respective consolidating operating income.

F-39

  IRSA Propiedades Comerciales S.A.

The Group introduced a change in the way the CODM evaluates performance for "offices and others" and "sales and developments" segments. For those investment properties sold in our offices and others segment, their change in fair value (or realized gain) is now shown as part of the sales and developments segment The changes have affected (1) “offices and others” and “sales and developments” segments in the fiscal year ended June 30, 2017, which are related to the allocation of the realized changes in fair value of investment properties in “sales and developments” segment; and (2) “offices and others” and “financial operations and others” in the period ended March 31, 2018, changing the name of the latter to “Others” and adding the operations developed by our subsidiary Entertainment Holdings S.A..

The following is a summary analysis of the Group's business segments, corresponding to the fiscal years ended June 30, 2018, 2017 and 2016. Additionally, a reconciliation between results of operations corresponding to segment information and the results of operations as per the statements of comprehensive income; and total assets by segment and total assets according to the statement of financial position. The information by segments has been prepared and classified according to the businesses in which the Group carries out its activities:

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IRSA Propiedades Comerciales S.A.

	06.30.18
	Shopping Malls	Offices	Sales and developments	Others	Total segmet reporting	Adjustment for expenses and collective promotion funds	Adjustment for share in profit/ (loss) of joint ventures	Total as per Statement of Comprehensive Income
Revenue	3,664,651	492,096	105,525	9,326	4,271,598	1,717,000	(39,392)	5,949,206
Operating costs	(329,785)	(48,407)	(18,688)	(19,752)	(416,632)	(1,747,051)	24,236	(2,139,447)
Gross profit (loss)	3,334,866	443,689	86,837	(10,426)	3,854,966	(30,051)	(15,156)	3,809,759
Net gain from fair value adjustment of investment properties	11,340,085	5,042,427	1,000,147	45,580	17,428,239	-	(738,122)	16,690,117
General and administrative expenses	(320,234)	(39,438)	(38,566)	(18,100)	(416,338)	-	1,096	(415,242)
Selling expenses	(238,170)	(47,362)	(10,635)	(1,955)	(298,122)	-	3,257	(294,865)
Other operating results, net	(56,451)	348	33,569	13,684	(8,850)	-	3,945	(4,905)
Profit (Loss) from operations	14,060,096	5,399,664	1,071,352	28,783	20,559,895	(30,051)	(744,980)	19,784,864
Share in profit of associates and joint ventures	-	-	-	20,171	20,171	-	619,354	639,525
Segment profit (loss) before financing and Taxation	14,060,096	5,399,664	1,071,352	48,954	20,580,066	(30,051)	(125,626)	20,424,389
Investment properties	40,467,248	12,625,243	2,394,577	191,667	55,678,735	-	(1,623,924)	54,054,811
Property, plant and equipment	55,952	53,956	-	-	109,908	-	(471)	109,437
Trading properties	-	-	61,568	-	61,568	-	-	61,568
Goodwill	1,323	3,913	-	100,861	106,097	-	(5,236)	100,861
Rights to receive units (barter transactions)	-	-	26,596	-	26,596	-	-	26,596
Inventories	25,492	-	-	-	25,492	-	(610)	24,882
Investments in associates and joint ventures	-	-	-	189,815	189,815	-	1,243,343	1,433,158
Operating assets	40,550,015	12,835,487	2,482,741	329,968	56,198,211	-	(386,898)	55,811,313

	06.30.17
	Shopping Malls	Offices	Sales and developments	Others	Total segmet reporting	Adjustment for expenses and collective promotion funds	Adjustment for share in profit/ (loss) of joint ventures	Total as per Statement of Comprehensive Income
Revenue	3,046,588	401,767	99,136	891	3,548,382	1,488,187	(39,407)	4,997,162
Operating costs	(349,445)	(27,908)	(22,534)	(48)	(399,935)	(1,512,738)	12,887	(1,899,786)
Gross profit (loss)	2,697,143	373,859	76,602	843	3,148,447	(24,551)	(26,520)	3,097,376
Net gain from fair value adjustmentof investment properties	2,068,103	1,064,586	193,187	-	3,325,876	-	(192,463)	3,133,413
General and administrative expenses	(261,475)	(31,464)	(30,483)	(1,539)	(324,961)	-	2,785	(322,176)
Selling expenses	(188,081)	(33,871)	(13,740)	(2,982)	(238,674)	-	2,146	(236,528)
Other operating results, net	(57,712)	(6,731)	(4,062)	16,183	(52,322)	-	1,103	(51,219)
Profit (Loss) from operations	4,257,978	1,366,379	221,504	12,505	5,858,366	(24,551)	(212,949)	5,620,866
Share in profit of associates and joint ventures	-	-	-	13,677	13,677	-	139,026	152,703
Segment profit (loss) before Financing and Taxation	4,257,978	1,366,379	221,504	26,182	5,872,043	(24,551)	(73,923)	5,773,569
Investment properties	28,799,277	6,841,517	1,158,695	-	36,799,489	-	(882,607)	35,916,882
Property, plant and equipment	55,409	65,663	-	-	121,072	-	(536)	120,536
Trading properties	-	-	61,600	-	61,600	-	-	61,600
Goodwill	1,323	3,913	-	26,375	31,611	-	(5,236)	26,375
Rights to receive units (barter transactions)	-	-	27,560	-	27,560	-	-	27,560
Inventories	23,260	-	-	-	23,260	-	(538)	22,722
Investments in associates	-	-	-	197,605	197,605	-	593,815	791,420
Operating assets	28,879,269	6,911,093	1,247,855	223,980	37,262,197	-	(295,102)	36,967,095

F-41

IRSA Propiedades Comerciales S.A.

	06.30.16
	Shopping Malls	Offices	Sales and developments	Others	Total segmet reporting	Adjustment for expenses and collective promotion funds	Adjustment for share in profit/ (loss) of joint ventures	Total as per Statement of Comprehensive Income
Revenue	2,409,082	284,137	2,679	1,013	2,696,911	1,183,627	(22,038)	3,858,500
Operating costs	(250,306)	(12,254)	(5,720)	(77)	(268,357)	(1,201,305)	9,458	(1,460,204)
Gross profit (loss)	2,158,776	271,883	(3,041)	936	2,428,554	(17,678)	(12,580)	2,398,296
Net gain from fair value adjustmentof investment properties	16,131,702	867,413	425,114	-	17,424,229	-	(331,826)	17,092,403
General and administrative expenses	(178,643)	(23,308)	(20,296)	-	(222,247)	-	667	(221,580)
Selling expenses	(145,278)	(12,824)	(4,264)	(1,835)	(164,201)	-	1,980	(162,221)
Other operating results, net	(61,556)	(1,377)	(7,831)	(18)	(70,782)	-	2,230	(68,552)
Profit (Loss) from operations	17,905,001	1,101,787	389,682	(917)	19,395,553	(17,678)	(339,529)	19,038,346
Share in profit of associates and joint ventures	-	-	-	(11,017)	(11,017)	-	215,316	204,299
Segment profit (loss) before Financing and Taxation	17,905,001	1,101,787	389,682	(11,934)	19,384,536	(17,678)	(124,213)	19,242,645
Investment properties	26,633,273	4,876,164	1,362,670	-	32,872,107	-	(638,011)	32,234,096
Property, plant and equipment	49,053	69,870	-	-	118,923	-	(598)	118,325
Trading properties	-	-	48,029	-	48,029	-	-	48,029
Goodwill	1,323	3,911	-	-	5,234	-	(5,234)	-
Rights to receive units (barter transactions)	-	-	38,281	-	38,281	-	-	38,281
Inventories	18,560	-	-	-	18,560	-	(358)	18,202
Investments in associates	-	-	-	134,527	134,527	-	463,232	597,759
Operating assets	26,702,209	4,949,945	1,448,980	134,527	33,235,661	-	(180,969)	33,054,692

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IRSA Propiedades Comerciales S.A. 

 7.

           Information about subsidiaries

The Group conducts its business through several operating and holding subsidiaries.

The subsidiaries are shown by percentage of participation held by the Group:

			06.30.18		06.30.17
Name of the entity	Place of business / Country of incorporation	Main activity	% of ownership interest held	% of ownership interest held by non-controlling interests	% of ownership interest held	% of ownership interest held by non-controlling interests
Fibesa S.A.	Argentina	Mandatary	100.00%	-	100.00%	-
Centro de Entretenimientos La Plata S.A.	Argentina	Real estate	100.00%	-	-	-
Torodur S.A.	Uruguay	Investment	100.00%	-	100.00%	-
Shopping Neuquén S.A.	Argentina	Real estate	99.95%	0.05%	99.92%	0.08%
Arcos del Gourmet S.A.	Argentina	Real estate	90.00%	10.00%	90.00%	10.00%
Panamerican Mall S.A.	Argentina	Real estate	80.00%	20.00%	80.00%	20.00%
Entertainment Holdings S.A.	Argentina	Investment	70.00%	30.00%	70.00%	30.00%
Emprendimiento Recoleta S.A.	Argentina	Real estate	53.68%	46.32%	53.68%	46.32%

Restrictions, commitments and other matters in respect of subsidiaries

According to Law N° 19,550, 5% of the profit in each fiscal year must be separated to constitute a legal reserve until they reach legal capped amounts (20% of the nominal value of total capital). This legal reserve is not available for dividend distribution and can only be released to absorb losses. The Group has not reached the legal limit of this reserve. Dividends are paid across the Group’s subsidiaries based on their individual accounting statements.

Arcos del Gourmet

Injuction order

In December 2013, the Judicial Branch confirmed an injunction order that suspended the opening of the Shopping Mall on the grounds that it did not have certain government permits in the context of two legal proceedings, where a final decision has been rendered for Distrito Arcos.

The plaintiff filed a petition for the continuation of the preliminary injunction by means of an extraordinary appeal of unconstitutionality which was denied by the lower and appellate courts; consequently, it filed an appeal with the Supreme Court of Justice of the Autonomous City of Buenos Aires, which referred the proceedings to the Court of Appeals for re-consideration of certain parameters related to green areas, as established by the lower court.

Nowadays, the Distrito Arcos is open to the public and operating normally.

Concession Status

In November 2008, Arcos del Gourmet S.A. signed a contract with the Agencia de Administración de Bienes del Estado (State Assets Administration Office, or AABE in Spanish) for which the Company had been granted the concession to use the properties located in the jurisdiction of Estación Palermo, ex Línea San Martín - Palermo loading deck (on Juan B. Justo Avenue from Santa Fe Avenue to Paraguay Street) until December 31, 2025 (the “Arcos concession agreement”).

Subsequently, in September 2011, a contract for the readjustment of this concession was entend in to with the Railway Infrastructure Administrator (ADIF in spanish) (to which the rail assets were transferred in the jurisdiction of AABE), puorsuant to the term of the Arcos concession agreement was extended until December 31, 2030. This new agreement provides for an automatic extension of 3 years and 4 months in the event that the Company complies with the agreement and ADIF so finds. Likewise, a new extension is established for an additional 3 years if the Company so declares and ADIF corroborates compliance with the obligations. This agreement established an initial monthly fee of Ps.200 (plus VAT) until December 31, 2025, and Ps.250 (plus VAT) as of January 1, 2026, these values being adjustable every 2 years until the end of the term of the concession.

The Argentine government issued Executive Order 1723/2012, whereby several plots of land located in prior rail yards of Palermo, Liniers and Caballito were designated for development and urbanization projects.

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IRSA Propiedades Comerciales S.A. 

In this respect and as part of several measures related to other licensed persons and/or concessionaires, the Company was notified, of Resolution 170/2014 revoking of the Arcos Concession agreement.

It should further be pointed out that such measure:

(i) has not been adopted due to noncompliance of the company.

(ii) there is no the interruption of the commercial development or operation of the shopping mall, which continues to operate under normal conditions;

Notwithstanding the foregoing, Arcos del Gourmet S.A. has filed applicad the relevant administrative resources (appeal) and has also filed a judicial action requesting that the revocation of the Arcos Concession agreement be overruled. Likewise, the Company has concurrently brought an action of lease rental payments as a result of which it is making judicial deposits in time and form of the agreed monthly rental payments pursuant to the Concession to Agreement for that the Company interprets has been improperly revoked. To date, the administrative remedy has been waived (by operation of law since judicial proceedings have been commenced), the Argentine govermant answered the complaint in the case where the parties contest the admissibility of the order revoking the concession, and the complaint has already been served which was answered by Trenes Argentinos opposing exceptions, which have already been answered by the Company.

Emprendimiento Recoleta S.A

As a result of a public auction, in February 1991, the City of Buenos Aires granted to Emprendimiento RecoletaS.A (ERSA) a 20-year concession to use a plot of land in Centro Cultural Recoleta, which was set to expire in November 2013. In addition, pursuant to Resolution No. 1125/00 issued by the Secretariat of Economy and Finance of the Government of the City of Buenos Aires (Secretaria de Hacienda y Finanzas del GCBA) an extension was granted for “Edificio Esquina” or “Edificio Ballena” to be used as a Multipurpose Area (“Salones de usos múltiples”); and pursuant to Decree No. 867/10 dated November 25, 2010, a five-year extension was granted so the agreement is set to expire on November 18, 2018.

As of the date of these financial statements, no additional extension of the concession term had been agreed upon, for which reason it shall end on November 18, 2018, and on such date the ninety (90)-day term agreed by contract for the return of the property under concession to the Government of the City of Buenos Aires on the terms and conditions set forth in the agreement shall start running. For such purposes and in order to take all legal precautions available, ERSA has filed early eviction proceedings (also known as “condena de futuro”) against all lessees of the shopping mall.

On April 12, 2018, ERSA was given notice by the First Instance Court hearing Federal Criminal and Correctional Matters No. 1 (Juzgado Nacional en lo Criminal y Correccional Federal N° 1), in the case entitled “Blaksley Enrique and others, violation of Section 303”, of the resolution ordering an intervention of ERSA for a term of six months, and appointment of observer for collection and reporting purposes, and a general restriction on the disposition of property. In response to such court order, ERSA filed a motion to dismiss to defend the company’s interests. As of the date hereof, ERSA has not been notified of any resolution on such motion or the appointment of an observer. On July 20, 2018 and subsequently, on August 10, 2018, it received two further notices from the same Court, whereby: 1) ERSA it is ordered to transfer to the Court’s account 7.36 % of all revenues of the company from any sources; and 2) the intervenors were appointed representatives of the 46.316% minority shareholders at all shareholders’ and board meetings. A motion to dismiss was filed against such orders.

It should be noted that the end of ERSA’s concession has no significant impact on the Group’s financial statements.

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IRSA Propiedades Comerciales S.A.

Panamerican Mall S.A.

Below is the summarized financial information of subsidiaries with material non-controlling interests which are considered significant for the Group, presented before intercompany eliminations.

	Current assets	Non-current assets	Current liabilities	Non-current liabilities	Net assets	% of ownership interest held by non-controlling interests	Book value of non-controlling interest	% of ownership interest held by controlling interests	Book amount
06.30.18	684,125	8,651,271	399,058	2,874,630	6,061,708	20%	1,211,783	80%	4,847,130
06.30.17	424,643	5,136,295	228,464	1,659,926	3,672,548	20%	734,510	80%	2,938,038

	Revenues	Comprehensive income for the year	Cash from operating activities	Cash from investing activities	Cash from financing activities	Net increase in cash and cash equivalents	Dividends paid to non-controlling interest
06.30.18	649,681	2,571,160	300,458	(712,855)	446,230	33,833	36,400
06.30.17	545,783	423,749	(4,917)	215,148	(153,121)	57,110	42,598

The non-controlling interests of the remaining subsidiaries summarize Ps. 186,089 and Ps. 136,659 as of June 30, 2018 and 2017 respectively. Non of these subsidiaries have non-controlling interest that individually are considered significant for the group.

8.

Interests in joint ventures

Restrictions, commitments and other matters in respect of joint ventures

According to Business Companies Law N° 19,550, 5% of the profit of the year is separated to constitute a legal reserve until they reach legal capped amounts (20% of total capital). This legal reserve is not available for dividend distribution and can only be released to absorb losses. The Group’s joint ventures have not reached the legal limit of this reserve.

There are no contingent liabilities relating to the Group’s interest in joint ventures, and there are no contingent liabilities of the joint ventures themselves, other those mentioned bellow.

Quality Invest S.A.

