20-F 1 f20irsa2012.htm f20irsa2012.htm

 
United States
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 20-F
 
    
 
REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934
 
OR
 
     x
 
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the fiscal year ended: June 30, 2012
 
OR
     
 
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
OR
 
     
 
 SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 
Date of event requiring this shell company report ___
For the transition period from ___ to ___
 
IRSA INVERSIONES Y REPRESENTACIONES SOCIEDAD ANÓNIMA
(Exact name of Registrant as specified in its charter)
 
IRSA INVESTMENTS AND REPRESENTATIONS INC.
(Translation of Registrant’s name into English)
 
Republic of Argentina
(Jurisdiction of incorporation or organization)
 
Bolívar 108
(C1066AAB) Buenos Aires, Argentina
(Address of principal executive offices)

Matias Gaivironsky
Chief Financial Officer
Tel +(5411) 4323-7449 – finanzas@irsa.com.ar
Moreno 877 22nd Floor
(C1091AAQ) Buenos Aires, Argentina
(Name, Telephone, E-mail and/or Facsimile number and Address of Company Contact Person)
 
 
 

 
Securities registered or to be registered pursuant to Section 12(b) of the Act:
 
         
Title of each class
   
  
Name of each exchange on which registered
     
Global Depositary Shares, each representing
ten shares of Common Stock
   
  
New York Stock Exchange
     
Common Stock, par value one Peso per share
   
  
New York Stock Exchange*
 
 
 

*
Not for trading, but only in connection with the registration of Global Depositary Shares, pursuant to the requirements of the Securities and Exchange Commission.
 
 
1

 
Securities registered or to be registered pursuant to Section 12(g) of the Act: None
 
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act: None
 
The number of outstanding shares of the issuer’s common stock as of June 30, 2012 was 578,676,460.
 
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 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  ¨
 
Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:
 
         
U.S. GAAP  ¨
    
International Financial Reporting Standards as issued by the International Accounting Standards Board   ¨
  
Other  x
 
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   x     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
 
 
2

 
 
IRSA INVERSIONES Y REPRESENTACIONES SOCIEDAD ANÓNIMA
   
Page No.
   
 
 
5
 
5
 
5
    6
 
Part I
 
Item 1
7
Item 2
7
Item 3
7
 
7
 
10
 
10
 
11
Item 4
25
 
25
 
27
 
54
 
55
Item 4 A
58
Item 5
58
 
58
 
89
 
92
 
92
 
93
 
93
 
93
Item 6
93
 
93
 
96
 
97
 
97
 
99
Item 7
99
 
99
 
102
 
102
Item 8
102
 
105
 
106
Item 9
106
 
106
 
106
 
107
 
107
 
108
 
108
Item 10
108
 
108
 
111
 
111
 
115
 
120
 
120
 
120
 
120
 
120
 
 
3

 
Item 11
120
Item 12
122
 
Part II
 
Item 13
122
Item 14
122
Item 15
124
 
124
 
124
 
124
 
124
Item 16    
 
124
 
124
 
124
 
125
 
125
 
125
 
125
  (h) Mine Safety Disclosures  
 
Part III
 
Item 17
126
Item 18
126
Item 19
126
 
 
4

 
 
The Private Securities Litigation Reform Act of 1995 provides a “safe harbor” for forward-looking statements.
 
This annual report includes forward-looking statements, principally under the captions “Summary,” “Risk Factors,” “Operating and Financial Review and Prospects” and “Business Overview.” 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:
 
 
 
changes in general economic, business, political or other conditions in Argentina or changes in general economic or business conditions in Latin America;

 
 
changes in capital markets in general that may affect policies or attitudes toward lending to or investing in Argentina or Argentine companies;
 
 
 
changes in exchange rates or regulations applicable to currency exchanges or transfer;
 
 
 
 
unexpected developments in pending litigation;
 
 
 
increased costs;
 
 
 
unanticipated increases in financing and other costs or the inability to obtain additional debt or equity financing on attractive terms; and
 
 
 
the risk factors discussed under “Risk Factors”.
 
The words “believe,” “may,” “will,” “aim,” “estimate,” “continue,” “anticipate,” “intend,” “expect,” “forecast”, “foresee”, “understand”, and similar words are intended to identify forward-looking statements. Forward-looking statements include information concerning our possible or assumed future results of operations, business strategies, financing plans, competitive position, industry environment, potential growth opportunities, the effects of future regulation and the effects of competition. Forward-looking statements speak only as of the date they were made, and we undertake no obligation to update publicly or to revise any forward-looking statements after we distribute this annual report because of new information, future events or other factors. In light of the risks and uncertainties described above, the forward-looking events and circumstances discussed in this annual report might not occur and are not guarantees of future performance.
 
You should not place undue reliance on such statements which speak only as of the date that they were made. These cautionary statements should be considered in connection with any written or oral forward-looking statements that we may issue in the future.
 
 
As used throughout this annual report, the terms “IRSA,” the “Company,” “we,” “us,” and “our” refer to IRSA Inversiones y Representaciones Sociedad Anónima, together with our consolidated subsidiaries, except where we make clear that such terms refer only to the parent company.
 
In Argentina the standard measure of area in the real estate market is the square meter (m2), while in the United States and certain other jurisdictions, the standard measure of area is the square foot (sq. ft.). All units of area shown in this annual report ( e.g. , gross leasable area of buildings and size of undeveloped land) are expressed in terms of square meters. One square meter is equal to approximately 10,764 square feet. One hectare is equal to approximately 10,000 square meters and approximately 2.47 acres.
 
As used herein: “GLA or gross leasable area”, in the case of shopping centers, refers to the total leasable area of the property, regardless of our ownership interest in such property (excluding common areas and parking and space occupied by supermarkets, hypermarkets, gas stations and co-owners, except where specifically stated).
 
 
In this annual report where we refer to “Peso,” “Pesos,” or “Ps.” we mean Argentine pesos, the lawful currency in Argentina; when we refer to “U.S. dollars,” or “US$” we mean United States dollars, the lawful currency of the United States of America; and when we refer to “Central Bank” we mean the Argentine Central Bank.
 
This annual report contains our Audited Consolidated Financial Statements as of June 30, 2012 and 2011 and for the fiscal years ended June 30, 2012, 2011 and 2010 (our Audited Consolidated Financial Statements), which have been audited by Price Waterhouse & Co. S.R.L., Buenos Aires, Argentina, a member firm of PricewaterhouseCoopers, an independent registered public accounting firm, whose report is included herein.
 
We prepare our audited consolidated financial statements in thousands of Pesos and in accordance with generally accepted accounting principles in Argentina, as set forth by the Federación Argentina de Consejos Profesionales de Ciencias Económicas (“FACPCE”) and as implemented, adapted, amended, revised and/or supplemented by the Consejo Profesional de Ciencias Económicas de la Ciudad Autónoma de Buenos Aires (“CPCECABA”) (collectively, “Argentine GAAP”) and the regulations of the Comisión Nacional de Valores, which differ in certain significant respects from accepted accounting principles in the United States of America (“U.S. GAAP”). Such differences involve methods of measuring the amounts shown in our consolidated financial statements as well as additional disclosures required by U.S. GAAP and Regulation S-X of the U.S. Securities and Exchange Commission (“SEC”). See Note 26 to our audited consolidated financial statements for a description of the principal differences between Argentine GAAP and U.S. GAAP, as they relate to us, and reconciliation to U.S. GAAP of net income and shareholders’ equity.
 
Additionally, after considerable inflation levels for the second half of 2002 and the first months of 2003, on March 25, 2003, the Argentine government instructed the Comisión Nacional de Valores to issue the necessary regulations to preclude companies under its supervision from presenting price-level restated financial statements. Therefore, on April 8, 2003, the Comisión Nacional de Valores issued a resolution providing for the discontinuance of inflation accounting as of March 1, 2003. We complied with the Comisión Nacional de Valores resolution and accordingly recorded the effects of inflation until February 28, 2003. Comparative figures were restated until that date, using a conversion factor of 1.1232. Since Argentine GAAP required companies to discontinue inflation adjustments as from October 1, 2003, the application of the Comisión Nacional de Valores resolution represented a departure from Argentine GAAP. However, due to low inflation rates during the period from March 1, to September 30, 2003, such a departure did not have a material effect on our Audited Consolidated Financial Statements.
 
5

 
   Income taxes
   
    Resolution CD 93/2005 issued by the CPCECABA provided for the accounting treatment of differences between the tax basis and book basis of non-monetary items for deferred income tax calculation purposes when companies prepare price-level restated financial statements. This resolution mandated companies to treat these differences as temporary differences but allowed a one-time accommodation to continue treating these differences as permanent("resolution 93 treatment"). As a result, the company had elected to continue treating differences as permanent in its prior years financial statements.
   
     On October 24, 2011, in anticipation of the implementation of International Financial Reporting Standards ("IFRS") for public entities, the Comisión Nacional de Valores issued Resolution N° 592, which provides that issuers who followed the Resolution 93 treatment should recognize the deferred tax liability on a retroactive basis before its transition date, i.e. July 1, 2011 for IRSA.
 