On March 31, 2011, Quality Invest and Nobleza Piccardo S.A.I.C. y F., or “Nobleza Piccardo,” executed the title deed for the purchase of a plot of land of 159,996 square meters located in the District of San Martin, Province of Buenos Aires, currently intended for industrial purposes and suitable in terms of characteristics and scale for mixed-use developments. The price for the property was USD 33 million, being paid 30% as of that date. For the remaining balance a mortgage was constituted in the first degree of privilege over the property in favor of Nobleza Piccardo. Capital plus interest calculated at a nominal annual rate of 7.5% on balances, was paid in full in advance in March 2013.

On May 16, 2012, the Municipality of San Martin granted a pre-feasibility permit for commercial use, entertainment, events, offices, etc., which would enable performance of a mixed-use development thereon.

Pursuant to an Ordinance 11,706 enacted on December 30, 2014, a rezoning permit was obtained for the plot of land to be used mainly for commercial purposes, which considerably expands the uses and potential buildable square meters through new urban indicators. On January 5, 2016, the Provincial Decree 1,835 was published in the Official Gazette of the Province of Buenos Aires granting its approval, and the new urban and rezoning standards thus became effective.

As approved in the Ordinance, on January 20, 2015, Quality Invest entered into a zoning agreement with the Municipality of San Martin which governs various issues related to applicable regulations and provides for a mandatory assignment of square meters in exchange for monetary contributions subject to fulfillment of certain administrative milestones of the rezoning process, the first of which (for Ps.20,000) was paid to the Municipality ten days after the execution of the aforementioned agreement.

Moreover, on June 27, 2016, the plot subdivision plan was filed with the Municipality, in compliance with another significant milestone committed under the zoning agreement.

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IRSA Propiedades Comerciales S.A. 

On June 28, 2017, Quality Invest S.A. signed an agreement with EFESUL S.A. in order to assume as their own the obligations that the latter agreed with the Municipality of General San Martin within the framework of the aforementioned Urban Agreement. These agreement contemplates a donation, which will be paid based on the work progress that the Municipality develops on the property initially transferred by EFESUL S.A.

In addition, during July 2017, Quality Invest S.A. subscribed two addendums to the aforementioned Urban Development Agreement, which contemplate the following: 1) a new subdivision plan of the property will be presented within 120 days of the addendum signing and 2) the payment of the twelveth installment in cash was replaced by the sum of Ps.71 million payables in 18 equal and consecutive monthly installments.

On March 8, 2018, it was agreed with the renowned Gehl Firm (Denmark) - Urban Quality Consultant - the elaboration of a master plan, generating a modern concept of New Urban District of Mixed Uses.

Added to this, local consultants were also hired as: Guillermo Oliveto (Consultant W) in Market Analysis, Gastón Biggio (GUT) in naming and branding of the District, Colla & Colombo Consultants in Business Analysis and Alejandro Langlois in Vehicular Impact, among others. In this way, the Company have a clear sizing and positioning of the business to which will deal opportunely.

Regarding the project, we are working on the definition of the master plan that includes a mix of uses (Residential, Commercial, etc.) in order to carry out a large-scale urban development contemplating more of 500,000 square meters. The regulations for this master plan are framed in a zoning called the Main Commercial District (Distrito Comercial Principal), which entered into force in 2016 through the publication of the Provincial Decree of the Municipal Ordinance No.11,706.

La Rural S.A.

 In connection with the Fairground, as publicly known, in December 2012 the National Executive Branch issued Executive Order 2552/12 that annulled an executive order dated 1991 which had approved the sale of the Fairground to the Sociedad Rural Argentina (SRA); the effect of this new order was to revoke the sale transaction. Subsequent, on March 21, 2012, the National Executive Branch notified the SRA of said executive order and further ordered that the property be returned to the Argentine government within 30 subsequent days. Then, the SRA issued a press release publicly disclosing the initiation of legal actions and the obtaining of a precautionary measure for which Decree 2552/12 was suspended. Furthermore, as it has become publicly known, on August 21, 2013, the Supreme Court of Justice rejected the appeal filed by the Argentine government against the interim measure timely requested by the SRA.

Neither has IRSA Propiedades Comerciales been served notice formally nor is it a party involved in the legal actions brought by the SRA.

In connection with the Fairground, as publicly known, in December 2012 the National Executive Branch issued Executive Order 2552/12 that annulled an executive order dated 1991 which had approved the sale of the Fairground to the Sociedad Rural Argentina (SRA); the effect of this new order was to revoke the sale transaction. Subsequent, on March 21, 2012, the National Executive Branch notified the SRA of said executive order and further ordered that the property be returned to the Argentine government within 30 subsequent days. Then, the SRA issued a press release publicly disclosing the initiation of legal actions and the obtaining of a precautionary measure for which Decree 2552/12 was suspended. Furthermore, as it has become publicly known, on August 21, 2013, the Supreme Court of Justice rejected the appeal filed by the Argentine government against the interim measure timely requested by the SRA.

Neither has IRSA Propiedades Comerciales been served notice formally nor is it a party involved in the legal actions brought by the SRA.

Given the potential dimension of the dispute, as it has been known to the public, we estimate that if Executive Order 2552/12 was found to be unconstitutional, such order shall have no legal effects either in EHSA or in the acquisition by IRSA Propiedades Comerciales of an equity interest in EHSA. However, should the opposite happen, that is, a court order declaring the Executive Order 2699/91, this could have a real impact on acquired assets. In this scenario, the judicial decision may render the purchase of the Plot of Land by SRA null and void, and all acts executed by SRA in relation to the Plot of Land, including the right of use currently held by the entity where EHSA has an indirect equity interest, through vehicle entities, would also become null and void.

On June 1, 2015, a ruling was issued in case 4573/2012 SOCIEDAD RURAL ARGENTINA vs. NATIONAL STATE – EXECUTIVE POWER ON DECLARATORY ACTION, whereby the injunction staying the effects of Executive Order 2552/12 were lifted.

On June 2, 2015 the SRA filed a writ of appeals against the ruling indicated above and on that same date the appeal was admitted with staying effects. While the appeal filed by SRA was filed in the Appellate court, the decision of the judge of first instance who decided to lift the precautionary measure had no effect and was suspended.

On September 17, 2015, the court of appeals revoked the decision and rejected in the motion by of the Argentine government to lift the precautionary measure and the Law N° 26,854 was declared inapplicable to the case of precautionary measures against the Government. As a result, the injunction issued on January 4, 2013 was confirmed. The National Government filed an extraordinary federal appeal and subsequently a complaint, both were dismissed, therefore, the precautionary measure was reaffirmed.

On March 11, 2016 La Rural S.A. was summoned as third party in the case referred to above, and filed an answer to such summons on April 6, 2016.

F-46

IRSA Propiedades Comerciales S.A.

               On April 21, 2016 the National Government presented itself, requested the annotation of litis as a precautionary measure, opposed the exception of incompetence, raised the inadmissibility of the declaratory action of certainty, in subsidy, proceeded to answer the complaint. It also requested the suspension of the sentence until the criminal case is resolved and opposed, as a counterclaim, a motion declare the anulment of Decree 2699/91, as well as all those acts enacted in consequence of said decree.

By order of April 29, 2016, the National Government was presented, opposed to the exception raised, the claim in subsidy was contested and the action of injuriousness filed, and it ordered the transfer of the different Government proposals to the SRA.

On the same occasion, the precautionary measure for the annotation of the requested litigation was admitted under the responsibility of the National Government regarding the individualized properties in the process.

On November 22, 2016, SRA answered the transfer of the injuriousness action filed by the National Government, which was considered as answered on December 1.

On December 21, 2016, the National Government, for its part, answered the exception of expiration opportunely opposed. Nevertheless, it was indicated that confirmation with La Rural S.A. was pending.

On June 19, 2017, the transfer of the exception of incompetence raised by the National Government was substantiated, which was answered by La Rural SA in June 2017. On the same occasion, SRA accused expiry of that previous exception in the terms of article 310 CPCCN, which was resolved by order of July 14, 2017.

On that occasion it was resolved to sustain the expiration filed by Sociedad Rural Argentina regarding the incident of exception of incompetence filed by the National Government. Therefore, the process was settled in the Civil and Commercial Federal jurisdiction.

On August 28, 2017, the National Government notified the transfer of the request of certain sections of the SRA's submission that answered the counterclaim and was transferred to the third party of the prescription exception opposed by the SRA at the time of answer the counterclaim. Both substations were answered by SRA and La Rural SA on September 4, 2017.

On October 5, 2017, the Federal Oral Criminal Court No. 2 requested the referral of the proceedings in the context of the case: "Menem, Carlos Saúl and other s / inf. Art. 261, first paragraph of the CP ". For presentations of December 2017 and March 2018, SRA requested the Oral Court to return the proceedings in order to continue with the process. As of the date of these financial statements, the proceedings have not been returned and are in the possession of the Oral Criminal Court No. 2.

There are no contingent liabilities relating to the Group’s interest in joint ventures, and there are no contingent liabilities of the joint ventures themselves, other those previously the mentioned above.

Set out below is the summarized financial information for the joint ventures considered to be material to the Group:

	Current assets	Non-current assets	Current liabilities	Non-current liabilities	Net assets	% of ownership interest	Book value of non-controlling interest	Goddwill and others	Book amount
06.30.18
Quality Invest S.A	4,888	2,820,477	64,283	648,184	2,112,898	50%	1,056,449	3,911	1,061,610
Tarshop	4,979,104	1,446,607	5,182,946	772,227	470,538	20%	94,108	-	94,108
06.30.17
Quality Invest S.A	17,804	1,486,497	82,300	466,009	955,992	50%	477,996	3,911	481,907
Tarshop	4,752,937	1,132,158	4,222,263	1,259,347	403,485	20%	80,697	-	80,694

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IRSA Propiedades Comerciales S.A.

	Revenues	Comprehensive income for the year	Cash from operating activities	Cash from investing activities	Cash from financing activities	Net increase (decrease) in cash and cash equivalents
06.30.18
Quality Invest S.A	12,538	1,078,880	(79,768)	(495)	80,270	7
Tarshop S.A.	3,854,868	67,073	(431,855)	(7,620)	395,160	(44,315)
06.30.17
Quality Invest S.A	26,435	237,304	(10,586)	(253)	10,833	(6)
Tarshop S.A.	1,622,801	26,033	(772,527)	(11,081)	808,132	24,524

Below is shown a detail of the investment and values of shares held by de Group in associates and joint ventures as of June 30, 2018 and 2017, as well as the Group's participation in the comprehensive results of these companies as of June 30, 2018, 2017 and 2016:

	% of ownership interest			Value of Company’s interest in equity		Company’s interest in comprehensive income
Name of the entity	06.30.18	06.30.17	06.30.16	06.30.18	06.30.17	06.30.18	06.30.17	06.30.16
Joint ventures
Quality Invest S.A.	50.00%	50.00%	50.00%	1,061,850	481,907	540,930	118,652	154,072
Nuevo Puerto Santa Fe S.A. (1)(5)	50.00%	50.00%	50.00%	181,493	111,908	78,424	20,374	61,244
La Rural S.A.(2)	50.00%	50.00%	-	92,923	113,365	13,728	15,314	-
Entertainment Holdings S.A.	-	-	50.00%	-	-	-	-	20,419
Entretenimiento Universal S.A	-	-	2.50%	-	-	-	-	11
Associates
Tarshop S.A.(2)	20.00%	20.00%	20.00%	94,108	80,694	13,415	5,207	(31,447)
Otra asociadas (3)				2,784	3,546	(6,972)	(6,844)	-
Total interests in associates and joint ventures (4)				1,433,158	791,420	639,525	152,703	204,299

				Last financial statements issued
Name of the entity	Place of business / Country of incorporation	Main activity	Common shares	Share capital (nominal value)	Income for the year	Equity
Joint ventures
Quality Invest S.A.	Argentina	Real estate	120,827,022	241,654	1,078,880	2,112,897
Nuevo Puerto Santa Fe S.A. (1)(5)	Argentina	Real estate	138,750	27,750	156,848	360,340
La Rural S.A. (2)	Argentina	Event organization and others	714,498	1,430	77,598	156,856
Associates
Tarshop S.A. (2)	Argentina	Consumer financing	48,759,288	598,796	67,073	470,538

(1) Nominal value per share Ps. 100.

(2) Correspond to profit for the fiscal year ended at June 30, 2018 and 2017.

(3) Represents other individually non-significant associates.

(4) Includes Ps 364 and Ps. 206. as of June 30, 2018 and 2017, respectively, in relation to the equity interest in Avenida Compras disclosed under. (See Note 19)

(5) Include the necessary adjustments to arrive at balances under international financial reporting standards.

Changes in the Group’s investments in associates and joint ventures for the years ended June 30, 2018 and 2017 were as follows:

	06.30.18	06.30.17
Beginning of the year	791,420	597,759
Profit sharing, net	639,525	152,703
Irrevocable contributions (Note 29)	43,574	3,000
Capital contributions (Note 29)	1,649	-
Dividends distributed (Note 29)	(43,010)	(20,284)
Incorporation as result of business combination, net (i)	-	47,852
Acquisitions of companies	-	10,390
End of the year (4)	1,433,158	791,420

(i) In July 2016, the Group through IRSA Propiedades Comerciales acquired 20% shareholding in Entertainment Holdings S.A (EHSA). It also acquired 1.25% interest in Entretenimiento Universal S.A. (“ENUSA”). The amount paid for the acquisition was Ps. 53 million. As a result, the Group now holds 70% of the voting stock of EHSA (Note 4).

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IRSA Propiedades Comerciales S.A. 

9.

       Investment properties

The Group's investment properties are measured at fair value. The following table shows the Group’s hierarchy of fair values per investment property category and the changes in the investment property’s balances for the fiscal years ended June 30, 2018 and 2017:

	Shopping malls	Office and other rental properties	Undeveloped parcels of land	Properties under development	Others (*)
Fair value hierarchy	3	2	2	2	3	Total
Fair value as of 06.30.16	26,425,132	4,446,294	1,355,500	7,170	-	32,234,096
Additions	100,002	466,332	5,539	107,194	-	679,067
Capitalization of financial costs (Note 27)	-	-	-	2,310	-	2,310
Capitalized lease costs	1,397	3,349	-	20,052	-	24,798
Depreciation of capitalized lease costs (i)	(636)	(1,366)	-	-	-	(2,002)
Transfers	-	(80,160)	(330,366)	410,526	-	-
Transfer to trading properties (Note 11)	(13,617)	-	-	-	-	(13,617)
Disposals	-	(141,183)	-	-	-	(141,183)
Net gain from fair value adjustment on investment properties (ii)	2,048,501	905,487	128,022	51,403	-	3,133,413
Fair value as of 06.30.17	28,560,779	5,598,753	1,158,695	598,655	-	35,916,882
Additions	106,901	504	256,505	982,760	-	1,346,670
Incorporation as result of business combination (Note 15)	-	-	-	-	106,795	106,795
Capitalization of financial costs (Note 27)	-	-	-	14,385	-	14,385
Capitalized lease costs	12,930	3,940	-	1,290	-	18,160
Depreciation of capitalized lease costs (i)	(1,961)	(2,479)	-	-	-	(4,440)
Transfers	343	-	-	(343)	-	-
Transfer to property plant and equipment (Note10)	-	(3,026)	-	-	-	(3,026)
Disposals	(1,250)	(29,482)	-	-	-	(30,732)
Net gain from fair value adjustment on investment properties(iiI)	11,200,624	4,060,764	979,377	403,772	45,580	16,690,117
Fair value as of 06.30.18	39,878,366	9,628,974	2,394,577	2,000,519	152,375	54,054,811

(i) As of June 30, 2018 and 2017 depreciation charges were included in “Costs” in the amount of Ps 4,440 and Ps. 2,002, respectively, in the statement of comprehensive income (Note 25)

(ii) For fiscal year 2017 the increase in the value of our investment properties as measured in Pesos was primarily due to: (i) a 16 basis points decrease in the discount rate applied in calculating the discounted cash flows appraisal method to appraise our shopping mall properties that resulted in increases in value, mainly as a result of macroeconomic improvements that led to a decrease in the cost of capital; and (ii) the Peso depreciated by approximately 11% against the U.S. dollar. The value of our offices properties is booked in U.S. dollars per accepted practice in the Argentine real estate. The appraised values of our shopping mall properties increased 8.1% during fiscal 2017 largely due to a decreased in our capital cost. The appraised value of our office buildings increased 40.3% in fiscal 2017 largely as a result of the impact of the depreciation of the Peso and higher rental rates during the period.