For this reason, and for purposes of complying with the rulings of the Comisión Nacional de Valores, we has recorded an adjustment to recognize the deferred tax liability. Therefore, we retroactively adjusted as of June 30, 2011, 2010, 2009 and 2008 as follows:
 
   
As of June 30, 2011
   
As of June 30, 2010
   
As of June 30, 2009
   
As of June 30, 2008
 
   
As adjusted
   
As previously issued
   
As adjusted
   
As previously issued
   
As adjusted
   
As previously issued
   
As adjusted
   
As previously issued
 
Consolidated Balance Sheets
                                           
                                                 
Other receivables and prepaid expenses, net (Non-current)                 149,626       161,331       174,470       187,182       171,224       196,766       83,478       140,314  
Total Non current assets
    5,258,425       5,270,130       4,430,397       4,443,109       4,018,576       4,044,118       3,521,294       3,578,130  
Total Assets
    6,303,605       6,315,310       5,620,729       5,633,441       4,910,445       4,935,987       4,415,136       4,471,972  
                                                                 
Taxes Payable (Non-current)     497,009       328,692       291,071       110,441       251,610       61,254       219,958       35,327  
Total Non current liabilities
    2,379,229       2,210,912       1,506,298       1,325,668       1,591,410       1,401,054       1,533,443       1,348,812  
Total Liabilities
    3,684,986       3,516,669       2,847,918       2,667,288       2,566,300       2,375,944       2,275,710       2,091,079  
                                                                 
Minority interest
    304,932       316,826       550,574       563,107       450,728       464,381       442,162       456,715  
Shareholders´ equity
    2,313,687       2,481,815       2,222,237       2,403,046       1,893,417       2,095,662       1,697,264       1,924,178  
Consolidated Statements of Income
                                     
Income tax expense
    (91,203 )     (104,524 )     (125,871 )     (148,427     (54,766     (80,334 )     (65,637 )     (78,112
Minority interest
    (58,405 )     (57,765 )     (44,572 )     (43,453     24,445       (25,345 )     (28,711 )     (27,900
Net income
    294,785       282,104       355,938       334,501       183,303       158,635       66,539       54,875  
 
Transition to IFRS

On March 20, 2009, the FACPCE issued Technical Resolution No. 26 ("RT 26") “Adoption of IFRS” as issued by the International Accounting Standards Board (“IASB”) which required companies under the supervision of the Comisión Nacional de Valores to prepare their financial statements in accordance with IFRS as published by the IASB for fiscal periods beginning on or after January 1, 2011, including comparative information for earlier periods.

There are Consejos Profesionales or standard setters in each provincial jurisdiction in Argentina, which have the power to adopt, reject or modify a technical resolution issued by the FACPCE. The jurisdiction where we are located is the Autonomous City of Buenos Aires which Consejo Profesional is the CPCECABA.

On April 25, 2009, the CPCECABA approved RT 26. However, the Comisión Nacional de Valores issued Technical Resolution No. 562/09, as amended by Resolution 576/10, which formally adopted RT 26 for fiscal years beginning on January 1, 2012. Accordingly, we are required to prepare our consolidated financial statements in accordance with IFRS as issued by the IASB for our fiscal year ended June 30, 2013.

Furthermore, Technical Resolution No. 562/09, as amended by Resolution 576/10, mandated companies to include certain reconciling information between prior GAAP and IFRS in the year prior to first adoption of IFRS. This information is not intended to purport the reconciliations required under IFRS 1 "FIRST TIME ADOPTION OF IFRS" which will be included in the first IFRS consolidated financial statements for the year ended June 30, 2013.

This information comprised of a reconciliation between Argentine GAAP and IFRS as issued by the IASB of Shareholders´ Equity as of July 1, 2011 (transition date) and as of June 30, 2012, as well as the income statement and cash flows for the year ended June 30, 2012. The items and/or amounts in the reconciliations included below are subject to change and should only be deemed final when the consolidated financial statements prepared under IFRS for the first time as of and for the year ended June 30, 2013 are issued. See Note 24 to our audited consolidated financial statements included elsewhere in this annual report.
 
Certain amounts which appear in this annual report (including percentage amounts) may not sum due to rounding. Solely for the convenience of the reader, we have translated certain Peso amounts into U.S. dollars at the seller exchange rate quoted by the Banco de la Nación Argentina for June 30, 2011 and June 30, 2012, which was Ps.4.110 = US$ 1.00 and Ps.4.527 = US$ 1.00. We make no representation that the Peso or U.S. dollar amounts actually represent or could have been or could be converted into U.S. dollars at the rates indicated, at any particular rate or at all.
 
References to fiscal years 2008, 2009, 2010, 2011 and 2012 are to the fiscal years ended June 30 of each such year.
 
 
Market data used throughout this annual report was derived from reports prepared by unaffiliated third-party sources. Such reports generally state that the information contained therein has been obtained from sources believed by such sources to be reliable. Certain market data which appear herein (including percentage amounts) may not sum due to rounding.
 
 
6

 
PART I
 
 
This item is not applicable.
 
 
This item is not applicable.
 
ITEM 3.
 
 
The following selected consolidated financial data has been derived from our consolidated financial statements as of the dates and for each of the periods indicated below. This information should also be read in conjunction with and is qualified in its entirety by reference to our Audited Consolidated Financial Statements and the discussion in Operating and Financial Review and Prospects included elsewhere in this annual report. The selected consolidated statement of income data for the years ended June 30, 2012, 2011 and 2010 and the selected consolidated balance sheet data as of June 30, 2012 and 2011 have been derived from our Audited Consolidated Financial Statements included in this annual report which have been audited by Price Waterhouse & Co. S.R.L., Buenos Aires, Argentina, a member firm of PricewaterhouseCoopers, an independent registered public accounting firm.
 
The selected consolidated statement of income data for the years ended June 30, 2009 and 2008 and the selected consolidated balance sheet data as of June 30, 2010, 2009 and 2008 have been derived from the financial statements originally issued and adjusted to reflect the retroactive application of the deferred tax liability treatment mandated by Resolution No. 592 described in Presentation of Financial and Certain Other Information.
 
References to fiscal years 2008, 2009, 2010, 2011 and 2012 are to the fiscal years ended June 30, 2008, 2009, 2010, 2011 and 2012, respectively:

Summary Consolidated Financial and Other Information for IRSA
 
   
Fiscal Years Ended June 30,
 
   
2012
   
2012
   
2011
   
2010
   
2009
   
2008
 
   
(In thousands of US$)(2)
    (In thousands of Ps.)  (1)
STATEMENT OF INCOME DATA
                         
Argentine GAAP
                               
Revenues:
                                   
Development and sale of properties
    72,543       328,404       341,074       225,567       280,362       196,811  
Office and other non-shopping center rental properties
    42,471       192,267       164,618       154,164       147,749       102,159  
Shopping centers
    192,563       871,732       674,779       518,355       396,733       345,395  
Hotels
    37,555       170,012       192,883       159,894       158,913       148,847  
Consumer financing
    1,068       4,836       68,576       265,346       236,827       291,030  
Total revenues
    346,200       1,567,251       1,441,930       1,323,326       1,220,584       1,084,242  
Costs
    (121,566     (550,331     (600,755     (475,295     (508,506     (464,223
Gross profit:
                                               
Development and sale of properties
    24,438       110,630       96,310       142,422       132,044       45,917  
Office and other non-shopping center rental properties
    35,108       158,935       132,059       123,296       118,419       75,812  
Shopping centers
    152,660       691,094       493,306       359,440       287,458       246,220  
Hotels
    11,714       53,029       73,412       56,997       60,024       64,627  
Consumer financing
    714       3,232       46,088       165,876       114,133       187,443  
Total gross profit
    224,634       1,016,920       841,175       848,031       712,078       620,019  
Selling expenses
    (23,970 )     (108,514     (106,704 )     (185,401 )     (236,201 )     (247,297 )
Administrative expenses
    (48,024     (217,406 )     (200,359     (195,291     (147,329     (122,121
Gain from recognition of inventories at net realizable value
    9,458       42,817       45,442       33,831       12,056       2,832  
Net income (loss) from retained interest in securitized receivables
    -       -       4,707       37,470       (46,012 )     (1,261 )
Gain from operations and holdings of real estate assets, net
    127       573       1,140       1,091       1,124       2,670  
Operating income (loss):
                                         