(iii) For fiscal year 2018 the net impact in the peso values of the Company’s properties was primarily a consequence of the change in the macroeconomic conditions: (i) depreciation of Argentine peso of 73% against the U.S. dollar; (ii) an increase in the projected inflation rate, with the resulting increase in the cash flow of revenues of shopping malls; (iii) an increase of 44 basis points in the discount rate; and (iv) an additional effect due to in the income tax rate used in the methodology applied to value discounted cash flows; such amendment was set forth by the fiscal reform recently approved (See note 20). The values of our shopping mall properties increased 40.4% during the fiscal year ended June 30, 2018, largely due to the change in the applicable income tax rate and the impact of the depreciation of the peso, partially offset by an increase in the discount rate. The value of our office buildings increased 85.7% during the fiscal year ended June 30, 2018 largely as a result of the impact of the depreciation of the peso and higher rental rates for our properties.

(*)       Corresponds to the DirectTV Arena Stadium.

Valuation processes

The Group's investment properties were valued at each reporting date by independent professionally qualified appraisers who hold a recognized relevant professional qualification and have experience in the locations and segments of the investment properties appraised. For all investment properties, their current use equates to the highest and best use.

The Group's finance department includes a team that reviews the appraisals performed by the independent appraisers for financial reporting purposes (the "review team"). At each financial year end, the review team: i) verifies all major and important assumptions relevant to the appraisal in the valuation report from the independent appraiser; ii) assesses property valuation movements compared to the valuation report; and iii) holds discussions with the independent appraiser.

Changes in Level 2 and 3 fair values, if any, are analyzed at each reporting date during the appraisal discussions between the review team and the independent appraiser. The Board of Directors ultimately approves the fair value calculations for recording into the Financial Statements.

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  IRSA Propiedades Comerciales S.A.

Valuation techniques used for the estimation of fair value of the investment property:

For shopping malls, the valuation was determined using the discounted cash flow (“DCF”) projections based on significant unobservable assumptions. Within these assumptions the following are the key ones:

●

Future rental cash inflows based on the location, type and quality of the properties and supported by the terms of any existing lease, and considering the estimations of the Gross National Income (GNI) and the estimated inflation rated given by external advisors.

●

It was considered that all Shopping malls will grow with the same elasticity in relation to the evolution of the GNI and projected Inflation.

●

Cash flows from future investments, expansions, or improvements in shopping malls were not considered.

●

Estimated vacancy rates taking into account current and future market conditions once the current leases expired.

●

Given the inflationary context, the volatility of certain macroeconomic variables, it is not possible have a relevant interest long-term rate in pesos to discount the projected cash flows for the shopping centers. As result, we proceeded to dollarize the projected cash flows through the future Ps / USD exchange rate curve provided by an external consultant and discounted them with a long-term rate in dollar, the capital cost rate weighted average ("WACC").

●

The projected cash flows were discounted using the Company's weighted average cost of capital (WACC) as the discount rate for each valuation date.

●

Terminal value: it was determined on the basis of the growth rate and the discount rate.

●

Cash flows for the concessions were projected until the due date of the concession determinate in the current agreements.

●

The projected cash flows in dollars were discounted with the WACC rate for each valuation date.

For offices and, other properties for lease and undeveloped land, the valuation was determined using market comparables. These values are adjusted for differences in key attributes such as location, size of the property and quality of the interior design. The most significant contribution to this comparable market approach is the price per square meter.

It can sometimes be difficult to reliably determine the fair value of the property under development. In order to assess whether the fair value of the property under development can be determined reliably, management considers the following factors, among others:

●       The provisions of the construction contract.

●       The stage of completion.

●       Whether the project/property is standard (typical for the market) or non-standard.

●       The level of reliability of cash inflows after completion.

●       The development risk specific to the property.

●       Past experience with similar constructions.

●       Status of construction permits.

There were no changes to the valuation techniques during the fiscal years 2018 and 2017.

The following table presents information regarding the fair value measurements of investment properties using significant unobservable inputs (Level 3):

June 30, 2018

Property type	Valuation technique	Discount rate	Growth rate
Shopping Malls	Discounted cash flow	9.79%	3%

For the next 5 years the Group considered an average exchange rate Ps./USD with increasing trend that begins at Ps. 19.51 (corresponding to the year ended June 30, 2018) and ends at Ps. 49.05. Over the long term, the model assumes a nominal depreciation rate of the peso of 5.6%, estimated based on the projected inflation rates of Argentina and US. The inflation considered shows a decreasing trend, beginning at 25% (corresponding to the year ended June 30, 2018) and leveling off at around 8% in 10 years. The premises were determinated of the closing date of the fiscal year.

F-50

IRSA Propiedades Comerciales S.A.

June 30, 2017

Property type	Valuation technique	Discount rate	Growth rate
Shopping Malls	Discounted cash flow	9.35%	3%

For the next 5 years the Group considered an average exchange rate Ps./USD with increasing trend that begins at Ps. 15.45 (corresponding to the year ended June 30, 2017) and ends at Ps. 27.66. Over the long term, the model assumes a nominal depreciation rate of the peso of 5.5%, estimated based on the projected inflation rates of Argentina and US. The inflation considered shows a decreasing trend, beginning at 31% (corresponding to the year ended June 30, 2017) and leveling off at around 8% in 10 years.

Sensitivity of unobservable assumptions - Shopping malls (in millions of pesos):

	Discount rate + 1%	Discount rate -1%	Growth rate + 1 %	Growth rate - 1 %	Inflation + 10% (1)	Inflation  - 10% (2)	Devaluation rate + 10% (3)	Devaluation rate - 10% (4)
2018	(5,046)	6,796	3,104	(2,307)	4,035	(3,643)	(3,575)	4,369
2017	(3,948)	5,445	2,464	(1,794)	2,684	(2,425)	(2,565)	3,135

(1) assume a 10% higher inflation rate for each period vis-a-vis projected rates.

(2) assume a 10% lower inflation rate for each period vis-a-vis projected rates.

(3) assume a 10% higher exchange rate for each period vis-a-vis projected rates.

(4) assume a 10% lower exchange rate for each period vis-a-vis projected rates.

The following amounts have been recognized in the statements of comprehensive income:

	06.30.18	06.30.17	06.30.16
Revenues from rental and services (Note 24)	4,128,454	3,409,292	2,672,701
Expenses and collective promotion fund (Note 24)	1,717,000	1,488,187	1,183,627
Rental and services costs (Note 25)	(2,120,715)	(1,874,392)	(1,454,409)
Net unrealized gain from fair value adjustment on investment properties	16,669,347	3,068,248	16,919,859
Net realized gain from fair value adjustment on investment properties	20,770	65,165	172,544

Certain of the Group’s investment properties have been mortgaged or otherwise restricted to secure some of the Group’s borrowings and other liabilities. The net book value of those properties as of June 30, 2018 and 2017 is as follows:

	06.30.18	06.30.17
Córdoba Shopping (i)	1,112,547	759,103
Total	1,112,547	759,103

(i)

A portion of the Córdoba Shopping mall property is encumbered with an antichresis right as collateral for an advance rent received from NAI International II Inc. amounting to Ps. 9.6 million and Ps. 12.2 million, as of June 30, 2018 and 2017, respectively, (included in “Trade and other payables” in the statement of financial position).

F-51

IRSA Propiedades Comerciales S.A. 

10.

          Property, plant and equipment

Changes in the Group’s property, plant and equipment for the years ended June 30, 2018 and 2017 are as follows:

	Other buildings and facilities	Furniture and fixtures	Machinery and equipment	Vehicles	Othes	Total
As of June 30, 2016
Costs	88,118	22,583	124,586	3,154	56	238,497
Accumulated depreciation	(18,390)	(11,018)	(89,423)	(1,341)	-	(120,172)
Net book amount as of 06.30.16	69,728	11,565	35,163	1,813	56	118,325
Additions	509	3,958	19,345	-	54	23,866
Depreciation charges (i)	(4,772)	(2,321)	(13,989)	(573)	-	(21,655)
As of June 30, 2017	65,465	13,202	40,519	1,240	110	120,536
Costs	88,627	26,541	143,931	3,154	110	262,363
Accumulated depreciation	(23,162)	(13,339)	(103,412)	(1,914)	-	(141,827)
Net book amount as of 06.30.17	65,465	13,202	40,519	1,240	110	120,536
Additions	3,235	991	20,563	-	-	24,789
Transfers from investment properties (Note 9)	3,026	-	-	-	-	3,026
Disposals	(12,379)	-	-	-	-	(12,379)
Incorporation as result of business combination (Note 15)	-	-	67	126	-	193
Depreciation charges (i)	(5,580)	(2,253)	(18,323)	(572)	-	(26,728)
As of June 30, 2018	53,767	11,940	42,826	794	110	109,437
Costs	82,509	27,532	164,561	3,280	110	277,992
Accumulated depreciation	(28,742)	(15,592)	(121,735)	(2,486)	-	(168,555)
Net book amount as of 06.30.18	53,767	11,940	42,826	794	110	109,437

(i) As of June 30, 2018 and 2017, depreciation charges were charged to “Costs” in the amount of Ps. 23,218 and Ps. 18,126, respectively, to “General and administrative expenses” in the amount of Ps. 3,324 and Ps. 3,253, respectively and to “Selling expenses” in the amount of Ps. 186 and Ps. 276, respectively, in the Statements of Comprehensive Income (Note 25).

             As of June 30, 2018 and 2017, there are no properties under development included in this items, there were no capitalization of financial costs anual no items of property plant and equipment have assets been mortgaged to guarantee group loans.

During the fiscal years ended June 30, 2017 and 2016, borrowing costs were not capitalized.

The Group leases computer equipment under non-cancellable finance lease agreements. The lease terms have an average of 4 and 5 years, and ownership of the assets lie within the Group (Note 23). Book amount of this equipment, included in class "Machinery and equipment”, is as follows:

	06.30.18	06.30.17
Costs – capitalized finance leases	12,658	9,217
Accumulated depreciation	(4,427)	(7,333)
Net book amount	8,231	1,884

11.

         Trading properties

Changes in trading properties for the fiscal years ended June 30, 2018 and 2017 are as follows:

	Completed properties	Undeveloped sites	Total
As of June 30, 2016	387	47,642	48,029
Transfers from investment properties (Note 9)	-	13,617	13,617
Transfers from intangible assets (Note 12)	12,857	-	12,857
Disposals (i)	(12,903)	-	(12,903
As of June 30, 2017	341	61,259	61,6
Transfers from intangible assets (Note 12)	8,837	-	8,837
Disposals (i)	(8,869)	-	(8,869)
As of June 30, 2018	309	61,259	61,568

F-52

IRSA Propiedades Comerciales S.A. 

	Net book amount
Description	06.30.18	06.30.17	Date of acquisition
Undeveloped sites:
Air space Coto	6,024	6,024	Sep-97
Córdoba plot of land	15,544	15,544	May-15
Córdoba plot of land (Shopping)	23,935	23,935	Dec-06
Residencial project Neuquén	15,756	15,756	May-06
Total undeveloped sites	61,259	61,259
Completed properties:
Condominios II	309	341	Nov-13
Total completed properties	309	341
Total trading properties	61,568	61,600
Non-current	61,362	61,600
Current	206	-
Total	61,568	61,600

(i)

As of June 30, 2018 and 2017 the sales properties costs were charged to “Costs” in the Statements of Comprehensive Income. (Note 25)

During the fiscal years ended June 30, 2018 and 2017 no borrowing costs were capitalized.

None of the Group’s trading properties have been mortgaged or otherwise restricted to secure Group’s borrowings and other payables.

12.

         Intangible assets

Changes in the Group’s intangible assets for the fiscal years ended June 30, 2018 and 2017 are as follows:

	Goodwill	Software	Rights of use (ii)	Right to receive units (Barters) (iii)	Others	Total
As of June 30, 2016
Costs	-	16,829	20,873	38,281	11,861	87,844
Accumulated depreciation	-	(15,098)	(1,414)	-	(4,193)	(20,705)
Net book amount as of 06.30.16	-	1,731	19,459	38,281	7,668	67,139
Additions	-	33,650	-	2,136	-	35,786
Incorporation as result of business combination (Note 15)	26,375	-	-	-	-	26,375
Transfers to trading properties (Note 11)	-	-	-	(12,857)	-	(12,857)
Amortization charge (i)	-	(2,271)	(419)	-	(2,193)	(4,883)
As of June 30, 2017	26,375	33,110	19,040	27,560	5,475	111,560
Costs	26,375	50,479	20,873	27,560	11,861	137,148
Accumulated depreciation	-	(17,369)	(1,833)	-	(6,386)	(25,588)
Net book amount as of 06.30.17	26,375	33,110	19,040	27,560	5,475	111,560
Additions	-	41,915	-	7,873	-	49,788
Incorporation as result of business combination (Note 15)	74,486	-	-	-	-	74,486
Transfers to trading properties (Note 11)	-	-	-	(8,837)	-	(8,837)
Amortization charge (i)	-	(10,422)	(1,333)	-	(2,191)	(13,946)
As of June 30, 2018	100,861	64,603	17,707	26,596	3,284	213,051
Costs	100,861	92,394	20,873	26,596	11,861	252,585
Accumulated depreciation	-	(27,791)	(3,166)	-	(8,577)	(39,534)
Net book amount as of 06.30.18	100,861	64,603	17,707	26,596	3,284	213,051

(i) As of June 30, 2018 and 2017, depreciation charges were charged to “Costs” in the amount of Ps. 5,643 and Ps. 2,094, respectively, to “General and administrative expenses” in the amount of Ps. 8,174 and Ps. 2,700, respectively and to “Selling expenses” in the amount of Ps. 129 and Ps. 89, respectively, in the Statements of Comprehensive Income (Note 25). There are no impairment charges for any of the reported years.

(ii) Corresponds to Distrito Arcos.

(iii) Corresponds to in-kind receivables representing the right to receive residential apartments in the future under barter transactions (Note 32).

13.

          Financial instruments by category

The note shows the financial assets and financial liabilities by category and a reconciliation to the corresponding line in the Consolidated Statements of Financial Position, as appropriate. Financial assets and liabilities measured at fair value are assigned based on their different levels in the fair value hierarchy.

F-53

IRSA Propiedades Comerciales S.A. 

Financial assets and financial liabilities as of June 30, 2018 were as follows:

	Financial assets at amortized cost (i)	Financial assets at fair value through profit or loss			Subtotal financial assets	Non-financial assets	Total
June 30, 2018		Level 1	Level 2	Level 3
Assets as per statement of financial position
Trade and other receivables (excluding allowance for doubtful accounts) (Note 14)	1,424,384	-	-	-	1,424,384	1,498,699	2,923,083
Investments in financial assets:
- Investment in equity public companies	-	201,699	-	-	201,699	-	201,699
- Non-convertible notes issued by related parties (Notes 29 and 31)	-	248,544	-	-	248,544	-	248,544
- Mutual funds	-	1,163,536	-	-	1,163,536	-	1,163,536
- ETF funds	-	121,971	-	-	121,971	-	121,971
- Government bonds	-	2,848,848	-	-	2,848,848	-	2,848,848
- Non-Convertible Notes TGLT	-	-	-	580,462	580,462	-	580,462
- Financial trusts	9,542	-	-	-	9,542	-	9,542
Derivative financial instruments
- Futures contracts	-	-	47,360	-	47,360	-	47,360
Cash and cash equivalents:
- Cash at banks and on hand	1,199,068	-	-	-	1,199,068	-	1,199,068
- Short- term investments	-	2,444,063	-	-	2,444,063	-	2,444,063
Total	2,632,994	7,028,661	47,360	580,462	10,289,477	1,498,699	11,788,176

	Financial liabilities at amortized cost (i)	Financial liabilities at fair value through profit or loss	Subtotal financial liabilities	Non-financial liabilities	Total
		Level 2
Liabilities as per statement of financial position
Trade and other payables (Note 17)	853,305	-	853,305	1,501,155	2,354,460
Derivative financial instruments
- United States treasury bonds	-	263	263	-	263
- Swaps of interest rate (ii)	-	46,448	46,448	-	46,448
Borrowings (excluding finance leases liabilities) (Note 18)	15,653,804	-	15,653,804	-	15,653,804
Total	16,507,109	46,711	16,553,820	1,501,155	18,054,975

Financial assets and financial liabilities as of June 30, 2017 were as follows:

	Financial assets at amortized cost (i)	Financial assets at fair value through profit or loss	Subtotal financial assets	Non-financial assets	Total
		Level 1
June 31, 2017
Assets as per statement of financial position
Trade and other receivables (excluding allowance for doubtful accounts) (Note 14)	1,096,254	-	1,096,254	1,266,624	2,362,878
Investments in financial assets:
- Investment in equity public companies	-	157,689	157,689	-	157,689
- Non-convertible notes issued by related parties (Notes 29 and 31)	-	267,365	267,365	-	267,365
- Mutual funds	-	196,016	196,016	-	196,016
- EFT funds	-	70,148	70,148	-	70,148
- Government bonds	-	555,748	555,748	-	555,748
- Restringed assets (*) (Note 31)	49,525	-	49,525	-	49,525
Cash and cash equivalents:
- Cash at banks and on hand	119,705	-	119,705	-	119,705
- Short- term investments	-	1,687,839	1,687,839	-	1,687,839
Total	1,265,484	2,934,805	4,200,289	1,266,624	5,466,913

(*) Represents cash related to the Employee Capitalization Plan.