Development and sale of properties
    20,146       91,199       85,059       139,516       121,169       19,270  
Office and other non-shopping center rental properties
    23,208       105,061       84,054       73,526       76,485       52,930  
Shopping centers
    121,463       549,862       385,142       267,971       214,903       182,261  
Hotels
    (3,182     (14,401     12,171       5,414       8,590       18,040  
Consumer financing
    590       2,669       18,975       53,304       (125,431     (17,659 )
Total operating income
    162,225       734,390       585,401       539,731       295,716       254,842  
Amortization of negative goodwill, net
    4,008       18,145       17,427       1,641       1,602       1,638  
Financial results, net
    (97,855 )     (442,991 )     (282,246 )     (165,096 )     (136,381 )     (76,742 )
Gain (loss) on equity investees
    25,793       116,766       138,420       160,416       61,542       (13,209 )
Other expenses, net
    (6,589     (29,827     (14,609     (10,311     (8,855     (5,642 )
Income before taxes and minority interest
    87,582       396,483       444,393       526,381       213,624       160,887  
Income tax and MPIT
    (22,682 )     (102,683 )     (91,203 )     (125,871 )     (54,766 )     (65,637 )
Minority interest
    (3,031     (13,719     (58,405     (44,572     24,445       (28,711 )
Net income
    61,869       280,081       294,785       355,938       183,303       66,539  
Basic net income per share (3)
    0.11       0.48       0.51       0.62       0.32       0.12  
Basic net income per GDS (3)
    1.07       4.84       5.09       6.15       3.17       1.21  
Diluted net income per share (4)
    0.11       0.48       0.51       0.62       0.32       0.12  
Diluted net income per GDS (4)
    1.07       4.84       5.09       6.15       3.17       1.21  
Weighted average number of shares outstanding
    578,676       578,676       578,676       578,676       578,676       549,277  
Adjusted weighted - average number of shares (4)
    578,676       578,676       578,676       578,676       578,676       549,277  
Capital stock
    578,676       578,676       578,676       578,676       578,676       578,676  
 
 
7

 
   Fiscal Years ended June 30,
      2012       2012        2011        2010        2009        2008   
     
(In thousands of US$)(2)
     (In thousands of Ps. Except ratios) 
U.S. GAAP
                                               
Revenues
  430,090      1,947,017       1,628,653       1,580,578       1,454,738       1,227,797  
Costs
 
(188,645
)  
(853,996
)     (754,717     (686,660 )     (702,246     (586,206 )
Gross profit
 
241,445
   
1,093,021
      873,936       893,918       752,492       641,591  
Selling expenses
 
(20,793
 
(94,131
    (98,813 )     (177,179 )     (217,516 )     (224,348
Administrative expenses
 
(46,875
 
(212,203
    (195,023 )     (203,186 )     (155,902 )     (124,092 )
Net (loss) income from retained interest in securitized receivables
 
-
   
-
      5,235       58,115       (41,999 )     (13,928
Gain on bargain purchases
 
-
   
-
      28,365       58,470        -        -  
Disposal of business
 
-
   
-
      34,149       -       -        -  
Operating income
 
173,777
   
786,687
      647,849       630,138       337,075       279,223  
Gain on equity investees
 
(6,210
 
(28,110
)     176,839       134,047       (53,033 )     (7,253 )
Financial results, net
 
(99,496
 
(450,420
)     (223,110 )     (161,371 )     (212,428 )     (14,644 )
Amortization of goodwill
 
(2,959
  (13,396     (14,140     -       -        
Other expenses, net
 
(4,950
 
(22,407
    (19,237 )     (10,117 )     (5,706 )     (10,415 )
Income before taxes and minority interest
 
60,162
   
272,354
      568,201       592,697       65,908       246,911  
Income tax and MPIT
 
(30,736
 
(139,144
)     (111,819     (126,540     (107,259     (78,336 )
Net income under U.S. GAAP
 
29,426
   
133,210
      456,382       466,157       (41,351 )     168,575  
Non-controlling interest
 
(2,339
 
(10,587
    (56,187 )     (83,304 )     47,998       (46,459 )
Net income under U.S. GAAP attributable to IRSA
 
27,087
   
122,623
      400,195       382,853       6,647       122,116  
Basic net income per share(3)
 
0.05
   
0.21
      0.69       0.66       0.01       0.22  
Basic net income per GDS(3)
 
0.47
   
2.12
      6.92       6.62       0.11       2.22  
Basic net income before extraordinary items and accounting changes per share (3)
 
0.05
   
0.21
      0.69       0.66       0.01       0.22  
Diluted net income per share(4)
 
0.05
   
0.21
      0.69       0.66       0.01       0.22  
Diluted net income per GDS(4)
 
0.47
   
2.12
      6.92       6.62       0.11       2.16  
Diluted net income before extraordinary items and accounting changes per share (4)
 
-
   
-
      0.69       0.66       0.11       0.22  
Weighted - average number of shares outstanding
 
578,676
   
578,676
      578,676       578,676       578,676       549,277  
Adjusted weighted - average number of shares(4)
 
578,676
   
578,676
      578,676       578,676       578,676       570,472  
   
 
   
 
                                 
BALANCE SHEET DATA
       
 
                                 
Argentine GAAP
 
 
   
 
                                 
Cash and banks and current investments
    84,082       380,640       378,353       330,343       401,796       545,192  
Inventories
    29,198       132,179       262,660       259,569       24,899       53,602  
Accounts receivable net
    66,576       301,388       248,998       359,529       263,471       186,017  
Total current assets
    212,735       963,050       1,045,180       1,190,332       891,869       893,842  
Non-current Inventories
    21,476       97,221       89,441       55,088       164,933       129,178  
Accounts receivable net
    8,098       36,661       14,300       42,123       6,626       10,395  
Non-current investments (5)
    512,084       2,318,203       1,946,145       1,480,805       1,001,654       833,373  
Fixed assets net
    733,302       3,319,660       3,405,851       2,692,637       2,720,506       2,530,141  
Total non-current assets
    1,245,309       5,637,515       5,258,425       4,430,397       4,018,576       3,521,294  
Total assets
    1,458,044       6,600,565       6,303,605       5,620,729       4,910,445       4,415,136  
Short-term debt (6)
    127,167       575,687       683,813       609,190       351,173       190,153  
Total current liabilities
    282,851       1,280,467       1,305,757       1,341,620       974,890       742,267  
Long-term debt (7)
    456,334       2,065,826       1,756,919       1,031,528       1,044,725       1,121,264  
Total non-current liabilities
    579,167       2,621,890       2,379,229       1,506,298       1,591,410       1,533,443  
Total liabilities
    862,018       3,902,357       3,684,986       2,847,918       2,566,300       2,275,710  
Minority interest
    80,170       362,929       304,932       550,574       450,728       442,162  
Cumulative translation adjustment
    17,666       79,975       34,124       17,459       12,849       - -  
Shareholders’ equity
    515,856       2,335,279       2,313,687       2,222,237       1,893,417       1,697,264  
 
 
8

 
                                                 
U.S. GAAP
 
 
   
 
                                 
Cash and banks and current investments
 
74,680
    338,077       366,635       312,827       374,574       531,575  
Inventories
 
3,203
   
14,498
      37,487       16,107       31,002       38,905  
Accounts receivable, net
 
65,637
   
297,140
      251,702       373,427       262,128       195,269  
Other receivables and prepaid expenses
 
32,208
   
145,804
      291,376       385,466       413,554       249,153  
Total current assets  
175,728
   
795,518
      806,822       897,769       870,065       912,354  
Non-current investments(5)
 
524,837
    2,375,936       2,181,635       1,587,282       740,407       748,550  
Fixed assets, net
 
539,913
   
2,444,187
      2,496,626       2,557,845       2,469,051       2,331,695  
Intangible assets, net
 
18,549
   
83,971
      2,417       11,907       8,051       16,789  
Total assets
 
1,299,131
   
5,881,164
      5,684,931       5,319,867       4,411,670       4,219,383  
Trade accounts payable
 
26,728
   
120,996
      107,687       248,278       328,890       314,948  
Other liabilities
 
28,282
   
128,033
      96,878       124,934       176,525       133,273  
Short-term debt(6)
 
122,761
   
555,740
      663,344       606,189       349,627       190,153  
Total current liabilities
 
256,538
   
1,161,346
      1,146,311       1,171,949       996,787       749,505  
Long-term debt(7)
 
452,828
   
2,049,954
      1,690,417       996,040       1,013,494       1,120,257  
Total non-current liabilities
 
511,164
   
2,314,037
      2,026,863       1,430,020       1,469,341       1,447,833  
Shareholders’ equity
 
531,429
   
2,405,781
      2,511,757       2,717,898       1,958,586       2,026,823  
Non-controlling interest
 
84,135
   
380,881
      332,031       521,374       370,060       385,959  
Shareholders’ equity attributable to IRSA
 
447,294
   
2,024,900
      2,179,726       2,196,524       1,588,126       1,640,864  
                                                 
CASH FLOW DATA
                                         
Argentine GAAP
                                               
Net cash provided by operating activities
    194,080       878,600       571,832       376,458       442,619       469,117  
Net cash used in investing activities
    (88,872 )     (402,324 )     (746,042 )     (455,979 )     (455,041 )     (812,718 )
Net cash provided by (used in) financing activities
    (111,643 )     (505,410 )     335,130       44,933       (190,640 )     24,082  
U.S. GAAP(8)
                                               
Net cash provided by operating activities
 
189,616
   
858,390
      499,459       294,062       348,841       351,020  
Net cash used in investing activities
 
(85,568
 
387,365
      (294,015 )     (526,705 )     (466,771 )     (401,678 )
Net cash (used in) provided by financing activities
 
(113,275
 
512,794
      (18,662 )     179,874       (58,898 )     149,145  
Effect of exchange rate changes on cash and cash equivalents
 
1,184
   
5,361
      (3,416 )     (2,340 )     (20,677 )     2,161  
                                                 
OTHER FINANCIAL DATA
                                         
Argentine GAAP
                                               
                                                 
Capital expenditures (9)
    34,020       154,008       966,958       168,460       323,123       768,699  
Depreciation and amortization (10)
    39,199       177,454       171,553       160,746       136,392       115,207  
Working capital (11)
    (70,116 )     (317,417 )     (260,577 )     (151,288 )     (83,021 )     151,575  
Ratio of current assets to current liabilities
    0.17       0.75       0.8       0.89       0.91       1.20  
Ratio of shareholders equity to total liabilities
    0.13       0.60       0.63       0.78       0.74       0.75  
Ratio of non-current assets to total assets
    0.19       0.85       0.83       0.79       0.82       0.80  
 
 
9

 
 
(1)
Except for ratios and share data. 
 
(2)
Except for ratios and share data. Solely for the convenience of the reader, we have translated Peso amounts into U.S. Dollars at the exchange rate quoted by Banco de la Nación Argentina for June 30, 2012 which was Ps.4.527 per US $1.00. We make no representation that the Argentine Peso or U.S. Dollar amounts actually represent, could have been or could be converted into Dollars at the rates indicated, at any particular rate or at all. See “Exchange Rates”.
 
(3)
We have calculated earnings per share data under Argentine GAAP and U.S. GAAP based on the weighted average number of common shares outstanding during the respective period. Each GDS represents ten common shares.
 
(4)
Under both Argentine and U.S. GAAP we have considered the diluted effects of our outstanding convertible notes and warrants.However, under U.S. GAAP, we have used the treasury-stock method in calculating the diluted effect of the outstanding warrants. Each GDS represents ten common shares.
 
(5)
Includes 29.77% (without considering treasury shares) investment in Banco Hipotecario, Hersha, Metropolitan and Rigby, and our investments in undeveloped parcels of land.
 
(6)
Includes short-term debt and current mortgages payable.
 
(7)
Includes long-term debt and non-current mortgages payable.
 
(8)
This table is intended to present cash flows from operating, investing and financing activities under Argentine GAAP but following the classification financial statements included elsewhere herein for details of the differences in classifications affecting the categories of cash guidelines of Codification ASC No. 230 under U.S. GAAP. See Note 26 to our audited consolidated financial statements included elsewhere herein for details of the differences in classifications affecting the categories of cash flows.
 
(9)
Includes the purchase of fixed assets (including facilities and equipment), undeveloped parcels of land and renovation and remodeling of hotels and shopping centers and the purchase of subsidiaries which are essentially real estate purchases. Alsoinclude escrow deposits held in favor of third parties related to the acquisition of certain fixed assets.
 
(10)
Corresponds to depreciation and amortization included in operating income.
 
(11)
Working capital is calculated by substracting consolidated current liabilities from consolidated current assets.
 
Exchange Rate

In April 1991, Argentine law established a fixed exchange rate according to which the Central Bank was statutorily obligated to sell U.S. Dollars to any individual at a fixed exchange rate of Ps.1.00 per US$1.00. On January 7, 2002, the Argentine congress enacted Law No. 25,561 (the “Public Emergency Law”), abandoning over ten years of fixed Peso-U.S. Dollar parity at Ps.1.00 per US$1.00. After devaluing the Peso and setting the official exchange rate at Ps.1.40 per US$1.00, on February 11, 2002, the government allowed the Peso to float. The shortage of U.S. Dollars and their heightened demand caused the Peso to further devalue significantly in the first half of 2002. As of October 15, 2012 the exchange rate was Ps. 4.7070 = US$1.00 as quoted by Banco de la Nación Argentina at the U.S. Dollar selling rate. During the fiscal year 2010, fiscal year 2011 and fiscal year 2012, the Central Bank has indirectly affected the exchange rate market, through active participation with the purpose of isolating external effects and maintaining a stable parity.

The following table presents the high, low, average and period closing exchange rate for the average ask / bid of U.S. Dollars stated in nominal Pesos per U.S. Dollar. 
 
   
Exchange Rate
 
   
High(1)
   
Low(2)
   
Average(3)
   
Period Closing(4)
 
FiFiscal year ended June 30, 2008
    3.1640       2.9960       3.1196       3.0050  
Fiscal year ended June 30, 2009
    3.7780       2.9940       3.3862       3.7770  
Fiscal year ended June 30, 2010
    3.9130       3.6360       3.8255       3.9110  
Fiscal year ended June 30, 2011
    4.0900       3.9110       3.9810       4.0900  
Fiscal year ended June 30, 2012
    4.5070       4.0900       4.2808       4.5070  
July, 2012
    4.5650       4.5050       4.5337       4.5650  
August, 2012
    4.6180       4.5660       4.5905       4.6180  
September, 2012
    4.6180       4.5660       4.5905       4.6180  
As of October 15, 2012
    4.7070       4.6790       4.6915       4.7070  
 
 
(1)
The high exchange rate stated was the highest closing exchange rate of the month during the fiscal year, month or partial period described in the table above.
(2)
The low exchange rate stated was the lowest closing exchange rate of the month during the fiscal year, month or partial period described in the table above.
(3)
Average exchange rate for the fiscal year, month or partial period described in the table above.
(4)
Average of the selling rate and buying rate.
 
 
Source: Banco de la Nación Argentina
 
Fluctuations in the Peso-dollar exchange rate may affect the equivalent in dollars of the price in Pesos of our shares on the Buenos Aires Stock Exchange. Increases in the Argentine inflation rate or devaluation of the Peso could have a material adverse effect on our operating results.
 
 
This item is not applicable.
 
 
This item is not applicable.
 
 
10

 
 
You should consider the following risks described below, in addition to the other information contained in this annual report. We may face additional risks and uncertainties that are not presently known to us, or that we currently deem immaterial, which may also impair our business. In general, you take more risk when you invest in the securities of issuers in emerging markets such as Argentina than when you invest in the securities of issuers in the United States. You should understand that an investment in our common shares, Global Depositary Shares (“GDSs”), American Depositary Shares (“ADRs”) and warrants involves a high degree of risk, including the possibility of loss of your entire investment.
 
 Risks Relating to Argentina
 
Argentina’s growth may not be sustainable.
 
The Argentine economy has experienced significant volatility in recent decades, characterized by periods of low or negative growth, high inflation and currency devaluation. During 2001 and 2002, Argentina experienced a period of severe political, economic and social crisis, which caused a significant economic contraction and led to radical changes in government policies. Although the economy has recovered significantly since then, uncertainty remains as to whether the recent growth is sustainable, since it has depended, to a significant extent, on favorable exchange rates, high commodity prices and excess production capacity. The recovery, however, has resulted in inflation and has intensified the country’s need for capital investment, with many sectors, in particular the energy sector, operating near full capacity. Additionally, the global financial crisis and economic downturn of 2008 has had a significant adverse impact on the country’s performance which could remain a factor in the foreseeable future.
 
In 2011, the Argentine GDP, increased 7.28%, according to data published by the National Institute of Statistics (“Instituto Nacional de Estadísticas y Censos” or the “INDEC”). For the six months ended June 30, 2012, GDP increased 1.17% relative to the same period the prior year, according to data published by the INDEC. As of June 30, 2012, the Monthly Economic Activity Estimator (“Estimador Mensual de Actividad Económica” or the “EMAE”) increased 0.89%, relative to the same period the prior year, according to data published by the INDEC.
 
The economic and financial crisis in certain European countries, the United States, and certain other important commercial partners of Argentina, may imply a decline in the international demand for Argentine products, which could have a material adverse effect on our financial condition and the resulted of operations.
 
Our business depends to a significant extent on macroeconomic and political conditions in Argentina. We cannot assure you that Argentina’s recent growth will continue. Deterioration of the country’s economy would likely have a significant adverse effect on our business, financial condition and results of operations.
 
Continuing inflation may have an adverse effect on the economy.
 
The devaluation of the Peso in January 2002 created pressures on the domestic price system that generated high inflation throughout 2002, before inflation substantially stabilized in 2003. In fiscal years 2007, 2008, 2009, 2010, 2011 and 2012, inflation according to the INDEC was 7.7%, 7.2%, 8.5%, 11.0%, 9.7% and 9.9%, respectively, in part due to actions implemented by the Argentine government to control inflation, including limitations on exports and price arrangements agreed upon with private companies. The uncertainty surrounding future inflation may impact the country’s growth.
 
In the past, inflation has undermined the Argentine economy and the government’s ability to create conditions conducive to growth. A return to a high inflation environment would adversely affect the availability of long-term credit and the real estate market and may also affect Argentina’s foreign competitiveness by diluting the effects of the Peso devaluation and negatively impacting the level of economic activity and employment.
 
Additionally, high inflation would also undermine Argentina’s foreign competitiveness and adversely affect economic activity, employment, real salaries, consumption and interest rates. In addition, the dilution of the positive effects of the Peso devaluation on the export-oriented sectors of the Argentine economy will decrease the level of economic activity in the country. In turn, a portion of the Argentine debt is adjusted by the Coefciente de Estabilización de Referencia, (the “Stabilization Coefficient Index, or “CER Index”), a currency index that is strongly tied to inflation. Therefore, any significant increase in inflation would cause an increase in Argentina’s debt and, consequently, the country`s financial obligation.
 
If inflation remains high or continues to rise, Argentina’s economy may be negatively impacted and our business could be adversely affected.
 