F-54

IRSA Propiedades Comerciales S.A. 

	Financial liabilities at amortized cost (i)	Financial liabilities at fair value through profit or loss	Subtotal financial liabilities	Non-financial liabilities	Total
		Level 2
Liabilities as per statement of financial position
Trade and other payables (Note 17)	492,944	-	492,944	1,018,636	1,511,580
Derivative financial instruments
- Futures contracts	-	4,950	4,950	-	4,950
- Borrowings (excluding finance leases liabilities) (Note 18)	6,164,838	-	6,164,838	-	6,164,838
Total	6,657,782	4,950	6,662,732	1,018,636	7,681,368

(i)  The fair value of financial assets and liabilities at their amortized cost does not differ significantly from their book value.

(ii) The maturity date is February 16, 2023 and it is associated with the loan obtained through its subsidiary, Panameriacan Mall S.A, with the purpose of paying for the work that is being carried out at the Polo Dot (Note 18).

Financial liabilities carried at amortized cost also include liabilities under finance leases where the Group is the lessee and which therefore have to be measured in accordance with IAS 17 “Leases”. Finance leases are excluded from the scope of IFRS 7 “Financial Instruments: Disclosures”. Therefore, finance leases have been shown separately.

The following are details of the book value of financial instruments recognized, which were offset in the statements of financial position:

	06.30.18			06.30.17
	Gross amounts recognized	Gross amounts offset	Net amount presented	Gross amounts recognized	Gross amounts offset	Net amount presented
Financial assets
Trade and other receivables (excluding the allowance for doubtful accounts and other receivables)	1,507,724	(83,340)	1,424,384	1,182,876	(86,622)	1,096,254
Financial liabilities
Trade and other payables	(936,645)	83,340	(853,305)	(579,566)	86,622	(492,944)

Results of derivative financial instruments are included in “Financial results, net” in the statements of comprehensive income (Note 27) and can be assigned to the following categories:

	Financial assets / (liabilities) at amortized cost	Financial assets / (liabilities) at fair value through profit or loss	Total
June 30, 2018
Interest income	234,947	5,031	240,005
Dividend income	34,172	-	34,172
Interest expense	(928,218)	-	(928,218)
Foreign exchange losses, net	(5,993,197)	-	(5,993,197)
Other finance costs	(117,445)	-	(117,445)
Fair value gains of financial assets through profit or loss	-	2,041,061	2,041,061
Gain from derivative financial instruments	-	227,378	227,378
Net (loss) income	(6,769,741)	2,273,470	(4,496,244)

	Financial assets / (liabilities) at amortized cost	Financial assets / (liabilities) at fair value through profit or loss	Total
June 30, 2017
Interest income	177,892	6,404	184,296
Dividend income	9,705	-	9,705
Interest expense	(639,768)	-	(639,768)
Foreign exchange losses, net	(550,408)	-	(550,408)
Other finance costs	(77,033)	-	(77,033)
Fair value gains of financial assets through profit or loss	-	203,087	203,087
Gain from derivative financial instruments	-	81,105	81,105
Loss from repurchase of non-convertible notes	-	(168)	(168)
Net (loss) income	(1,079,612)	290,428	(789,184)

F-55

IRSA Propiedades Comerciales S.A. 

	Financial assets / (liabilities) at amortized cost	Financial assets / (liabilities) at fair value through profit or loss	Total
June 30, 2016
Interest income	94,541	7,628	102,169
Interest expense	(612,486)	-	(612,486)
Foreign exchange losses, net	(1,815,553)	-	(1,815,553)
Other finance costs	(100,051)	-	(100,051)
Fair value gains of financial assets through profit or loss	-	466,328	466,328
Gain from derivative financial instruments	-	1,248,374	1,248,374
Net (loss) income	(2,433,549)	1,722,330	(711,219)

Determination of fair values

IFRS 9 defines the fair value of a financial instrument as the amount for which an asset could be exchanged, or a liability settled, between knowledgeable, willing parties in an arm’s length transaction. All financial instruments recognized at fair value are allocated to one of the valuation hierarchy levels of IFRS 7. This valuation hierarchy provides for three levels.

In the case of Level 1, valuation is based on quoted prices in active markets for identical financial assets or liabilities that the Group can refer to at the date of the statement of financial position. A market is deemed active if transactions take place with sufficient frequency and in sufficient quantity for price information to be available on an ongoing basis. Since a quoted price in an active market is the most reliable indicator of fair value, this should always be used if available.

The financial instruments the Group has allocated to this level mainly comprise equity investments, mutual funds, bonds and non-convertible notes for which quoted prices in active markets are available. In the case of equity shares, the Group allocates them to this level when either a stock market price is available or prices are provided by a price quotation on the basis of actual market transactions.

In the case of Level 2, fair value is determined by using valuation methods based on inputs directly or indirectly observable in the market. The financial instruments the Group has allocated to this level comprise foreign-currency forward contracts.

In the case of Level 3, the Group uses valuation techniques not based on inputs observable in the market. This is only permissible insofar as no observable market data are available. The inputs used reflect the Group’s assumptions regarding the factors which any market player would consider in their pricing. The Group uses the best available information for this, including internal company data. The Group uses the best available information, including internal data. The Group has determined that the value of purchase option of Arcos del Gourmet S.A. it is a level 3 financial instrument, wich fair value is zero as of June 30, 2018 and 2017.

When no quoted prices in an active market are available, fair values are based on recognized valuation methods. The Group uses a range of valuation models for the measurement of Level 2 and Level 3 instruments, details of which may be obtained from the following table:

Description	Pricing model	Parameters	Fair value hierarchy	Range
Foreign-currency contracts	Present value method - Theoretical price	Money market curve; Interest curve	Level 2	-
Foreign exchange curve
Arcos del Gourmet S.A. purchase option	Discounted cash flow	Projected revenues and discount rate	Level 3	Projected income: USD 0,5MM – USD 1MM Discount rate 8.7% - 9.5%
Non-Convertible Notes - TGLT	Black & Scholes - Black & Scholes	Price and volatility of the subjacent	Level 3	Price: Ps. 13 - Ps. 16 Volatility of the subjacent: 40% - 60% Market interest rate: 6% - 7%
Market Interest rate
Swaps of interest rate	Discounted cash flow	Interest rate futures	Level 2	-

F-56

IRSA Propiedades Comerciales S.A. 

14.

         Trade and other receivables

The following table shows the amounts of Trade and other receivables as of June 30, 2018 and 2017:

	06.30.18	06.30.17
Post-dated checks	492,745	422,984
Lease and services receivables	474,311	338,595
Averaging of scheduled rent escalation	301,203	271,747
Debtors under legal proceedings	159,821	100,808
Consumer financing receivables	16,441	15,786
Property sales receivables	20,238	5,510
Less: allowance for doubtful accounts	(201,333)	(131,583)
Total trade receivables	1,263,426	1,023,847
Advance payments	271,800	285,158
Prepayments	150,666	113,190
Other receivables from partners of joint ventures (*)	88,133	89,131
VAT receivables	82,399	45,821
Loans	44,373	20,324
Other tax receivables	19,225	8,656
Expenses to be recovered	8,077	5,226
Others	7,451	6,108
Less: allowance for doubtful accounts	(166)	(165)
Total other receivables	671,958	573,449
Related parties (Note 29)	786,200	633,834
Total current trade and other receivables	2,721,584	2,231,130
Non-current	955,509	777,818
Current	1,766,075	1,453,312
Total	2,721,584	2,231,130

(*)     Includes Ps. 83,942 and Ps. 66,711 at June 30 of 2018 and 2017 respectively, of agreement for assumption of debt with the State Assets Administration Office, or AABE in Spanish. (See Note 18)

As of June 30, 2018 and 2017, all non-current receivables are due within 7 years, from the end of the fiscal year.

The fair values of trade and other receivables approximate their respective carrying amounts because, due to their short-term nature, the impact of discounting is not considered significant. Fair values are based on discounted cash flows.

Trade receivables are generally presented in the statement of financial position net of allowances for doubtful accounts. Impairment policies and procedures by type of receivables are discussed in detail in Note 2.15.

Movements on the Group’s allowance for doubtful accounts and other receivables are as follows:

	06.30.18	06.30.17
Beginning of the year	131,748	93,532
Additions (Note 25)	86,645	49,360
Unused amounts reversed (Note 25)	(12,742)	(8,627)
Used during the year	(4,152)	(2,517)
End of the year	201,499	131,748

The allowance for doubtful accounts’ additions and unused amounts reversed have been included in “Selling expenses” in the statements of comprehensive income (Note 25). Amounts charged to the allowance account are generally written off, when no recovery is expected.

The Group’s trade receivables comprise: shopping mall leased related and services, leases office and related services, consumer financing; and sale of properties. The maximum exposure to credit risk at the reporting date is the carrying value of each class of receivables (Note 5).

The Group also has receivables from related parties. Neither of which are due nor impaired.

F-57

  IRSA Propiedades Comerciales S.A.

Due to the distinct characteristics of each type of receivable, an aging analysis of past due unimpaired and impaired receivables are shown by type and class as of June 30, 2018 and 2017 (includes not past due receivables to reconcile with the amounts in the statements of financial position):

Type of receivables	Up to 3 months	3 to 6 months	Over 6 months	To mature	Allowed	Total
Shopping mall lease and services receivables	144,863	15,347	4,097	1,077,825	184,387	1,426,519
Office leases and services receivables	355	-	701	-	505	1,561
Consumer financing receivables	-	-	-	-	16,441	16,441
Properties sales receivables	1,273	-	16,674	2,291	-	20,238
Total as of June 30, 2018	146,491	15,347	21,472	1,080,116	201,333	1,464,759
Shopping mall leases and services receivables	61,085	3,605	9,364	941,762	115,792	1,131,608
Office leases and services receivables	1,838	376	305	2	5	2,526
Consumer financing receivables	-	-	-	-	15,786	15,786
Property sales receivable	1,982	34	368	3,126	-	5,510
Total as of June 30, 2017	64,905	4,015	10,037	944,890	131,583	1,155,430

Leases and services receivables from investment properties:

Trade receivables related to leases and services from the shopping malls and offices represent 97.5% and 98.1% of the Group’s total trade receivables as of June 30, 2018 and 2017, respectively. The Group has a large customer base and is not dependent on any single customer. Leases and services receivables that are not due and for which no allowance has been recorded relate to a wide and varied number of customers for whom there is no external credit rating available. Most of these customers have been actively renting a minimum of six months. New customers with less than six months are constantly monitored. At the end of the year, the Group has not experienced credit issues with these new customers.

As of June 30, 2018 and 2017, the Group provided for profit net with respect to leases and services receivables for an amount of Ps. 73,248 and Ps. 40,327, respectively.

Consumer financing receivables:

Trade receivables related to the residual activities of the Group represent only 1.1% and 1.4% of the Group’s total trade receivables as of June 30, 2018 and 2017, respectively.

As of June 30, 2018 and 2017, the Group provided for recorded net gains (losses) on impairment of consumer financing receivables in an amount of Ps. 655 and Ps. 406, respectively.

The estimation of the credit risk is complex and requires the use of rating and scoring models which are essential to measure default risk. In measuring the consumption credit risks of credit purchases made through credit cards and cash advances, the Company considers two components: (i) the probability of default by client or counterparty, and (ii) the likeable recovery rate of obligations in arrears. The models are reviewed regularly to check their effectiveness with respect to actual performance and, where necessary, to enhance them.

Receivables from the sale of properties:

Trade receivables related to the sale of properties represent 1.4% and 0.5% of the Group’s total trade receivables as of June 30, 2018 and 2017, respectively. Payments on these receivables are generally received when due and are generally secured by mortgages on the properties, thus credit risk on outstanding amounts is considered low.

F-58

IRSA Propiedades Comerciales S.A.

15.

       Cash flow and cash equivalent information

Following is a detailed description of cash flows generated by the Group’s operations for the years ended June 30, 2018, 2017 and 2016.

	Note	06.30.18	06.30.17	06.30.16
Net income for the year		15,656,023	3,377,514	12,252,532
Adjustments:
Income tax expense	20	286,506	1,609,181	6,278,894
Amortization and depreciation	25	45,114	28,540	22,944
Net gain from fair value adjustment on investment properties	9	(16,690,117)	(3,133,413)	(17,092,403)
(Gain) / Loss from disposal of trading properties		(94,328)	(85,889)	241
Written off unused investment properties / property plant and equipment		-	-	23,650
Goodwill disposals		-	-	4,297
Averaging of schedule rent escalation	24	(29,456)	(90,197)	(42,832)
Directors’ fees	29	67,126	44,770	27,700
ILP Long term incentive program	22	6,404	16,545	16,359
Financial results, net		5,379,151	1,117,164	699,211
Provisions and allowances	25 y 26	98,907	54,764	15,397
Share of profit of associates and joint ventures	8	(639,525)	(152,703)	(204,299)
Interest held before the business combination		-	(7,618)	-
Foreign unrealized exchange gain on cash and fair value result of cash equivalents		(272,362)	(5,116)	(1,062)
Right to receive units due to default due to non-compliance	12	(7,873)	-	-
Changes in operating assets and liabilities
Increase in inventories		(2,160)	(4,520)	(2,855)
Decrease in trading properties		100,238	98,792	1,159
Increase in trade and other receivables		(229,761)	(156,265)	(606,342)
Increase in trade and other payables		485,697	396,988	187,298
Decrease in payroll and social security liabilities		34,583	39,713	12,689
Uses in provisions	19	(10,879)	(8,322)	(3,350)
Net cash generated from operating activities before income tax paid		4,183,288	3,139,928	1,589,228

The following table shows a detail of non-cash transactions occurred in the years ended June 30, 2018, 2017 and 2016:

	06.30.18	06.30.17	06.30.16
Non-cash transactions
Decrease in intangible assets trought an increase in trading properties	8,837	12,857	-
Increase in trading properties trought a decrease in investment properties	-	13,617	23,935
Increase in investment properties trought an increase in trade and other payables	132,898	-	-
Increase in investment properties trought an increase in borrowings	14,385	2,310	-
Increase in property plant and equipment a traves in un increase in borrowings	9,015	-	1,852
Increase in property plant and equipment trought a decrease in investment properties	3,026	-	15,224
Increase in investment properties troughtof a decrease in property plant and equipment	-	-	-
Increase in trade and other receivables trought a decrease in trading properties	2,959	-	-
Increase in trade and other receivables trought an increase in trade and other payables	16,659	-	-
Increase in trade and other receivables trought a decrease in investment in associates and joint ventures (Dividends)	7,165	-	-
Decrease in trade and other receivables trought an increase in investment in associates and joint ventures	3,811	2,671	-
Increase in investment in associates and joint ventures trought a decrease in provisions	158	-	-
Decrease in borrowings and trade and other payables trought a decrease in associates and joint ventures	3,965	20,284	-
Decrease in borrowings trought a decrease in investment in financial assets	-	-	372,203
Decrease in trade and other receivables trought a decrease in borrowings	-	30,123	3,591
Decrease in trade and other receivables trought a decrease in trade and other payables (Dividends)	-	64,109	253,663
Decrease in non-controling equity trought an increase in trade and other payables	36,400	-	64,209
Decrease in equity trought a decrease in trade and other receivables (Dividends)	-	656,965	-
Adquisición in non-controling interst	-	865	-
Increase in trade and other receivables trought an increase in borrowings	1,250	-	-
Increase in trade and other receivables trought an increase in borrowings	70	-	-

F-59

IRSA Propiedades Comerciales S.A. 