There are concerns about the accuracy of Argentina’s official inflation statistics.
 
In January 2007, the INDEC modified its methodology used to calculate the consumer price index, which is calculated as the monthly average of a weighted basket of consumer goods and services that reflects the pattern of consumption of Argentine households. Several economists, as well as the international and Argentine press, have suggested that this change in methodology was related to the policy of the Argentine government to curb the increase of inflation and consequently reduce payments on the outstanding inflation-linked bonds issued by Argentina. At the time that the INDEC adopted this change in methodology the Argentine government also replaced several key officers at the INDEC, prompting complaints of governmental interference from the technical staff at the INDEC. In addition, the International Monetary Fund (“IMF”) requested to clarify its inflation rates several times.
 
In June 2008, the INDEC published a new consumer price index which eliminated nearly half of the items included in previous surveys and introduced adjustable weightings for several items as fruits, vegetables and clothing, which have seasonal cost variations. The INDEC has indicated that it based its evaluation of spending habits on a national household consumption survey from 2004 to 2005, in addition to other sources.
 
The aforementioned new consumer price index has been criticized by economists and investors after its debut report found prices rising well below expectations. These events have negatively affected the credibility of the consumer price index published by the INDEC, as well as other indexes published by the INDEC which require the consumer price index for their own calculation, including the poverty index, the unemployment index and real gross domestic product index. Argentina’s inflation rate may be significantly higher than the rates indicated by official reports.
 
In December 2010, the Argentine government agreed to meet with an official IMF team which arrived in Argentina to assist the INDEC with the development of a new national price index. In April 2011, the IMF team completed the second technical mission to assist on the design and methodology of a new national price index. As of the date of this annual report, Argentina´s government is intended to implement a new consumer price index before Febraury, 2013.
 
If the investigation carried out by the IMF results in a finding that the methodologies used to calculate the Consumer Price Index or other INDEC indexes derived from the Consumer Price Index were not accurate, or if it is determined that it is necessary to correct the Consumer Price Index and the other INDEC indexes derived from the Consumer Price Index as a result of the methodology used by INDEC, there could be a significant decrease in confidence in the Argentine economy. Given the limited credit available to emerging market nations as a result of the global economic crisis, the ability to access credit in the capital markets could be limited by the uncertainty relating to the inaccuracy of the economic indexes and rates in question which could adversely affect our results of operations and financial conditions.
 
 
11

 
Argentina’s ability to obtain financing from international markets is limited, which may impair its ability to implement reforms and foster economic growth
 
In 2005, Argentina restructured part of its sovereign debt that had been in default since the end of 2001. As a result of this restructuring,  the Argentine government announced that it had approximately US$129.2 billion in total gross public debt as of December 31, 2005. Certain bondholders that did not participate in that restructuring, mainly from the United States, Italy and Germany, filed legal actions against Argentina to collect on the defaulted bonds. Many of these proceedings are still pending as of this date and holdout creditors may initiate new suits in the future.
 
On January 3, 2006, Argentina repaid in full its debt of approximately US$ 9.8 billion with the IMF.
 
In September 2008, Argentina announced its intention to cancel its external public debt to Paris Club creditor nations using reserves of the Central Bank in an amount equal to approximately US$6.5 billion. However, as of the date of this Annual Report, the National Government has not yet cancelled such debt. In late 2010, Argentina´s government announced a new round of negotiations with the Paris Club to cancel such debt, which then totaled approximately US$8.0 billion, without the intervention of the IMF.
 
   In addition, foreign shareholders of several Argentine companies have filed claims before the International Center for the Settlement of Investment Disputes (“ICSID”) alleging that certain government measures adopted during the country’s 2001 crisis were inconsistent with the fair and equitable treatment standards set forth in various bilateral investment treaties to which Argentina is a party. Since May 2005, the ICSID tribunals have issued several awards against Argentina. Only the cases “CMS v. Argentina”, “Azurix v. Argentina” and “Vivendi v. Argentina” are currently final. This decisions required the Argentine government to pay US$133.2 million, US$165.2 million and US$105 million, respectively. As of the date of this annual report, Argentina has not yet paid the amounts referred to above.
 
On April 30, 2010, Argentina launched a new debt exchange to holders of the securities issued in the 2005 debt exchange and to holders of the securities that were eligible to participate in the 2005 debt exchange (other than brady bonds) to exchange such debt for new securities and, in certain cases, a cash payment. As a result of the 2005 and 2010 exchange offers, Argentina restructured over 91% of the defaulted debt eligible for the 2005 and 2010 exchange offers. The creditors who did not participate in the 2005 or 2010 exchange offers may continue their pursuit of a legal action against Argentina for the recovery of debt, which could adversely affect Argentina’s access to the international capital markets.
 
Argentina’s past default and its failure to restructure completely its remaining sovereign debt and fully negotiate with the holdout creditors may limit Argentina’s ability to reenter the international capital markets. Litigation initiated by holdout creditors as well as ICSID claims have resulted and may continue to result in judgments and awards against the Argentine government which, if not paid, could prevent Argentina from obtaining credit from multilateral organizations. Judgment creditors have sought and may continue to seek to attach or enjoin assets of Argentina. In addition, various creditors have organized themselves into associations to engage in lobbying and public relations concerning Argentina’s default on its public indebtedness. Such groups have over the years unsuccessfully urged passage of federal and New York state legislation directed at Argentina’s defaulted debt and aimed at limiting Argentina’s access to the U.S. capital markets. Although neither the United States Congress nor the New York state legislature has taken any significant steps towards adopting such legislation, we can make no assurance that the enactement of new legislation or other political actions designed to limit Argentina’s access to capital markets will not take effect.
 
In April 2010, a Court of New York granted an attachment over reserves of the Argentine Central Bank in the United States requested by creditors of Argentina on the basis that the Central Bank was its alter ego. In July 2011, an appeals court reserved that ruling, stating that the assets of the Central Bank were protected by law. Plaintiffs have petitioned the United States Supreme Court to review the appeals court decision. As of the date of this annual report, the United States Supreme Court has not addressed the case. As a result of Argentina’s default and its aftermath, the government may not have the financial resources necessary to implement reforms and foster economic growth, which, in turn, could have a material adverse effect on the country’s economy and, consequently, our businesses and results of operations. Furthermore, Argentina’s inability to obtain credit in international markets could have a direct impact on our own ability to access international credit markets to finance our operations and growth.
 
Significant fluctuation in the value of the Peso may adversely affect the Argentine economy as well as our financial performance.
 
Despite the positive effects of the real depreciation of the Peso in 2002 on the competitiveness of certain sectors of the Argentine economy, it has also had a far-reaching negative impact on the Argentine economy and on businesses and individuals’ financial condition. The devaluation of the Peso has had a negative impact on the ability of Argentine businesses to honor their foreign currency-denominated debt, initially led to very high inflation, significantly reduced real wages, had a negative impact on businesses whose success is dependent on domestic market demand, such as utilities and the financial industry, and adversely affected the government’s ability to honor its foreign debt obligations. If the Peso devalues significantly, all of the negative effects on the Argentine economy related to such devaluation could recur, with adverse consequences on our business. Moreover, it would likely result in a decline in the value of our common shares and the ADSs as measured in U.S. Dollars.
 
On the other hand, a substantial increase in the value of the Peso against the U.S. Dollar also presents risks for the Argentine economy. The appreciation of the Peso against the U.S. Dollar negatively impacts the financial condition of entities whose foreign currency denominated assets exceed their foreign currency-denominated liabilities, such as us. In addition, in the short term, a significant real appreciation of the Peso would adversely affect exports. This could have a negative effect on GDP growth and employment as well as reduce the Argentine public sector’s revenues by reducing tax collection in real terms, given its current heavy reliance on taxes on exports. The appreciation of the Peso against the U.S. Dollar could have an adverse effect on the Argentine economy and our business.
 
Government measures to preempt or respond to social unrest may adversely affect the Argentine economy and our business.
 
The Argentine government has historically exercised significant influence over the country’s economy. Additionally, the country’s legal and regulatory frameworks have at times suffered radical changes, due to political influence and significant political uncertainties.
 
Moreover, during its crisis in 2001 and 2002, Argentina experienced significant social and political turmoil, including civil unrest, riots, looting, nationwide protests, strikes and street demonstrations. Despite Argentina’s economic recovery and relative stabilization, social and political tension and high levels of poverty and unemployment continue. In 2008, Argentina faced nationwide strikes and protests from farmers due to increased export taxes on agricultural products, which disrupted economic activity and heightened political tension. Future government policies to preempt, or in response to, social unrest may include expropriation, nationalization, forced renegotiation or modification of existing contracts, suspension of the enforcement of creditors’ rights, new taxation policies, including royalty and tax increases and retroactive tax claims, and changes in laws and policies affecting foreign trade and investment. Such policies could destabilize the country and adversely and materially affect the economy, and thereby our business.
 
The Argentine government may order salary increases to be paid to employees in the private sector, which would increase our operating costs.