Balances incorporated as result of business combination

	06.30.18	06.30.17
Investments in joint ventures	-	(106,892)
Trade and other receivables	(36,346)	-
Income tax and minimum presumed income tax credits	(106)	(97,167)
Investment properties (Note 9)	(106,795)	-
Property, plant and equipment (Note 10)	(193)	-
Borrowings	-	54,516
Salaries and social security costs	2,518	-
Deferred income tax (Note 20)	12,070	6,314
Income tax and minimum presumed income tax liabilities	1,332	1,060
Trade and other payables	110,161	13,375
Provisions (Note 19)	452	2,361
Total net non-cash assets acquired	(16,907)	(126,433)
Cash and cash equivalent acquired	-	(6,902)
Fair value of interest held before combination	-	66,658
Goodwill (Note 12)	(74,486)	(26,375)
Non-controlling interest	6,763	40,004
Total net assets acquired	(84,630)	(53,048)
Financed amount	38,285	-
Cash acquired	-	6,902
Acquisition of subsidiaries, net of cash acquired	(46,345)	(46,146)

16.        Shareholder's equity

Share capital and premium

The share capital of IRSA Propiedades Comerciales was originally represented by common shares with a nominal value of Ps. 0.1 per share and one vote each. On December 18, 2012, the Superintendence of Corporations registered an amendment to the Company’s by-laws whereby it increased the nominal value of its shares from Ps. 0.1 to Ps. 1 each. This amendment, was registered under number 20,264 of Stock Companies Book 62 T°. The CNV admitted the shares indicated above for listing on the Stock Exchange.

There have been no changes to capital accounts as of June 30, 2018, 2017 and 2016.

As of June 30, 2018, the capital stock consisted of 126,014,050 common shares with a par value of Ps. 1.00 per share, entitled to one vote each and was as follows:

		Approved by
Status	Par Value	Body	Date	Date of record with the Public Registry of Commerce
Subscribed, Issued and Paid up	1	Extraordinary Shareholders’ Meeting	10.29.87	12.29.87
Subscribed, Issued and Paid up	1	Extraordinary Shareholders’ Meeting	10.26.88	12.29.88
Subscribed, Issued and Paid up	38	Extraordinary Shareholders’ Meeting	10.25.89	02.05.90
Subscribed, Issued and Paid up	9,460	Ordinary and Extraordinary Shareholders’ meeting	08.31.95	03.15.96
Subscribed, Issued and Paid up	16,000	Ordinary and Extraordinary Shareholders’ meeting	10.29.96	05.15.98
Subscribed, Issued and Paid up	38,000	Ordinary and Extraordinary Shareholders’ meeting	03.10.98	10.21.99
Subscribed, Issued and Paid up	6,500	Ordinary and Extraordinary Shareholders’ meeting	08.06.99	05.07.02
Subscribed, Issued and Paid up	8,206	(*) Board of Directors meeting	06.28.04	05.04.05
Subscribed, Issued and Paid up	47,755	(**) Board of Directors meeting	11.16.10	03.02.11
Subscribed, Issued and Paid up	28	(***) Board of Directors meeting	09.22.11	01.04.12
Subscribed, Issued and Paid up	25	(****) Board of Directors meeting	03.13.13	01.16.15
	126,014

(*)  Capital subscribed in connection with the conversion of convertible notes made until August 2006. Such conversions have been registered.

(**)  Capital subscribed in connection with the conversion of convertible notes made on October 7, 2010.

(***)  Capital subscribed in connection with the conversion of convertible notes made on September 21, 2011.

(****)  Capital subscribed in connection with the conversion of convertible notes made on March 13, 2013.

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IRSA Propiedades Comerciales S.A. 

Inflation adjustment of share capital

Under Argentine GAAP, the Group’s financial statements were previously prepared on the basis of general price-level accounting which reflected changes in the purchase price of the Argentine Peso in the historical financial statements through February 28, 2003. The inflation adjustment related to share capital was appropriated to an inflation adjustment reserve that formed part of shareholders' equity. The balance of this reserve could be applied only towards the issuance of common stock to shareholders of the Company. Resolution 592/11 of the CNV requires that at the transition date to IFRS certain equity accounts, such as the inflation adjustment reserve, are not adjusted and are considered an integral part of share capital.

Legal reserve

According to Law N° 19,550, 5% of the profit of the year is destined to constitute legal reserves until they reach legal capped amount (20% of share capital). This legal reserve is not available for dividend distribution and can only be released to absorb losses. IRSA Propiedades Comerciales has reached the legal limit of these reserves.

Reserve for future dividends

The Company and subsidiaries may separate portions of their profits of the year to constitute voluntary reserves according to company law and practice. These special reserves may be for general purposes or for specific uses.

Resolution reserve CNV 609/12- unassigned

The CNV, through General Resolutions N° 562/09 and 576/10, has provided for the application of Technical Resolutions N° 26 and 29 of the FACPCE, which adopt IFRS, as issued by the IASB, for company’s subject to the public offering regime ruled by Law N° 17,811, due to the listing of their shares or corporate notes, and for entities that have applied for authorization to be listed under the mentioned regime.

The Group adopted IFRS, as issued by the IASB, in the fiscal year beginning July 1, 2012, being its transition date July 1, 2011.

As mentioned in Note 2.1.b) to these Financial Statements, in the third quarter of fiscal 2017, the Company’s Board of Directors decided to change the accounting policy applicable to investment properties replacing the acquisition cost method with fair value accounting, as permitted by IAS 40, and retroactively modified the comparative figures until the date of transition to IFRS (July 1, 2011).

Pursuant to CNV General Ruling N° 609/12, the Company set up a special reserve reflecting the positive difference between the balance of retained earnings disclosed in the first closing of the last Financial Statements prepared in accordance with previously effective accounting standards and the exchange result recognized in the equity on the transition date as a result of the change in accounting policy in investment properties indicated in Note 2.1.b). The reserve for application of IFRS recorded in a timely manner amounted to Ps. 15,802 and the reserve for policy change amounted to Ps. 2,684,390.

This reserve may not be used to make distributions in kind or in cash, and may only be reversed to be capitalized to absorb potential negative balances in Retained Earnings. Changes in fair value that have occurred after the transition period are part of the unallocated results.

As for unallocated results, the effect of the aforementioned policy change amounted to Ps. 15,478,896.

Special reserve

The Ordinary and Extraordinary General Shareholders' Meeting on October 31, 2017 constituted a special reserve for Ps. 2,627,076

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IRSA Propiedades Comerciales S.A.

Dividends

Dividends distributed corresponding to the results of the years ended as of June 30, 2017, 2016 and 2015 were:

● Ps. 680,000 (Ps 5.40 per share), approved by the Ordinary and Extraordinary General Shareholders' Meeting on October 31, 2017.

● Ps. 770,000 (Ps 6.11 per share), approved Ps460,000 by the Ordinary and Extraordinary General Shareholders' Meeting on October 31, 2016 and Ps. 310,000, in advance by by the Ordinary Shareholders' Meeting on April 5, 2017.

●

 Ps. 283,580 (Ps 2.25 per share), approved by the Ordinary and Extraordinary General Shareholders' Meeting on October 31, 2015.

As of June 30, 2018, 2017 and 2016 there were no prescribed dividends corresponding to dividends pending of payment from previous years.

The canceled dividends during the years ended as of June 30, 2018, 2017 and 2016 were Ps. 680,000, Ps. 770,000 and Ps. 283,580.

17.

       Trade and other payables

The following table shows the amounts of trade and other payables as of June 30, 2018 and 2017:

	06.30.18	06.30.17
Admission rights	589,141	468,323
Rent and service payments received in advance	505,883	380,352
Accrued invoices	340,480	162,980
Trade payables	168,900	133,459
Payments received in advance	77,667	22,115
Tenant deposits	46,690	29,187
Total trade payables	1,728,761	1,196,416
VAT payables	201,279	55,194
Others (*)	102,119	62,911
Withholdings payable	50,793	56,857
Tax payment plans	47,981	16,503
Dividends available to minority shareholders	36,525	125
Other tax payables	21,980	12,367
Other income to be accrued	6,431	6,925
Total other payables	467,108	210,882
Related parties (Note 29)	158,591	104,282
Total trade and other payables	2,354,460	1,511,580
Non-current	483,908	406,598
Current	1,870,552	1,104,982
Total	2,354,460	1,511,580

(*) As of June 30, 2017 includes the Capitalization plan - Ps. 49,525.

The fair value of payables approximates their respective carrying amounts because, due to their short-term nature.

The fair value of currents trade and other payables approximate their respective book values due to theris short- term nature. The fair values of non-current trade and other payables approximate their book values. The impact of the discount is not significant.

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IRSA Propiedades Comerciales S.A.

18.

        Borrowings

The following table shows the Company's borrowings as of June 30, 2018 and 2017:

	06.30.18	06.30.17
Non-Convertible notes	14,516,230	5,991,004
Bank loans	1,014,282	77,445
AABE Debts	83,942	66,711
Loans with non-controling interests	28,504	-
Finance leases	14,403	3,149
Bank overdrafts	6,692	26,107
Related parties (Note 29)	4,154	3,571
Total borrowings	15,668,207	6,167,987
Non-current	15,362,726	5,918,119
Current	305,481	249,868
Total	15,668,207	6,167,987

On September 5, 2017, the Class III and IV Non-convertible notes were auctioned, for a nominal value of USD 140 million with a maturity date of 36 months from the issue date, integrated and payable in dollars, which will accrue a fixed annual interest rate of 5.0%, with interest payable quarterly. The capital will be amortized in a single quota that mature on September 14, 2020. The settlement was on September 12, 2017. The class III has been declared void.

On February 16, 2018 the Group, through its subsidiary Panameriacan Mall S.A. signed a loan for USD 35 million in order to found the work that is being done in Polo Dot. The expiration date operates on February 16, 2023.

As of June 30, 2018 and 2017, the Group did not hold collateralized liabilities (seller financing and long-term borrowings, excluding finance leases).

Borrowings also include liabilities under finance leases where the Group is the lessee and which therefore are measured in accordance with IAS 17 “Leases”. Information regarding liabilities under finance leases is disclosed in Note 23.

The maturity of the Group's borrowings (excluding obligations under finance leases) and the Group's classification related to interest rates is as follows:

	06.30.18	06.30.17
Fixed rate:
Less than one year	28,242	76,661
Between 2 and 3 years	4,026,046	-
More than 4 years	10,235,361	5,849,857
	14,289,649	5,926,518
Floating rate:
Less than one year	10,033	29,297
Between 1 and 2 years	225,519	-
Between 2 and 3 years	310,692	-
Between 3 and 4 years	388,163	-
More than 4 years	155,346	66,711
	1,089,753	96,008
Accrued interest:
Less than one year	260,632	142,312
Between 1 and 2 years	13,770	-
	274,402	142,312
	15,653,804	6,164,838

The fair value of current borrowings at fixed-rates and current and non-current borrowings at floating-rates approaches its carrying amount, as the effect of discounting is not significant. The fair value of debt instruments that are not quoted on a market are valued at their technical value, that is, nominal value plus accrued interest.

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IRSA Propiedades Comerciales S.A. 

The following table shows a detail of the borrowings evolution as of June 30, 2018, 2017 and 2016:

	06.30.18	06.30.17	06.30.16
Balances at the beginning of the year	6,167,987	5,893,068	3,794,940
Borrowings obtained	728,506	106,667	1,275,756
Payment of borrowings	(85,495)	(111,103)	(5,046,597)
Interest paid	(724,730)	(542,410)	(278,279)
Accrued interest	876,610	607,400	580,210
Foreign exchange	6,327,426	565,364	2,214,158
Short terms loans, net	(19,766)	(14,065)	(232,203)
Issuance of non-convertible notes	2,365,003	-	5,411,199
Payment of non-convertible notes	-	(407,260)	(1,686,393)
Repurchase of non-convertible notes	-	-	(139,723)
Others	32,666	70,326	-
Balances at the end of the year	15,668,207	6,167,987	5,893,068

The fair value of non-current borrowings at fixed rates (excluding obligations under finance leases) is as follows:

	06.30.18	06.30.17
NCN Class II due 2023	10,760,445	6,877,234
NCN Class IV due 2020	3,997,825	-
Bank loans	1,017,269	2,338
	15,775,539	6,879,572

The following table breakdown the borrowings by fixed and floating rate of the Group by emission currency (excluding the financial leases)

Borrowings by currency and rate	06.30.18	06.30.17
Fixed rate:
Argentine Peso	-	76,661
US Dollar	14,289,649	5,849,857
Subtotal borrowings at fixed rate	14,289,649	5,926,518
Floating rate:
Argentine Peso	80,205	96,008
US Dollar	1,009,548	-
Subtotal borrowings at floating rate	1,089,753	96,008
Accrued interest	274,402	142,312
Total borrowings	15,653,804	6,164,838
Financial leasing	14,403	3,149
Total borrowings in accordance with financial statement	15,668,207	6,167,987

19.

       Provisions

The following table shows the movements in the Group's provisions for other liabilities:

	Labor, legal and other claims	Investments in associates (*)	06.30.18	06.30.17
Balances at the beginning of the year	41,144	206	41,350	33,074
Increases (Note 26)	33,513	-	33,513	25,860
Recovery (Note 26)	(8,509)	-	(8,509)	(11,829)
Increases	-	158	158	206
Used during the year	(10,879)	-	(10,879)	(8,322)
Incorporation as result of business combination (Note 15)	452	-	452	2,361
Balances at the end of the year	55,721	364	56,085	41,350
Non-current			12,258	16,509
Current			43,827	24,841
Total			56,085	41,350

(*) Corresponds to investments in associates with negative equity. (Note 8)

F-64

  IRSA Propiedades Comerciales S.A.

Included in the item are certain amounts in respect of which the Group has established a provision for legal claims, none of which is considered significant.

20.

        Current and deferred income tax

The Group’s income tax has been calculated on the estimated taxable profit for each year at the rates prevailing in the respective tax jurisdictions. The subsidiaries of the Group in the jurisdictions where the Group operates are required to calculate their income taxes on a separate basis; thus, they are not permitted to compensate subsidiaries’ losses against other subsidiarie’s income.

The details of the provision for the Group’s income tax are as follows:

	06.30.18	06.30.17	06.30.16
Current income tax	(137,667)	(510,130)	(223,220)
Deferred income tax	(148,806)	(1,099,051)	(6,055,674)
Minimum presumed income tax	(33)	-	-
Income tax expense	(286,506)	(1,609,181)	(6,278,894)

The statutory tax rates in the countries where the Group operates for all of the years presented are:

Tax jurisdiction	Income tax rate
Argentina	35%
Uruguay	0%

Deferred tax assets and liabilities of the Group as of June 30, 2018, 2017 and 2016 are expected to be recovered as follows:

	06.30.18	06.30.17
Deferred income tax asset to be recovered after more than 12 months	80,696	174,165
Deferred income tax asset to be recovered within 12 months	1,086,937	143,910
Deferred income tax asset	1,167,633	318,075
Deferred income tax liabilities to be recovered after more than 12 months	(12,356,539)	(9,435,983)
Deferred income tax liabilities to be recovered within 12 months	(175,856)	(2,085,978)
Deferred income tax liabilities	(12,532,395)	(11,521,961)
Deferred income tax, net	(11,364,762)	(11,203,886)

Deferred income tax (broken down into assets and liabilities) during the fiscal years ended June 30, 2018 and 2017, without considering offsetting balances within the same tax jurisdiction, is the following:

	06.30.17	(Charged) / Credited to the statement of income	Incorporation as result of business combination (Note 15)	06.30.18
Deferred income tax asset
Tax loss carry-forwards	158	851,966	1,472	853,596
Trade and other payables	270,839	11,119	-	281,958
Other	38,296	(7,191)	-	31,105
Trading properties	8,782	(7,808)	-	974
Subtotal deferred income tax assets	318,075	848,086	1,472	1,167,633
Deferred income tax liabilities
Investment properties	(11,060,948)	(809,615)	(13,542)	(11,884,105)
Property, plant and equipment and trading properties	(235,750)	(227,200)	-	(462,950)
Investments	(129,454)	33,131	-	(96,323)
Trade and other receivables	(67,439)	(4,287)	-	(71,726)
Other	(28,370)	11,181	-	(17,189)
Trade and other payables	-	(102)	-	(102)
Subtotal deferred income tax liabilities	(11,521,961)	(996,892)	(13,542)	(12,532,395)
Deferred income tax liabilities, net	(11,203,886)	(148,806)	(12,070)	(11,364,762)

F-65

  IRSA Propiedades Comerciales S.A.