In the past, the Argentine government has passed laws, regulations and decrees requiring companies in the private sector to maintain minimum wage levels and provide specified benefits to employees and may do so again in the future. In the aftermath of the Argentine economic crisis, employers both in the public and private sectors have experienced significant pressure from their employees and labor organizations to increase wages and to provide additional employee benefits. Due to the high levels of inflation, the employees and labor organizations have begun again demanding significant wage increases. It is possible that the Argentine government could adopt measures mandating salary increases and/or the provision of additional employee benefits in the future. Any such measures could have a material and adverse effect on our business, results of operations and financial condition.

 
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The nationalization of Argentina’s pension funds has materially and adversely affected local capital markets and may continue to do so.
 
Under Law No. 26,425, which was published in the Official Gazette in December 2008, the Argentine government transferred approximately Ps.94.4 billion (US$29.3 billion) in assets held by the country’s private Administradoras de Fondos de Jubilaciones y Pensiones (pension funds, or “AFJPs”) to the social security agency (“ANSES”) managed by the National State.
 
Law No. 26,425 was supplemented, among others, by Decree No. 2103/2008 which describes the composition of the fund (Fondo de Garantia de Sustentabilidad) to be managed by ANSES and the directions for the management thereof; in turn, Decree No. 2104/08 regulates the matters concerning the transfer to the Argentine government of the contributions and all the documentation of the members of the capitalization regime retroactive as of December 1, 2008.
 
AFJPs were the largest participants in the country’s local capital markets, leading the group of institutional investors. With the nationalization of their assets, the dynamics of the local capital markets changed due to the decrease in their number, becoming a concentrated group. In addition, the government became a significant shareholder in many of the country’s publicly-held companies. Pursuant to current regulations, ANSES may exercise the voting rights corresponding to its respective shares, which could eventually result in uncertain consequences. The nationalization of the AFJP has adversely affected investors’ confidence in Argentina, which may impact our ability to undertake access to the capital market in the future.
 
Exchange controls and restrictions on transfers abroad and capital inflow restrictions have limited, and can be expected to continue to limit, the availability of international credit.
 
In 2001 and 2002, Argentina imposed exchange controls and transfer restrictions substantially limiting the ability of companies to retain foreign currency or make payments abroad. On June 2005, the government issued decree No. 616/2005, which established additional controls on capital inflow, including the requirement that, subject to limited exemptions, 30% of all funds remitted to Argentina remain deposited in a domestic financial institution for one year without earning any interest. On October 2011, new exchange controls measures that restrict foreign exchange inflows and outflows of capital have been implemented, among them it was established as a requirement for the repatriation of the direct investment of the non-resident (purchase of shares of local companies and real estate), the demonstration of the income of the currency and its settlement in the single free exchange market “Mercado Único y Libre de Cambios”. This measure increases the cost of obtaining foreign funds and limits access to such financing. Additionally, in July 2012, the Central Bank issued Communication “A” 5318, that among others, suspended the access to the “Mercado Único y Libre de Cambios” by residents for the formation of off-shore assets without a specific allocation.
 
The Argentine government may, in the future, impose additional controls on the foreign exchange market and on capital flows from and into Argentina, in response to capital flight or depreciation of the Peso. These restrictions may have a negative effect on the economy and on our business if imposed in an economic environment where access to local capital is constrained. For more information, please see Item 10 (d) “Exchange Controls”.
 
Payment of dividends to non-residents has been limited in the past and may be limited again.
 
Beginning in February 2002, the payment of dividends, irrespective of amount, outside Argentina required prior authorization from the Central Bank. On January 7, 2003, the Central Bank issued communication “A” 3859, which is still in force and pursuant to which there are no limitations on companies’ ability to purchase foreign currency and transfer it outside Argentina to pay dividends, provided that those dividends arise from net earnings corresponding to approved and audited financial statements. If similar restrictions are enacted by the Argentine government or the Central Bank in the future, it could have an adverse effect on our business.
 
Property values in Argentina could decline significantly.
 
Property values are influenced by multiple factors that are not in our control. We cannot assure you that property values will continue to increase or that they will not be reduced. Many of the properties we own are located in Argentina. As a result, a reduction in the value of properties in Argentina would materially affect our business.
 
The stability of the Argentine banking system is uncertain.
 
During 2001 and the first half of 2002, a significant amount of deposits were withdrawn from Argentine financial institutions largely due to the loss of confidence of depositors in the Argentine government’s ability to repay its debts, including its debts within the financial system, and to maintain Peso-Dollar parity in the context of its solvency crisis.
 
To prevent a run on the U.S. Dollar reserves of local banks, the government restricted the amount of money that account holders could withdraw from banks and introduced exchange controls restricting capital outflows.
 
While the condition of the financial system has improved, adverse economic developments, even if not related to or attributable to the financial system, could result in deposits flowing out of the banks and into the foreign exchange market, as depositors seek to shield their financial assets from a new crisis. Any run on deposits could create liquidity or even solvency problems for financial institutions, resulting in a contraction of available credit.
 
In the event of a future shock, such as the failure of one or more banks or a crisis in depositor confidence, the Argentine government could impose further exchange controls or transfer restrictions and take other measures that could lead to renewed political and social tensions and undermine the Argentine government’s public finances, which could adversely affect Argentina’s economy and prospects for economic growth which could adversely affect our business.
 
The Argentine economy could be adversely affected by economic developments in other global markets.
 
Financial and securities markets in Argentina are influenced, to varying degrees, by economic and market conditions in other global markets. Although economic conditions vary from country to country, investors’ perception of the events occurring in one country may substantially affect capital flows into other countries. 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 devaluation in January 1999.
 
In addition, Argentina is also affected by the economic conditions of major trade partners, such as Brazil and/or countries that have influence over world economic cycles, such as the United States. 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 would have a negative impact on us, our business, operations, financial condition and prospects.
 
Moreover, several European Union members have been obliged to reduce their public expenditures due to their high indebtedness rates, which had a negatively impact on the economy of the Euro zone. Japan has also announced that it will cut fiscal expenditures. Since 2008, the “sub-prime” crisis in the United States and the recent economic recession and fiscal deficit experienced in certain European countries caused an economic slowdown in the world’s principal economies. Recently, the possibility of a default by Greece or other Eurozone country has increased market volatility and it may complicate financing access.
 
 
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After acknowledging difficulties to meet payment of its public debt, the accounts of Greece were put under the supervision of the European Union. Mainly due to fears of contagion and to the drastic decline in Greece’s public debt ratings, the European Union, together with the International Monetary Fund, designed a plan of aid for Greece involving the supply of approximately 110 billion Euros. This contribution was granted based on the adjustment plan approved by the European Union for Greece, which included pay cuts for civil servants, pensions and retirement reductions, and significant increases in taxes. This led to widespread rioting in the streets.
 
Spain, Portugal, Germany and the UK have made similar adjustments in all areas to prevent further deterioration of their accounts. More recently, Ireland has adopted similar measures, and on June 2012, the Eurogroup agreed to lend Spain up to 100 billion euros to shore up its teetering banks (while at the same time was negotiating additional rescue packages with the IMF). Notwithstanding these measures, it is unclear what consequences there would be in the global financial system if any of the major global financial institutions became insolvent, or what effects such a situation might have on the rest of the financial system.
 
 The current global economic condition may have significant long-term effects on Latin America and Argentina, mainly reflected in the lack of access to international credit, reduced demand for Argentine exports, and significant reductions in foreign direct investment. The realization of any or all of these risk factors, as well as events that may arise in the main regional partners, including members of Mercosur, could have a material adverse effect on the Argentine economy and, indirectly, on our operations, business, and results of our operations.
 
If prices for Argentina’s main commodity exports decline, such decline could have an adverse effect on Argentina’s economic growth and on our business.
 
Argentina’s economy has historically relied on the export of commodities, the prices of which have been volatile in the past and largely outside its control. Argentina’s recovery from the financial crisis in 2001 and 2002 has depended to a significant extent on the rise in commodity prices, particularly prices of its main commodity exports, such as soybeans. High commodity prices have contributed significantly to government revenues from taxes on exports. Fluctuations in prices for commodities exported by Argentina and a significant increase in the value of the Peso (in real terms) may reduce Argentina’s competitiveness and significantly affect the country’s exports. A decrease in exports could affect Argentina’s economy have a material adverse effect on public finances due to a loss of tax revenues, cause an imbalance in the country’s exchange market which, in turn, could lead to increased volatility with respect to the exchange rate. In addition, and more importantly in the short term, a significant appreciation of the Peso could materially reduce the Argentine government’s revenues in real terms and affect its ability to make payments on its debt obligations, as these revenues are heavily derived from export taxes (withholdings). This could worsen the financial condition of the Argentine public sector, which could materially and adversely affect the Argentine economy, as well as our financial condition and operating results.
 
Restrictions on the supply of energy could negatively affect Argentina’s economy.
 
As a result of a prolonged recession, and the forced conversion into Pesos and subsequent freeze of gas and electricity tariffs in Argentina, there has been a lack of investment in gas and electricity supply and transport capacity in Argentina in recent years. At the same time, demand for natural gas and electricity has increased substantially, driven by a recovery in economic conditions and price constraints, which has prompted the government to adopt a series of measures that have resulted in industry shortages and/or costs increase.
 
The federal government has been taking a number of measures to alleviate the short-term impact of energy shortages on residential and industrial users. If these measures prove to be insufficient, or if the investment that is required to increase natural gas production and transportation capacity and energy generation and transportation capacity over the medium-and long-term fails to materialize on a timely basis, economic activity in Argentina could be limited, which could have a significant adverse effect on our business.
 
As a first step of these measures, subsidies on energy tariffs are being withdrawn to industries and high income consumers. As a result, our operating costs may increase.
 
Risks Related to our Business
 
Our performance is subject to risks associated with our properties and with the real estate industry.
 
Our economic performance and the value of our real estate assets, and consequently the value of the securities issued by us, are subject to the risk that if our properties do not generate sufficient revenues to meet our operating expenses, including debt service and capital expenditures, our cash flow and ability to pay our debt obligations will be adversely affected. Events or conditions beyond our control that may adversely affect our operations or the value of our properties include:
 
·  
downturns in the national, regional and local economic climate;
 
·  
volatility and decline in discretionary spending;
 
·  
competition from other shopping centers;
 
·  
local real estate market conditions, such as oversupply or reduction in demand for office, or other commercial or industrial 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;
 
·  
increased operating costs, including insurance expense, salary increases, utilities, real estate taxes, state and local taxes and heightened security costs;
 
·  
civil disturbances, earthquakes and other natural disasters, or terrorist acts or acts of war which may result in uninsured or underinsured losses;
 
·  
significant expenditures associated with each investment, such as debt service payments, real estate taxes, insurance and maintenance costs which are generally not reduced when circumstances cause a reduction in revenues from a property;
 
·  
declines in the financial condition of our tenants and our ability to collect rents from our tenants;
 
·  
changes in our ability or our tenants’ ability to provide for adequate maintenance and insurance, possibly decreasing the useful life of and revenue from property; and
 
·  
changes in law or governmental regulations (such as those governing usage, zoning and real property taxes) or government action such as expropriation or confiscation.
 
If any one or more of the foregoing conditions were to affect our business, it could have a material adverse effect on our financial condition and results of operations.
 
 
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Our investment in property development, redevelopment and construction may be less profitable than we anticipate.
 
We are engaged in the development and construction of office space, retail and residential properties, shopping centers and residential apartment complexes, frequently through third-party contractors. Risks associated with our developement, re-development and construction activities include the following, among others:
 
·  
abandonment of development opportunities and renovation proposals;
 
·  
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;
 
·  
occupancy rates and rents at newly completed properties may fluctuate depending on a number of factors, including market and economic conditions, resulting in lower than projected rental rates and a corresponding lower return on our investment;
 
·  
pre-construction buyers may default on their purchase contracts or units in new buildings may remain unsold upon completion of construction;
 
·  
the unavailability of favorable financing alternatives in the private and public debt markets;
 
·  
sale prices for residential units may be insufficient to cover development costs;
 
·  
construction and lease-up may not be completed on schedule, resulting in increased debt service expense and construction costs;
 
·  
impossibility to obtain, delays in obtaining, necessary zoning, land-use, building, occupancy and other required governmental permits and authorizations, or building moratoria and anti-growth legislation;
 
·  
significant time lags between the commencement and completion of projects subjects us to greater risks due to fluctuation in the general economy;
 
·  
construction may not be completed on schedule because of a number of factors, including weather, labor disruptions, construction delays or delays in receipt of zoning or other regulatory approvals, or man-made or natural disasters (such as fires, hurricanes, earthquakes or floods), resulting in increased debt service expense and construction costs;
 
·  
general changes in our tenants’ demand for rental properties outside of the city of Buenos Aires; and
 
·  
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, 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.
 
The real estate industry in Argentina is increasingly competitive.
 
Our real estate and construction activities are highly concentrated in the Buenos Aires metropolitan area, where the real estate market is highly competitive due to the scarcity of properties in sought-after locations and the increasing number of local and international competitors.
 
Furthermore, the Argentine real estate industry is generally highly competitive and fragmented and does not have high barriers to entry restricting new competitors. The main competitive factors in the real estate development business include availability and location of land, price, funding, design, quality, reputation and partnerships with developers. A number of residential and commercial developers and real estate services companies compete with 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 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.
 
In addition, many of our shopping centers are located in close proximity to other shopping centers, numerous retail stores and residential properties. The number of comparable properties located in the vicinity of our property could have a material adverse effect on our ability to lease retail space in our shopping centers or sell units in our residential complexes and on the rent price or the sale price that we are able to charge. We cannot assure you that other shopping center operators, including international shopping center operators, will not invest in Argentina in the near future. As additional companies become active in the Argentine shopping center market, such increased competition could have a material adverse effect on our results of operations.
 
We face risks associated with property acquisitions.
 
We have acquired, and intend to acquire, properties, including large properties (such as the acquisition of Edificio República, Abasto de Buenos Aires, or Alto Palermo Shopping) that would increase our size and potentially alter our capital structure. The success of our past and future acquisitions is subject to a number of uncertainties, including the risk that:
 
 
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·  
we may not be able to obtain financing for acquisitions on favorable terms;
 
·  
acquired properties may fail to perform as expected;
 
·  
the actual costs of repositioning or redeveloping acquired properties may be higher than our estimates;
 
·  
acquired properties may be located in new markets where we may have limited knowledge and understanding of the local economy, absence of business relationships in the area or unfamiliarity with local governmental and permitting procedures; and
 
·  
we may not be able to efficiently integrate acquired properties, particularly portfolios of properties, into our organization and to manage new properties in a way that allows us to realize cost savings and synergies.
 
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 have the required land-use, building, occupancy and other required governmental permits and authorizations. 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.
 
Acquired properties may subject us to unknown liabilities.
 
Properties that we acquire may be subject to unknown liabilities and we would have no recourse, or only limited recourse, to the former owners of the properties. Thus, if a liability were asserted against us based upon ownership of an acquired property, we might 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;
 
·  
law reforms and governmental regulations (such as those governing usage, zoning and real property taxes); and
 
·  
liabilities incurred in the ordinary course of business.
 
Some potential losses are not covered by insurance, and certain kinds of insurance coverage may become prohibitively expensive.
 
We currently carry insurance policies that cover potential risks such as civil liability, fire, loss of profit, floods, including extended coverage and losses from leases on all of 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. Should an uninsured 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. Moreover, we do not purchase life or disability insurance for any of our key employees. If any of our key employees were to die or become incapacitated, we would 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.
 
 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, or any of our major tenants (as discussed in more detail below):
 
·  
delay lease commencements;
 
·  
decline to extend or renew leases upon expiration;
 
·  
fail to make rental payments when due; or
 
·  
close stores or declare bankruptcy.
 
Any of these actions could result in the termination of the tenant’s leases and the loss of rental income attributable to the terminated leases. 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. The loss of rental revenues from a number of our tenants and our inability to replace such tenants may adversely affect our profitability and our ability to meet debt and other financial obligations.
 
Demand for our premium properties which target the high-income demographic may be insufficient.
 
We have focused on development projects to cater affluent individuals and have entered into property swap agreements pursuant to which we contribute our undeveloped properties to ventures with developers who will deliver us units in 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 a material adverse effect on our financial condition and results of operations.
 
It may be difficult to buy and sell real estate quickly and transfer restrictions apply to some of our properties.
 
Real estate investments are relatively illiquid and this tends to limit our ability to vary our portfolio promptly in response to changes in the economy or other conditions. In addition, significant expenditures associated with each equity investment, such as mortgage payments, real estate taxes and maintenance costs, are generally not reduced when circumstances cause a decrease in income from an investment. If income from a property declines while the related expenses do not decline, our business would be adversely affected. Some of our properties are mortgaged to secure payment of our indebtedness, and if we are unable to meet our mortgage payments, we could lose money as a result of foreclosure on such mortgages and even lose such property. In addition, if it becomes necessary or desirable for us to dispose of one or more of the mortgaged properties, we might not be able to obtain a release of the lien on the mortgaged property without payment of the associated debt. The foreclosure of a mortgage on a property or inability to sell a property could adversely affect our business. In the type of transactions, we may also agree, subject to certain exceptions, not to sell the acquired properties for significant periods of time.
 
 
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An adverse economic environment for real estate companies and the credit crisis may adversely impact our results of operations and business prospects. 
 
The success of our business and profitability of our operations are dependent on continued investment in the real estate markets and access to capital and debt financing. A long term crisis in real estate investments and lack of available credit for acquisitions would be likely to constrain our business growth. As part of our business goals, we intend to increase our properties portfolio with strategic acquisitions of core properties at advantageous prices, and core plus and value added properties where we believe we can bring necessary expertise to enhance property values. In order to pursue acquisitions, we may need access to equity capital and/or debt financing. Recent disruptions in the financial markets, including the bankruptcy and restructuring of major financial institutions, may adversely impact 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 tempered by decreasing property values. Our ability to make scheduled payments or to refinance our obligations with respect to indebtedness 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 presents itself in the future, there can be no assurances that government responses to the disruptions in the financial markets will restore investor confidence, stabilize the markets or increase liquidity and availability of credit. 
 
Our level of debt may adversely affect our operations and our ability to pay our debt as it becomes due.
 
We had, and expect to continue to have, substantial liquidity and capital resource requirements to finance our business. As of June 30, 2012, our consolidated financial debt was Ps.2,642 million (including short-term and long-term debt, accrued interest and deferred financing costs).
 