	06.30.16	(Charged) / Credited to the statement of income	Incorporation as result of business combination (Note 15)	06.30.17
Deferred income tax asset
Tax loss carry-forwards	19,352	(19,194)	-	158
Trade and other payables	187,024	83,850	(35)	270,839
Others	29,601	7,722	973	38,296
Trading properties	(2,163)	10,945	-	8,782
Subtotal deferred income tax assets	233,814	83,323	938	318,075
Deferred income tax liabilities
Investment properties	(9,948,064)	(1,112,884)	-	(11,060,948)
Property, plant and equipment and trading properties	(173,976)	(61,774)	-	(235,750)
Investments	(87,985)	(34,217)	(7,252)	(129,454)
Trade and other receivables	(91,530)	24,091	-	(67,439)
Other	(30,780)	2,410	-	(28,370)
Subtotal deferred income tax liabilities	(10,332,335)	(1,182,374)	(7,252)	(11,521,961)
Deferred income tax liabilities, net	(10,098,521)	(1,099,051)	(6,314)	(11,203,886)

Deferred income tax assets are recognized for tax loss carry-forwards to the extent that the realization of the related tax benefits through future taxable profits is probable. Tax loss carry-forwards may have expiration dates or may be permanently available for use by the Group depending on the tax jurisdiction where the tax loss carry forward is generated. Tax loss carry-forwards in Argentina and Uruguay generally expire within 5 years.

In order to fully realize the deferred income tax asset, the Group will need to generate taxable income in the countries where the net operating losses were incurred. Based upon the level of historical taxable income and projections for future over the years in which the deferred income tax assets are deductible, management believes that as the end of the present year it is probable that the Group will realize all of the deferred income tax assets in Argentina.

As of June 30, 2018, the tax loss carry-forwards of the Group and the jurisdictions which generated them are as follows:

Jurisdiction	Tax loss carry-forward	Date of generation	Date of expiration	Rate
Argentina	2,487	2014	2019	25%
Argentina	252	2015	2020	25%
Argentina	182	2016	2021	25%
Argentina	2,816	2017	2022	25%
Argentina	2,819,414	2018	2023	30%
Argentina	41,634	2018	2023	25%
	2,866,785

The Group did not recognize deferred income tax assets of Ps. 4,071 and Ps. 1,308 as of June 30, 2018 and 2017 corresponding to losses of P.s 15,808 and Ps. 3,737, respectively, related to certain subsidiaries. Although management estimates that these subsidiaries will become profitable in the future, as a result of the recent loss history during the last periods and the lack of verifiable and objective evidence, it has been determined that there is sufficient uncertainty as to the generation of sufficient income to be able to offset losses within a reasonable timeframe, therefore, no deferred tax asset is recognized in relation to these losses.

The Group did not recognize deferred income tax liabilities of Ps. 222 million and Ps. 168 million as of June 30, 2018 and 2017, respectively, related to the potential dividend distribution of its investments in foreign subsidiaries, Torodur S.A. In addition, the withholdings and/or similar taxes paid at source may be creditable against the Group’s potential final tax liability.

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IRSA Propiedades Comerciales S.A.

 from applying the prevailing tax rate on the Profit Before Income Tax for the years ended June 30, 2018, 2017 and 2016:

	06.30.18	06.30.17	06.30.16
Profit for the year before income tax at the prevailing tax rate (i)	(5,357,337)	(1,746,909)	(6,346,363)
Tax effects of:
Rate change	4,729,172	-	-
Share of profit of associates and joint ventures (ii)	226,273	55,399	71,505
Non-taxable financial dividends	122,597	63,529	-
Non-taxable / non-deductible items	(7,223)	5,548	2,492
Derivative special tax	(846)	-	-
Difference between provisions and affidavits	1,077	-	-
Minimum presumed income tax	(33)	-	-
(Recovery) / expiration of carry-forwards	-	7,038	(7,038)
Results from revaluation of equity interest held before combination	-	2,666	-
Others	(186)	3,548	510
Income tax loss	(286,506)	(1,609,181)	(6,278,894)

(i) Does not include Uruguayan-source income / (loss) of Ps. 635,853, as of June 30, 2018, (Ps.4,474) as of June 30, 2017 and Ps. 398,960 as of June 30, 2016.

(ii) Does not include Uruguayan-source income / (loss) by pasticipation in associated and joint ventures of Ps. (6,969) and Ps. (5,580) as of June 30, 2018 and 2017.

On December 27, 2017, the Argentine Congress approved the Tax Reform, through Law No. 27,430, which was enacted on December 29, 2017, and has introduced many changes to the income tax treatment applicable to financial income. The key components of the Tax Reform are as follows:

-    Dividends: Tax on dividends distributed by Argentine companies would be as follows: (i) dividends originated from profits obtained before fiscal year of the Group ending June 30, 2018 will not be subject to withholding tax; (ii) dividends derived from profits generated during fiscal years ending June 30, 2019 and 2020 paid to Argentine Individuals and/or foreign residents, will be subject to a 7% withholding tax; and (iii) dividends originated from profits obtained during fiscal year ending June 30, 2021 onward will be subject to withholding tax at a rate of 13%.

-    Income tax: Corporate income tax gradually would be reduced to 30% for fiscal years beginning at January 1, 2018 through December 31, 2019, and to 25% for fiscal periods beginning at after January 1, 2020, inclusive.

-    Presumptions of dividends: Certain facts will be presumed to constitute dividend payments, such as: i) withdrawals from shareholders, ii) shareholders private use of property of the company, iii) transactions with shareholders at values different from market values, iv) personal expenses from shareholders or shareholder remuneration without substance.

Revaluation of assets: The regulation establishes that, at the option of the companies, tax revaluation of assets is permitted for assets located in Argentina and affected to the generation of taxable profits. The special tax on the amount of the revaluation depends on the asset, being (i) 8% for real estate not classified as inventories, (ii) 15% for real estate classified as inventories, (iii) 5% for shares, quotas and equity interests owned by individuals and (iv) 10% for the rest of the assets. As of the date of these Financial Statements, the Group has not exercised the option. The gain generated by the revaluation is exempted according to article N 291 of Law 27,430 and, the additional tax generated by the revaluation is not deductible.

In addition, the Argentine tax reform contemplates other amendments regarding the following matters: social security contributions, tax administrative procedures law, criminal tax law, tax on liquid fuels, and excise taxes, among others. At the date of these Financial Statements, many issues are pending regulation by the government.

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IRSA Propiedades Comerciales S.A.

21.

        Employee benefits

The Group maintains a defined contribution plan (the “Plan”) covering key member of management in Argentina. The Plan became effective on January 1, 2006. Participants may make contributions to the Plan of up to 2.5% of their monthly salary (“Base Contributions”) and contributions of up to 15% of their annual bonus (“Extraordinary Contributions”). Under the Plan, the Group matches employee contributions to the plan at a rate of 200% for Base Contributions and 300% for Extraordinary Contributions.

All contributions are invested in funds administered outside of the Group. Participants or their assignees, as the case may be, may have access to the 100% of the Company contributions under the following circumstances:

(i)

ordinary retirement in accordance with applicable labor regulations;

(ii)

total or permanent incapacity or disability;

(iii)

death.

In case of resignation or termination without good cause, the manager will received the Group’s contribution only if the employee has participated in the Plan for at least 5 years.

Contributions made by the Group under the Plan amount to Ps. 16.8, Ps. 11.6 and Ps. 10.3 million for the fiscal years ended June 30, 2018, 2017 and 2016, respectively.

22.

        Equity Incentive Plan

The Group maintains an equity incentive plan, under which certain selected employees, directors and top management of the Group, IRSA and Cresud (the “Participants”). Engagement is voluntary and by invitation of the Board of Directors.

This plan was effectively established on September 30, 2011 and is administered by the Board of Directors of the Group, IRSA and Cresud, as appropriate, or a committee appointed by the Board of Directors of the respective companies.

Initially, the Incentive Plan established that Participants would be entitled to receive shares (“Contributions”) of IRSA Propiedades Comerciales, IRSA and Cresud, based on a percentage of the annual bonus, on condition that they keep holding the acquired shares and remain an employee of the Company for at least 5 years, among other conditions required to qualify for such Contributions. Due to the small number of transactions in the market it was not possible to fulfil the formal aspects of the plan and as established by the Shareholders’ Meeting the Board of IRSA Propiedades Comerciales decided to modify certain conditions, including, delivery of IRSA and Cresud shares (upon transfer of funds by IRSA Propiedades Comerciales) to replace the shares of IRSA Propiedades Comerciales, IRSA and Cresud.

Consequently, shares shall be under the ownership of IRSA and Cresud, and as the conditions established by the Plan are verified, such contributions are transferred to the Participants.

Additionally, IRSA Propiedades Comerciales’s Board of Directors resolved to include a special one-off bonus composed of unrestricted shares issued by IRSA for the fiscal year ended on June 30, 2014, to employees with 2 or more years of service.

As of June 30, 2018 and 2017 IRSA Propiedades Comerciales has a credit of PS. 12.4 and Ps. 10.5 million with IRSA Inversiones y Representaciones S.A. and a liability of Ps. 2.5 and Ps. 1.1 millon with Cresud S.A.C.I.F. y A.. The subsidiaries of IRSA Propiedades Comerciales have a liability of Ps. 14.6 and Ps. 15.4 million with IRSA Inversiones y Representaciones S.A..

As of June 30, 2018, 2017 and 2016, the amount accrued for the plans amounts to Ps. 82.1 million, Ps. 77.2 million and Ps. 64.2 million respectively, based on the market value of the shares to be granted pertaining to the Group’s contributions, proportionately to the period already elapsed for the vesting of shares in the Incentive Plan and adjusted for the probability that any beneficiary should leave the Group before the term and/or the conditions required to qualify for the benefits of the plan are met at fiscal year-end.

  For the fiscal years ended June 30, 2018, 2017 and 2016, the Group has incurred in a charge related to the Incentive Plan and the extraordinary gratification of Ps. 6.4 million, Ps. 16.5 million and Ps. 16.4 million, respectively.

F-68

IRSA Propiedades Comerciales S.A.

23.

    Leases

The Group as lessee

Operating leases:

The Group leases two properties that are used as a shopping mall. These agreements provide for fixed monthly rent payments, adjusted pursuant to a rent escalation clause. Rent expense for the years ended June 30, 2018, 2017 and 2016 amounted to Ps. 6,951, Ps. 5,700 and Ps. 5,222, respectively and are included in "Costs" in the Statements of income.

Furthermore, the Group also leases office space under an operating lease with companies related to the Chairman and Director of the Group (Note 29).

The future minimum payments that the Group must pay off under non-cancellable operating leases are as follows:

	06.30.18	06.30.17
No latter than a year	13,763	7,102
Later than 1 year and not later than 5 years	18,105	12,446
More than 5 years	40,000	42,400
	71,868	61,948

Finance leases:

The Group leases certain computer equipment under various finance leases for an average term of four years. The book value of these assets under financial leases is included in Note 10.

At the commencement of the lease term, the Group recognizes a lease liability equal to the carrying amount of the leased asset. In subsequent periods, the liability decreases by the amount of lease payments made to the lessors using the effective interest method. The interest component of the lease payments is recognized in the statements of comprehensive income. The book value of these liabilities under finance leases is included in Note 18.

Lease liabilities are effectively secured as the rights to the leased assets revert to the lessor in the event of default.

The future minimum payments that the Group must pay off under financial leases are as follows:

	06.30.18	06.30.17
Not later than 1 year	6,945	1,690
Later than 1 year and not later than 5 years	8,301	1,636
Subtotal value of finance lease liabilities	15,246	3,326
Future - financial charges on finance leases	(843)	(177)
Present value of finance lease liabilities	14,403	3,149

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IRSA Propiedades Comerciales S.A. 

The fair value of finance lease liabilities is as follows:

	06.30.18	06.30.17
Not later than 1 year	6,574	1,598
Later than 1 year and not later than 5 years	7,829	1,551
Present value of finance lease liabilities	14,403	3,149

Under the terms of these agreements, no contingent rents are payable. The inherent interest rate is fixed at the contract date for all of the lease term. The average interest rate on financial lease payables as of June 30, 2018 and 2017 and 2016 was 11.62%, 20.63% and 14.40%, respectively.

The Group as lessor

Operating leases:

●

Leases of shopping malls, office and other buildings

The Group enters into cancellable operating leases relating to shopping malls. The agreements have an average term raging from three to five years. Some leases related to anchor stores have terms of ten years, which are usually extendable. Tenants normally pay a rent which consists of the higher of (i) the base rent; and (ii) the percentage rent (which generally ranges between 2% and 12% of the tenants’ gross sales). Furthermore, pursuant to one rent escalation clause in most lease arrangements, the tenants’ base rent generally increases between 18% and 24% each year during the agreement term. Regarding the supplementary rental, because this item is not known until the end of the period, it falls within the definition of contingency rental under IAS 17 "Leases". Accordingly, rental income is recognized once the contingent rent is known.

The book value of assets for such leases are described in Note 9.

For the fiscal years ended June 30, 2018, 2017 and 2016, the base and contingent rental income of the Group’s shopping malls amounted to Ps. 2,825,140, Ps. 2,270,643 and Ps. 1,851,472, respectively, and are included under “Income from sales, rents and services” in the consolidated statement of comprehensive income.

Additionally, IRSA Propiedades Comerciales, owns a shopping mall property known as "Patio Olmos" in the Province of Córdoba, Argentina. The Group leases this property to a third party shopping mall operator under an operating lease agreement expiring in 2032. The agreement provides for fixed monthly payments, adjusted pursuant to a rent escalation clause. Rental income for the years ended June 30, 2018, 2017 and 2016 amounted to Ps. 2,919, Ps. 2,250 and Ps. 4,196, respectively, and is included in the line item “Income from sales, rents and services” in the consolidated statements of comprehensive income.

The Group also enters into cancellable operating leases agreements relating to offices and other buildings. These agreements have an average term raging from three to five years. The tenants are charged a base rent on a monthly basis.

Office and other buildings leases amount to Ps. 480,365, Ps. 382,087 and Ps. 280,175 for the fiscal years ended June 30, 2018, 2017 and 2016, respectively, and are included within “income from sales, rents and services” in the statements of comprehensive income.

The book value of assets for such leases are described in Note 9.

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IRSA Propiedades Comerciales S.A.

The future minimum proceeds under non-cancellable operating leases from Group’s shopping malls, offices and other buildings are as follows:

	06.30.18	06.30.17
2018	-	1,421,954
2019	1,904,572	1,004,397
2020	1,305,965	439,775
2021	636,762	89,098
2022	172,217	10,030
Later than 2022	25,679	209
	4,045,195	2,965,463

Finance leases:

The Group does not act as a lessor in connection with finance leases.

24.

Revenues

	06.30.18	06.30.17	06.30.16
Base rent	2,589,799	2,029,990	1,548,213
Contingent rent	718,625	624,990	587,630
Admission rights	343,420	300,933	207,190
Parking fees	236,323	192,749	153,213
Commissions	123,284	107,580	84,815
Averaging of scheduled rent escalation	29,456	90,197	42,832
Property management fees	65,833	52,303	41,213
Others	21,714	10,550	7,595
Total revenues from rentals and services	4,128,454	3,409,292	2,672,701
Sale of trading properties	103,197	98,792	1,159
Total revenues from sale of properties	103,197	98,792	1,159
Other revenues	555	891	1,013
Other revenues	555	891	1,013
Total revenues from sales, rentals and services	4,232,206	3,508,975	2,674,873
Expenses and collective promotion fund	1,717,000	1,488,187	1,183,627
Total revenues from expenses and collective promotion funds	1,717,000	1,488,187	1,183,627
Total revenues	5,949,206	4,997,162	3,858,500

25.

    Expenses by nature

The Group presented the statement of comprehensive income classified according to their function as part of the line items “Costs”, “General and administrative expenses” and “Selling expenses”.

The following tables provide additional disclosure regarding expenses by nature and their relationship to the function within the Group.

	Costs (ii)	General and administrative expenses	Selling expenses	06.30.18
Salaries, social security costs and other personnel administrative expenses (i)	773,968	114,249	23,914	912,131
Maintenance, security, cleaning, repairs and other	739,853	19,512	804	760,169
Taxes, rates and contributions	238,669	11,795	157,836	408,300
Advertising and other selling expenses	263,869	-	28,330	292,199
Directors' fees	-	164,339	-	164,339
Fees and payments for services	10,911	60,678	8,117	79,706
Allowance for doubtful accounts (additions and unused amounts reversed) (Note 14)	-	-	73,903	73,903
Leases and expenses	47,615	6,037	400	54,052
Amortization and depreciation (Notes 9,10 y 12)	33,301	11,498	315	45,114
Traveling, transportation and stationery	18,387	13,987	1,215	33,589
Bank expenses	2,910	12,585	-	15,495
Cost of sale of properties (Note 11)	8,869	-	-	8,869
Other expenses	1,095	562	31	1,688
Total 06.30.18	2,139,447	415,242	294,865	2,849,554

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IRSA Propiedades Comerciales S.A. 

	Costs (ii)	General and administrative expenses	Selling expenses	06.30.17
Salaries, social security costs and other personnel administrative expenses (i)	653,834	95,201	27,500	776,535
Maintenance, security, cleaning, repairs and other	645,022	7,216	795	653,033
Taxes, rates and contributions	173,718	4,294	131,254	309,266
Advertising and other selling expenses	280,598	-	29,312	309,910
Directors' fees	-	131,481	-	131,481
Fees and payments for services	12,811	58,130	2,517	73,458
Allowance for doubtful accounts (additions and unused amounts reversed) (*) (Note 14)	-	-	41,310	41,310
Leases and expenses	77,619	4,516	525	82,660
Amortization and depreciation (Notes 9,10 y 12)	22,222	5,953	365	28,540
Traveling, transportation and stationery	16,803	8,127	893	25,823
Bank expenses	-	7,059	-	7,059
Cost of sale of properties (Note 11)	12,903	-	-	12,903
Other expenses	4,256	199	146	4,601
Commercial compensation	-	-	1,911	1,911
Total 06.30.17	1,899,786	322,176	236,528	2,458,490

	Costs (ii)	General and administrative expenses	Selling expenses	06.30.16
Salaries, social security costs and other personnel administrative expenses (i)	515,022	53,448	20,911	589,381
Maintenance, security, cleaning, repairs and other	444,824	4,428	503	449,755
Taxes, rates and contributions	127,361	1,957	101,833	231,151
Advertising and other selling expenses	284,935	-	21,706	306,641
Directors' fees	-	113,673	-	113,673
Fees and payments for services	9,008	28,562	3,481	41,051
Allowance for doubtful accounts (additions and unused amounts reversed) (*)	-	-	12,005	12,005
Leases and expenses	46,873	3,077	375	50,325
Amortization and depreciation	14,802	7,911	231	22,944
Traveling, transportation and stationery	14,043	2,597	805	17,445
Bank expenses	-	5,896	-	5,896
Cost of sale of properties	1,400	-	-	1,400
Other expenses	1,936	31	-	1,967
Commercial compensation	-	-	371	371
Total 06.30.16	1,460,204	221,580	162,221	1,844,005

(*) At June 30, 2017 y 2016 includes debt relief for Ps 577 and Ps. 10, respectively.

(i)

For the fiscal year ended June 30, 2018 includes Ps. 842,559 of Salaries, Bonuses and Social Security; Ps. 6,404 of Equity incentive plan and Ps. 63,168 of other concepts. For the fiscal year ended June 30, 2017 includes Ps. 694,067 Salaries, Bonuses and Social Security; Ps. 16,545 of Equity incentive plan and Ps. 65,923 of other concepts. For the fiscal year ended June 30, 2016 includes Ps. 519,782 Salaries, Bonuses and Social Security; Ps. 16,359 of Equity incentive plan and Ps. 53,240 of other concepts.

(ii)

For the fiscal year ended June 30, 2018 includes Ps. 2,120,715 of Rental and services costs; Ps. 18,713 of Cost of sales and developments and Ps.19 of other consumer financing costs. For the fiscal year ended June 30, 2017 includes Ps. 1,874,392 of Rental and services costs; Ps. 25.346 of Cost of sales and developments and Ps. 48 of other consumer financing costs. For the fiscal year ended June 30, 2016 includes Ps. 1,454,409 of Rental and services costs; Ps. 5,718 of Cost of sales and developments and Ps. 77 of other consumer financing costs.

26.

        Other operating results, net

	06.30.18	06.30.17	06.30.16
Gain resulting from sale anual reserval of property plant and equipment	35,602	437	-
Others	12,347	10,508	(17,451
Donations	(26,967)	(52,910)	(38,889)
Lawsuits (Note 19)	(25,004)	(14,031)	(3,402)
Gain resulting from the revaluation of equity interes held before the bussines combination	-	7,618	-
Expenses related to the sale of investment property	(884)	(2,841)	(8,810)
Total other operating results, net	(4,906)	(51,219)	(68,552)

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IRSA Propiedades Comerciales S.A.

27.

        Financial results, net

	06.30.18	06.30.17	06.30.16
- Foreign exchange	413,976	48,437	410,386
- Interest income	240,005	184,296	102,169
- Dividends income	34,172	9,705	-
Finance income	688,153	242,438	512,555
- Foreign exchange	(6,407,173)	(598,845)	(2,225,939)
- Interest expense	(928,218)	(639,768)	(612,486)
- Others financial costs	(117,445)	(77,033)	(100,051)
Subtotal finance costs	(7,452,836)	(1,315,646)	(2,938,476)
Less: Capitalized finance costs	14,385	2,310	-
Finance costs	(7,438,451)	(1,313,336)	(2,938,476)
- Fair value gains of financial assets at fair value through profit or loss	2,041,061	203,087	466,328
- Gain from derivative financial instruments	227,378	81,105	1,248,374
- Loss from repurchase of non - convertible notes	-	(168)	-
Other financial results	2,268,439	284,024	1,714,702
Total financial results, net	(4,481,859)	(786,874)	(711,219)

28.

        Earnings per share

(a)

Basic

Basic earnings per share amounts are calculated in accordance with IAS 33 "Earning per share" by dividing the profit attributable to equity holders of the Group by the weighted average number of ordinary shares outstanding during the year (Note 16).

On December 18, 2012, the Superintendence of Corporations registered an amendment to the Company’s by-laws whereby it increased the nominal value of its shares from Ps. 0.1 to Ps. 1 each. This amendment, which was notified through the CNV, was registered under number 20,264 of Stock Companies Book 62 T°.Furthermore, the CNV has admitted the shares indicated above for listing in the Stock Exchange.

	06.30.18	06.30.17	06.30.16
Profit attributable to equity holders of the Parent	15,099,936	3,260,476	11,821,280
Weighted average number of ordinary shares in issue (thousands)	126,014	126,014	126,014
Basic earnings per share	119.83	25.87	93.81

As mentioned in Note 16, the nominal value of shares increased from Ps. 0.1 to Ps. 1 per share. The number of shares, prices and any other information per share included in these Financial Statements for all of these periods have adjusted retroactively to reflect the change from Ps. 0.1 to Ps. 1.

(b)

Diluted

Diluted earnings per share amounts are calculated by adjusting the weighted average number of ordinary shares outstanding to assume conversion of all dilutive potential shares. As of June 30, 2018, 2016 and 2016, the Group has no convertible instruments. The diluted earnings per share is equal to basic earnings per share.

29.

        Related party transactions

In the normal course of business, the Group conducts transactions with different entities or parties related to it. An individual or legal entity is considered a related party where:

  -

An entity, individual or close relative of such individual or legal entity exercises control, or joint control, or significant influence over the reporting entity, or is a member of the Board of Directors or the Senior Management of the entity or its parent company.

  -

An entity is a subsidiary, associate or joint venture of the entity or its parent or controlled company.

The following section provides a brief description of the main transactions conducted with related parties which are not described in other notes of these consolidated Financial Statements:

F-73

IRSA Propiedades Comerciales S.A. 

1.

Remuneration of the Board of Directors

Law N° 19,550 provides that the remuneration of the Board of Directors, where it is not set forth in the Company’s by-laws, shall be fixed by the Shareholders' Meetings. The maximum amount of remuneration that the members of the Board are allowed to receive, including salary and other performance-based remuneration of permanent technical-administrative functions, may not exceed 25% of the profits.

Such maximum amount is limited to 5% where no dividends are distributed to the Shareholders, and will be increased proportionately to the distribution, until reaching such cap where total profits are distributed.

Some of our Directors are hired under the Employment Contract Act N° 20,744. This Act rules on certain conditions of the work relationship, including remuneration, salary protection, working hours, vacations, paid leaves, minimum age requirements, workmen protection and forms of suspension and contract termination.

The remuneration of directors for each fiscal year is based on the provisions established by the Law N° 19,550, taking into consideration whether such directors perform technical-administrative functions and depending upon the results recorded by the Company during the fiscal year. Once such amounts are determined, they should be approved by the Shareholders’ Meeting.

2.

Senior Management remuneration

The members of the Senior or Top Management are appointed and removed by the Board of Directors, and perform functions in accordance with the instructions delivered by the Board itself.

The remuneration earned by the Company's Senior Management (including Directors) was Ps. 35.4 million; Ps. 29.8 million and Ps. 38.5 million as of June 30, 2018, 2017 and 2016, respectively. The remuneration earned by Senior Management for their functions consists of an amount that is fixed taking into account the manager's background, capacity and experience, and an annual bonus which varies according to their individual performance and the Group's results. Members of senior management participate in defined contribution and share-based incentive plans that are described in Notes 21 and 22, respectively.

The Group’s Senior Management is composed of as follows:

Name	Date of birth	Position	In the position since
Alejandro G. Elsztain	31/03/1966	General Manager	2002
Daniel R. Elsztain	22/12/1972	Operating Manager	2011
Matias Gaivironsky	23/02/1976	Real Estate Manager	2011
Juan José Martinucci	31/01/1972	Financial and Administrative Manager	2013
Arnaldo Jawerbaum	13/08/1966	Investment Manager	2017

                3.    Corporate Service Agreement with Cresud and IRSA

Whereas, given that the Group, IRSA and Cresud have operating areas with certain characteristics of affinity, the Board of Directors considered it was convenient to implement alternatives that allows to reduce certain fixed costs, with the aim of reducing their incidence on the operating results, building on and enhancing the individual efficiencies of each of the companies in the different areas that form part of operating administration.

To such end, on June 30, 2004, a Master Agreement for the Exchange of Corporate Services (“Frame Agreement") was entered into between IRSA Propiedades Comerciales S.A., IRSA and Cresud, which was amended several times to bring it in line with the current context. The agreement has a term of 24 months, is renewable automatically for equal periods, unless it is terminated by any of the parties upon prior notice.

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IRSA Propiedades Comerciales S.A.

Under the current Master Agreement corporate services are provided in the following areas: Human Resources, Finance, Institutional Relations, Administration and Control, Insurance, Security, Agreements, Technical Tasks, Infrastructure and Services, Procurement, Architecture and Design, Development and Works, Real Estate, Hotels, Board of Directors, Board of directors of Real Estate Business, General Manager Office, Board Safety, Audit Committee, Real Estate Business Management, Human Resources of Real Estate Business, Fraud Prevention, Internal Audit and Agricultural Investment Management.

Pursuant to this agreement, the companies hired an external consulting firm to review and evaluate half-yearly the criteria used in the process of liquidating the corporate services, as well as the basis for distribution and source documentation used in the process indicated above, by means of a half-yearly report.

It should be noted that the operations indicated above allows both Group IRSA and Cresud to keep our strategic and commercial decisions fully independent and confidential, with cost and profit apportionment being made on the basis of operating efficiency and equity, without pursuing individual economic benefits for any of the companies.

4.

    Legal services

The Group hires legal services from Estudio Zang, Bergel & Viñes, from which Saúl Zang is a partner and sits at the Board of Directors of the Group companies.

5.

Donations granted to Fundación IRSA and Fundación Museo de los Niños

Fundación IRSA is a non-profit charity institution that seeks to support and generate initiatives concerning education, the promotion of corporate social responsibility and the entrepreneurial spirit of the youth. It carries out corporate volunteering programs and fosters donations by the Group’s employees. The main members of Fundación IRSA's Board of Administrators are: Eduardo S. Elsztain (Chairman); Saúl Zang (Vice Chairman I), Alejandro Elsztain (Vice Chairman II) and Mariana C. de Elsztain (secretary). It finances its activities with the donations made by IRSA Propiedades Comerciales S.A., IRSA, Cresud and others Group’s companies.

Fundación Museo de los Niños is a non-profit association, created by the same founders of Fundación IRSA and its Management Board is formed by the same members as Fundación IRSA’s.

On October 31, 1997, IRSA Propiedades Comerciales S.A. entered into an agreement with Fundación IRSA whereby 3,800 square meters of the constructed area at the Abasto shopping mall was granted under a gratuitous bailment agreement for a term of 30 years. Subsequently, on October 29, 1999, Fundación IRSA assigned free of cost all the rights of use over such store and its respective obligations to Fundación Museo de los Niños.

On November 29, 2005, IRSA Propiedades Comerciales S.A. signed another agreement with Fundación Museo de los Niños granting under gratuitous bailment 2,670.11 square meters of the constructed area at Alto Rosario shopping mall for a term of 30 years.

Fundación Museo de los Niños has used these spaces to set up "Museo de los Niños, Abasto” and “Museo de los Niños, Rosario", two interactive learning centers intended for children and adults. Both agreements establish the payment of common expenses and direct expenses related to the services performed by these stores should be borne by Fundación Museo de los Niños.

6.

Offices and Shopping malls spaces rental

IRSA and Cresud rent office space for their executive offices located at the Intercontinental Plaza tower at Moreno 877 in the Autonomous City of Buenos Aires, which we have owned since December 2014. They also rent space at our Abasto Shopping Mall.

The offices of our President are located at Bolívar 108, in the Autonomous City of Buenos Aires. The property has been rented to Isaac Elsztain e Hijos S.A., a company controlled by Eduardo Sergio Elsztain, our President, and some of his family members and to Hamonet S.A., a company controlled by Fernando A. Elsztain, one of our directors, and some of its family members.

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IRSA Propiedades Comerciales S.A.

In addition, Tarshop, Banco de Crédito y Securitización S.A., BHN Sociedad de Inversión S.A., BHN Seguros Generales S.A. and BHN Vida S.A. rent offices owned by us in different buildings. In addition, we also let various spaces in our Shopping Malls (stores, stands, storage space or advertising space) to third parties and related parties such as Tarshop S.A. and Banco Hipotecario S.A.. Lease agreement entered into with these related parties include clauses and values in line with those agreed upon with unrelated parties.

7.

Special reimbursement programs with several means of payment

The Group carries out diverse commercial activities and promotions intended to promote larger number of visitors and consumption inside its shopping malls. Some promotions are offered on specific dates or periods, different types of discounts to clients and/or interest-free financing plans. To this end, the Group enters into agreements with various third party financial entities and/or related parties, such as Banco Hipotecario S.A. and Tarshop S.A..

These agreements usually establish different refund percentages for those clients that make purchases at all the participating stores using the means of payment specific of each financial entity and, on occasions, additional financing plans with interest-free instalments. The cost of the refunds granted to the clients is generally distributed as a percentage among the lessors of the shopping malls and the financial entities, while the cost of interest-free financing is borne, in general, by the latter. The Group acts as an intermediary and is in charge of the lessors’ engagement and the advertising of these promotions. This activity results in no money flows or transfer of revenues or costs between the Group and its related parties.

8.

Hospitality Services

On certain occasions, the Group hires hospitality and event venue rental services from Nuevas Fronteras S.A., Hoteles Argentinos S.A. and Llao Llao Resorts S.A., all subsidiaries of our parent company IRSA.

9.

Property purchase - sale

The Group in the course of business operations may acquire or sell to or from other related parties certain real estate properties used for rental purposes.

10.

Borrowings

In the normal course of its activities, the Group enters into diverse loan agreements or credit facilities between the group’s companies and/or other related parties. These loans accrue interest at market rates.

11.

Financial and service operations

The Group works with several financial entities in the Argentine market for operations including, but not limited to, credit, investment, purchase and sale of securities and financial derivatives. Such entities include Banco Hipotecario S.A. and its subsidiaries. Furthermore, Banco Hipotecario S.A. and BACS Banco de Crédito y Securitización S.A. usually act as underwriters in Capital Market transactions for the Group. All transactions are carried out at arm’s length.

12.

Purchase of financial assets

The Group usually invests excess cash in several instruments that may include those issued by related companies, acquired at issuance or from unrelated third parties through secondary market deals.

13.

Investment in investment funds managed by BACS Administradora de Activos

The Group invests its liquid funds in mutual funds managed by BACS Administradora de Activos S.A.S.G.F.C.I. among other entities.

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IRSA Propiedades Comerciales S.A.

The following is a summary of the balances with related parties:

Item	06.30.18	06.30.17
Trade and other receivables	786,200	633,834
Investments in financial assets	248,544	267,365
Trade and other payables	(158,591)	(104,282)
Borrowings	(4,154)	(3,571)
Total	871,999	793,346

Related parties	06.30.18	06.30.17	Description of transaction
IRSA Inversiones y Representaciones Sociedad Anónima (IRSA)	673,406	542,052	Advances
	41,709	22,854	Corporate services
	40,863	25,425	Non-convertible notes
	12,448	10,472	Equity incentive plan
	9,023	16,482	Reimbursement of expenses
	428	-	Others
	-	4	Loans granted
	-	265	Commissions
	-	535	Lease collections
	(439)	(9)	Reimbursement of expenses to pay
	(14,609)	(15,380)	Equity incentive plan to pay
Total direct parent company	762,829	602,700
Cresud S.A.CI.F. y A.	207,681	241,940	Non-convertible notes
	(2,546)	(1,113)	Equity incentive plan to pay
	(15,375)	(23,385)	Reimbursement of expenses to pay
	(55,483)	(13,595)	Corporate services to pay
Total direct parent company of IRSA	134,277	203,847
La Rural S.A.	28,712	119	Leases and/or rights to use space
	7,165	8,841	Dividends
	-	3,676	Loans granted
	-	16,394	Canon
	(845)	(55)	Reimbursement of expenses to pay
Other associates and joint ventures	4,309	4,557	Loans granted
	509	812	Management fee
	314	931	Reimbursement of expenses
	-	1,625	Leases and/or rights to use space
	-	(105)	Lease collections
	(235)	-	Reimbursement of expenses to pay
	(286)	(619)	Advertising space to pay
	(518)	(1,288)	Leases and/or rights to use space
	(4,154)	(3,571)	Borrowings obtained
Total associates and joint ventures of IRSA Propiedades Comerciales	34,971	31,317
Directors	(12)	(17)	Reimbursement of expenses to pay
	(67,126)	(44,770)	Fees
Total Directors	(67,138)	(44,787)
Others	4,685	3,370	Leases and/or rights to use space to pay
	3,283	746	Reimbursement of expenses
	209	-	Advertising space
	-	(40)	Hotel services to pay
	-	99	Commissions
	(4)	(219)	Reimbursement of expenses to pay
	(5)	(272)	Dividends to pay
	(9)	(41)	Leases and/or rights to use space to pay
	(27)	-	Commissions to pay
	(1,072)	(3,374)	Legal services
Total Others	7,060	269
Total	871,999	793,346

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IRSA Propiedades Comerciales S.A.

The following is a summary of the results with related parties:

Related parties	06.30.18	06.30.17	06.30.16	Description of transaction
IRSA Inversiones y Representaciones Sociedad Anónima (IRSA)	35,056	23,972	19,165	Corporate services
	17,448	516	(1,491,911)	Financial operations
	910	2,533	(375)	Leases and/or rights to use space
	163	127	76	Commissions
Total direct parent company	53,577	27,148	(1,473,045)
Cresud S.A.CI.F. y A.	151,002	61,923	84,980	Financial operations
	1,931	867	1,417	Leases and/or rights to use space
	(162,756)	(128,819)	(88,517)	Corporate services
Total direct parent company of IRSA	(9,823)	(66,029)	(2,120)
La Rural S.A.	12,209	-	-	Financial operations
	12,678	8,518	-	Leases and/or rights to use space
Tarshop S.A.	15,809	13,816	11,802	Leases and/or rights to use space
	322	-	265	Commissions
Nuevo Puerto Santa Fe S.A.	3,882	3,565	3,619	Fees
	(548)	(1,165)	(1,716)	Financial operations
	(504)	5,641	(385)	Leases and/or rights to use space
Others associates and joint ventures	216	216	216	Fees
	1,286	707	31	Financial operations
Total associates and joint ventures of IRSA Propiedades Comerciales	45,350	31,298	13,832
Directors	(164,339)	(131,481)	(113,673)	Fees
Senior Managment	(9,606)	(6,677)	(6,246)	Fees
Total Directors	(173,945)	(138,158)	(119,919)
Estudio Zang, Bergel & Viñes	(10,038)	(9,185)	(2,940)	Fees
Banco de Crédito y Securitización	17,180	9,507	6,493	Leases and/or rights to use space
REIG V	-	58,125	-	Financial operations
Others	9,389	7,335	2,578	Leases and/or rights to use space
	25	21	222	Commissions
	(2,079)	(609)	(96)	Donations
	-	-	4,912	Financial operations
Total others	14,477	65,194	11,169
Total	(70,364)	(80,547)	(1,570,083)

The following is a summary of the transactions with related parties:

Related parties	06.30.18	06.30.17	Description of transaction
IRSA Inversiones y Representaciones S.A.	586,745	726,974	Dividends granted
Tyrus	652	738	Dividends granted
Total Dividends granted	587,397	727,712
La Rural S.A	34,172	8,841	Dividends received
Nuevo Puerto Santa Fe S.A.	8,838	11,443	Dividends received
Total Dividends received	43,010	20,284
Quality Invest S.A.	37,364	3,000	Irrevocable contributions granted
	1,649	-	Equity contributions granted
Avenida Inc.	6,210	-	Irrevocable contributions granted
Total Contributions	45,223	3,000

30.

        CNV General Resolution N° 622/13

As required by Section 1°, Chapter III, Title IV of CNV General Resolution N° 622/13, below there is a detail of the notes to the Consolidated Financial Statements that disclose the information required by the Resolution.

Exhibit A - Property, plant and equipment	Note 9 - Investment properties
	Note 10 - Property, plant and equipment
Exhibit B - Intangible assets	Note 8 - Intangible assets
Exhibit C - Equity investments	Note 12 - Information about, associates and joint ventures
Exhibit D - Other investments	Note 13 - Financial instruments by category
Exhibit E - Provisions	Note 14 - Trade and other receivables
	Note 19 - Provisions
Exhibit F - Cost of sales and services provided	Note 25 - Expenses by nature
	Note 11 - Trading properties
Exhibit G - Foreign currency assets and liabilities	Note 31 - Foreign currency assets and liabilities

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IRSA Propiedades Comerciales S.A. 

31.         Foreign currency assets and liabilities

Book amounts of foreign currency assets and liabilities are as follows:

Items (1)	Amount (2)	Exchange rate (3)	06.30.18	Amount (2)	Exchange rate (3)	06.30.17
Assets
Trade and other receivables
Uruguayan Pesos	25	0.92	23	3	0.58	2
US Dollar	9,245	28.75	265,788	5,423	16.53	89,640
Euros	142	33.54	4,777	-	-	-
Trade and other receivables with related parties
US Dollar	3,897	28.85	112,422	3,147	16.63	52,334
Total trade and other receivables			383,010			141,976
Restricted assets
US Dollar	-	-	-	2,996	16.53	49,525
Total Restricted assets			-			49,525
Investments in financial assets
US Dollar	119,323	28.75	3,430,544	43,368	16.53	716,867
Investment in financial assets with related parties
US Dollar	8,615	28.85	248,544	16,077	16.63	267,365
Total investments in financial assets			3,679,088			984,232
Cash and cash equivalents
Uruguayan Pesos	2	0.91	2	7	0.58	4
US Dollar	84,029	28.75	2,415,829	6,170	16.53	101,987
Pound	2	37.90	57	1	21.49	32
Euros	1	33.54	38	6	18.85	105
Total cash and cash equivalents			2,415,926			102,128
Total Assets			6,478,024			1,277,861
Liabilities
Trade and other payables
Uruguayan Pesos	15	0.91	14	9	0.58	5
US Dollar	5,723	28.85	165,114	9,452	16.63	157,190
Euros	41	33.73	1,391	-	-	-
Trade and other payables with related parties
US Dollar	-	-	-	271	16.63	4,505
Total trade and other payables			166,519			161,700
Borrowings
US Dollar	542,367	28.85	15,647,296	364,889	16.63	6,068,102
Total borrowings			15,647,296			6,068,102
Borrowings
US Dollar	9	28.85	264	-	-	-
Total borrowings			264			-
Provisions
US Dollar	5	28.85	144	5	16.63	83
Total Provisions			144			83
Total Liabilities			15,814,223			6,229,885

(1)  Considering foreign currencies those that differ from each one of the Group’s companies’ functional currency at each year-end.

(2) Expressed in thousands of foreign currency.

(3) Exchange rate of the Argentine Peso as of June 30, 2018 and 2017 as reported by the Argentina Central Bank.

32.         Barter transactions

The Group generally enters into barter transactions with third-party developers in the ordinary course of business. By virtue of these transactions, the Group generally exchanges undeveloped plots of land for units to be constructed and received in the future. Following is a description of pending transactions that have not yet been perfected by the third parties as of June 30, 2018:

F-79

  IRSA Propiedades Comerciales S.A.

Beruti

On October 13, 2010, the Group and TGLT entered into an agreement to barter a plot of land located at Beruti 3351/59 in the city of Buenos Aires for cash and future residential apartments to be constructed by TGLT on the mentioned land. The transaction, which was subject to certain precedent conditions including the completion by TGLT of its initial public offering, was agreed upon at USD 18.8 million. TGLT constructed an apartment building with residential and commercial parking space. In consideration, TGLT had to transfer to IRSA Propiedades Comerciales S.A. (i) a number of apartments to be determined representing 17.33% of total square meters of residential space; (ii) a number of parking spaces to be determined representing 15.82% of total square meters of parking space; (iii) all spaces reserved for commercial parking in the future building and (iv) the amount of USD 10.7 million payable upon delivering the deeds of title on the land. TGLT completed its initial public offering in the Buenos Aires Stock Exchange on October 29, 2010 and therefore the precedent condition for the transaction was fulfilled on that date. TGLT paid the mentioned USD 10.7 million on November 5, 2010. On December 16, 2010, the title deed to the Beruti plot of land was executed. To secure performance of obligations assumed by TGLT under the deed of sale, a mortgage was granted in favour of IRSA Propiedades Comerciales S.A..

An association named Asociación Amigos Alto Palermo presented an injunction requesting that the construction is prohibited and obtained a suspension interim measure for this purpose. Later, the Court of Appels from the Autonomous City of Buenos Aires ordered the lifting of such interim measure. On December 4, 2013 the delivery terms for committed units were extended for 11 months and on November 4, 2014 a new 11-month extension was signed. On June 11, 2015 final judgment was rendered in favour of IRSA Propiedades Comerciales and TGLT.

On December 30, 2016, TGLT S.A. and IRSA Propiedades Comerciales executed a possession conveyance deed in wich TGLT is not able to execute the relevant title conveyance deed, as it had not completed registration of the Condominium interest as contracted.

During the fiscal year ended June 30, 2018, third parties were assigned the right to notarize in public deeds part of the units, which generated income of Ps. 94.3 million.

As already explained, the remaining part of the transactions continues to be classified as a barter.

Conil

On November 5, 2014, the Group executed a conveyance deed evidencing a swap and mortgage transaction in favour of Darío Palombo (acting as Trustee of “Fideicomiso Esquina Guemes”) to convey title on four plots of land located in Avellaneda district. The agreement provides for the development by the Trust of two building construction undertakings. In consideration for such work, the compensation agreed included the amount of USD 0.01 million and delivery, within 24 months as from such agreement execution, of two functional units for commercial purposes and one functional unit for office purposes (the non-monetary compensation was valued at USD 0.7 million).

On June 26, 2018, an extension of the barter transaction was signed, in which the buyer undertakes to deliver the public deed in a maximum period of 54 months for BUILDING "A" and 80 months for the BUILDING " B ", both counting from November 5, 2014.

In the same act, a delivery commitment was signed for a department unit with an approximate area of 57.5 sm, located on the 4th floor, along with a 14 m2 garage located on the ground floor, both belonging to Building 'B' as payment for the fines due from the failure of delivery of possession of the units of both buildings, until date of signature of extension of the barter transaction, which is equivalent to USD 291,600.

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IRSA Propiedades Comerciales S.A.

Coto Residential Project

The Group owns air space of approximately 23,000 square meters above Hipermercado Coto near the Abasto Shopping Mall at the heart of the Autonomous City of Buenos Aires. On September 24, 1997, the Group and Coto Centro Integral de Comercialización S.A. (Coto) granted a title deed by which the Group acquired the rights to receive the parking spaces and the rights to increase the height of the building located between the Agüero, Lavalle, Guardia Vieja and Gallo streets, in the Abasto neighbourhood.

On June 2016, a conditional Exchange Agreement was executed for a one year term, to be later formalized through the execution of a conveyance deed. The project will be a residential development for a consideration of apartments covering an area of 3,621 square meters plus payment of USD 1 million. The consideration will be delivered no later than June 2021 for Tower I, and no later than September 2022 for Tower II. The value in the bill of sale was set at USD 7.5 million.

Córdoba Shopping Project

The Group owns a plot of land next to Córdoba Shopping, with building capacity of approximately 17,300 square meters, at the heart of Cordoba City.

In May 2016, an Exchange Agreement was executed for a building of 13,500 square meters, subject to conditions for a term of one year, after which it may be formalized through a title conveyance deed. The project will be a mixed development, combining residential and office space, and the consideration will include apartments covering 2,160 square meters, parking space, and procedures to obtain permits, combinations and subdivisions of 3 plots of land. Delivery of the consideration will take place no later than May 2021 for Tower I and no later than July 2023 for Tower II. The Exchange Value was set at USD 4 million.

The two mentioned contracts that are part of the Coto residential project and the Córdoba Shopping exchange project include conditions precedent and/or suspensive clauses. Since suspensive clauses have not materialized yet, the real property involved is classified as trading properties.

33.

        CNV General Ruling N° 629/14 – Storage of documentation

On August 14, 2014, the CNV issued General Resolution N° 629 whereby it introduced amendments to rules related to storage and conservation of corporate books, accounting books and commercial documentation. In this sense, it should be noted that the Group has entrusted the storage of certain non-sensitive and old information to the following providers:

Documentation storage provider	Home location
Iron Mountain Argentina S.A.	Av. Amancio Alcorta 2482, C.A.B.A.
Iron Mountain Argentina S.A.	Pedro de Mendoza 2143, C.A.B.A.
Iron Mountain Argentina S.A.	Saraza 6135, C.A.B.A.
Iron Mountain Argentina S.A.	Azara 1245, C.A.B.A. (i)
Iron Mountain Argentina S.A.	Polígono Industrial Spegazzini, Au Ezeiza-Cañuelas KM 45
Iron Mountain Argentina S.A.	Cañada de Gómez 3825, C.A.B.A.

(i)     On February 5, 2014, there was a widely known fire in Iron Mountain’s warehouse. To the original date of these Financial Statements, the Group had not been notified whether the documentation in storage has been affected by the fire or as to its condition after the accident. Nevertheless, based on the internal review carried out by the Group, duly reported to the CNV on February 12, 2014, the information kept at the warehouse that were on fire do not appear to be sensitive or capable of affecting normal business operations.

It is further noted that a detailed list of all documentation held in custody by providers, as well as documentation required in section 5 a.3) of section I, Chapter V, Title II of the RULES (2013 as amended) are available at the registered office.

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IRSA Propiedades Comerciales S.A.

34.

       Subsequent events

La Malteria S.A.

On July 11, 2018, the Company "La Malteria S.A." was formed, with a capital contribution of Ps. 0.1 represented by 100,000 common nominative shares with a par value of 1 peso. IRSA Commercial Properties S.A. subscribed 95,000 shares of share capital, while the remaining 5,000 were subscribed by FIBESA Sociedad Anónima.

Acquisition de predio Malteria Hudson

In July 2018, we announced the acquisition, of a property of 147,895 square meters of surface and approximately 40,000 sqm of built surface known as “Maltería Hudson”, located in the intersection of route 2 and Buenos Aires - La Plata highway, in the City of Hudson, province of Buenos Aires. The price of the operation was set at the amount of USD 7.0 million.

Moreover, we entered into an agreement to buy the two adjoining properties to “La Maltería” of approximately 49,000 sqm and 57,000 sqm respectively, for a total amount of USD 720,825

In addition, we granted an option to a non-related third party to buy from us between 15% to 30% of the outstanding shares of “La Maltería S.A.” at the acquisition price plus a certain interest for a six month period.

The purpose of this acquisition is the future development of a mixed-use project, with a total constructive capacity of approximately 177,000 sqm.

Devaluation of the Argentine Peso

As of the issuance date of these financial statements, the Argentine peso has suffered a devaluation against the US dollar and other currencies close to 31%, as compared to the exchange rate as of the end of the year, which has an impact on the figures presented in these Financial Statements, mainly originated by exposure to the exchange rate of our revenues and costs of the "offices and other properties" segment, and our assets and liabilities, denominated in foreign currency.

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