Although we are generating sufficient funds from operating cash flows to satisfy our debt service requirements and our capacity to obtain new financing is adequate given the current availability of credit lines with the banks, we cannot assure you that we will maintain such cash flow and adequate financial capacity in the future.
 
The fact that we are leveraged may affect our ability to refinance existing debt or borrow additional funds to finance working capital, acquisitions and capital expenditures. In addition, the recent disruptions in the global financial markets, including the bankruptcy and restructuring of major financial institutions, may adversely impact our ability to refinance existing debt and the availability and cost of credit in the future. In such conditions, access to equity and debt financing options may be restricted and it may be uncertain how long these circumstances 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 react 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 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 (including the recent international credit crisis) 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.
 
We may be negatively affected by a financial crisis in the U.S., the European Union and global capital markets.
 
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.
 
The capital and credit markets have been experiencing extreme volatility and disruption during 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 our company or the industry generally. We may not be able to successfully obtain any necessary additional financing on favorable terms.
 
The recurrence of a credit crisis could have a negative impact on our major customers, which in turn could materially adversely affect our results of operations and liquidity.
 
The recent credit crisis had a significant negative impact on businesses around the world. The impact of a 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 which could have a material adverse effect on our results of operations and liquidity.
 
Adverse incidents that occur in our shopping centers may result in damage to our image and a decrease in our customers.
 
Given that shopping centers 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 center customers and visitors may choose to visit other shopping venues that they believe are safer and less violent, which may cause a reduction in the sales volume and operating income of our shopping centers.
 
We are subject to risks inherent to the operation of shopping centers that may affect our profitability.
 
Shopping centers are subject to various factors that affect their development, administration and profitability. These factors include:
 
·  
the accessibility and the attractiveness of the area where the shopping center is located;
 
·  
the intrinsic attractiveness of the shopping center;
 
·  
the flow of people and the level of sales of each shopping center rental unit;
 
·  
increasing competition from internet sales;
 
·  
the amount of rent collected from each shopping center rental unit;
 
·  
changes in consumer demand and availability of consumer credit, both of which are highly sensitive to general macroeconomic conditions; and
 
·  
the fluctuations in occupancy levels in the shopping centers.
 
An increase in operating costs, caused by inflation or other factors, could have a material adverse effect if our tenants are unable to pay higher rent due to the increase in expenses. Moreover, the shopping center business is closely related to consumer spending and to the economy in which customers are located. All of our shopping centers are in Argentina, and, as a consequence, their business could be seriously affected by potential recession in Argentina. For example, during the economic crisis in Argentina, spending decreased significantly, unemployment, political instability and inflation significantly reduced consumer spending in Argentina, lowering tenants’ sales and forcing some tenants to leave our shopping centers. If the international financial crisis has a substantial impact on economic activity in Argentina, it will likely have a material adverse effect on the revenues from the shopping center activity.
 
 
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The loss of significant tenants could adversely affect both the operating revenues and value of our shopping center and other rental properties.
 
If some of our most important tenants were to experience financial difficulties, including bankruptcy, insolvency or a general downturn of business, or if we simply failed to retain their patronage, our business could be adversely affected. Our shopping centers and, to a lesser extent, our office buildings are typically anchored by significant tenants, such as well known department stores who generate shopping traffic at the mall. A decision by such significant tenants to cease operations at our shopping centers or office buildings could have a material adverse effect on the revenues and profitability of the affected segment and, by extension, on our financial condition and results of operations. The closing of one or more significant tenants may induce other major tenants at an affected property to terminate their leases, to seek rent relief and/or cease operating their stores or otherwise adversely affect occupancy at the property. In addition, key tenants at one or more properties might terminate their leases as a result of mergers, acquisitions, consolidations, dispositions or bankruptcies in the retail industry. The bankruptcy and/or closure of one or more significant tenants, if 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.
 
Our future acquisitions may be unprofitable.
 
We intend to acquire additional shopping center properties to the extent that they will be acquired on advantageous terms and 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 project 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.
 
If we acquire a business, we will be required to integrate the operations, personnel and accounting and information systems of the acquired business. In addition, acquisitions of or investments in companies may cause disruptions in our operations and divert management’s attention away from day-to-day operations, which could impair our relationships with our current tenants and employees.
 
Our ability to grow will be limited if we cannot obtain additional capital.
 
Our growth strategy is focused on the redevelopment of properties we already own and the acquisition and development of additional properties. As a result, we are likely to depend to an important degree on the availability of debt or equity capital, which may or may not be available on favorable terms. We cannot guarantee that additional financing, refinancing or other capital will be available in the amounts we desire or favorable terms. Our access to debt or equity capital markets depends on a number of factors, including the market’s perception of our growth potential, our ability to pay dividends, our financial condition, our credit rating and our current and potential future earnings. Depending on the outcome of these factors, we could experience delay or difficulty in implementing our growth strategy on satisfactory terms, or be unable to implement this strategy.
 
Serious illnesses and pandemics, such as the 2009 outbreak of Influenza A H1N1 virus, also known as the “swine flu”, have in the pastadversely affectedconsumer and touristactivity, may do so in the future and may adversely affect our results of operations.
 
As a result of the outbreak of Influenza A H1N1 during the winter of 2009, consumers and tourists dramatically changed their spending and travel habits to avoid contact with crowds. Further, several governments enacted regulations limiting the operation of schools, cinemas and shopping centers. Even though the Argentine government only issued public service recommendations to the population regarding the risks involved in visiting crowded places, such as shopping centers, and did not issue specific regulations limiting access to public places, a significant number of consumers nonetheless changed their habits vis-a-vis shopping centers and malls. Additionally, the outbreak of Influenza A H1N1 contributed significantly to a decrease in the number of tourists visiting Argentina in 2009. Although there was not an outbreak of AH1N1 influenza in the winter of 2011 and 2012, we cannot assure you that a new outbreak or health hazard will not occur in the future, or that such an outbreak or hazard would not significantly negatively affect consumer and/or tourist activity, and that such scenario would not adversely affect our businesses. 
 
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. The profitiablity of our office buildings may be affected by:
 
·  
a decrease in demand for office space;
 
·  
a deterioration in the financial condition of our tenants, which may result in defaults under leases due to bankruptcy, lack of liquidity or for other reasons;
 
·  
difficulties or delays renewing leases or re-leasing space;
 
·  
decreases in rents as a result of oversupply, particularly of newer buildings;
 
·  
competition from developers, owners and operators of office properties and other commercial real estate, including sublease space available from our tenants; and
 
·  
maintenance, repair and renovation costs incurred to maintain the competitiveness of our office buildings.
 
We are subject to risks affecting the hotel industry.
 
The full-service segment of the lodging industry in which our hotels operate is highly competitive. The operational success of our hotels is highly dependent on our ability to compete in areas such as access, location, quality of accommodations, rates, quality food and beverage facilities and other services and amenities. Our hotels may face additional competition if other companies decide to build new hotels or improve their existing hotels to increase their attractiveness. 
 
In addition, the profitability of our hotels depends on:
 
·  
our ability to form successful relationships with international and local operators to run our hotels;
 
·  
changes in tourism and travel patterns, including seasonal changes and chanes due to pandemic outbreaks, such as the AH1N1 virus or weather phenomenom or other natural events, such as the eruption of the Puyehué volcano in June 2011;
 
·  
affluence of tourists, which can be affected by a slowdown in global economy; and
 
·  
taxes and governmental regulations affecting wages, prices, interest rates, construction procedures and costs.
 
 
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An uninsured loss or a loss that exceeds the 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 assure the holders that the tenants will properly maintain their insurance policies or have the ability to pay the deductibles.
 
Should a loss occur that is uninsured or in an amount exceeding the combined aggregate limits for the policies noted above, or in the event of a loss that is subject to a substantial deductible under an insurance policy, we could lose all or part of our invested capital, and anticipated revenue from, one or more of the properties, which could have a material adverse effect on our operating results and financial condition.
 
Our business is subject to extensive regulation and additional regulations may be imposed in the future.
 
Our activities are subject to federal, state and municipal laws, and to regulations, authorizations and licenses required with respect to construction, zoning, use of the soil, environmental protection and historical patrimony, consumer protection and other requirements, all of which affect our ability to acquire land, buildings and shopping centers, develop and build projects and negotiate with customers. In addition, companies in this industry are subject to increasing tax rates, the creation of new taxes and changes in the taxation regime. 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 delays or failures to obtain 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.
 
Argentine Lease Law No. 23,091 imposes restrictions that limit our flexibility.
 
Argentine laws governing leases impose certain restrictions, including the following:
 
·  
lease agreements may not contain inflation adjustment clauses based on consumer price indexes or wholesale price indexes. Although many of our lease agreements contain readjustment clauses, these are not based on an official index nor do they reflect the inflation index. In the event of litigation these provisions may not be enforceable and therefore it may be impossible for us to adjust the amounts owed to us under our lease agreements;
 
·  
residential leases must comply with a mandatory minimum term of two years and retail leases must comply with a mandatory minimum term of three years except in the case of stands and/or spaces for special exhibitions;
 
·  
lease terms may not exceed ten years, except for leases regulated by Law No. 25,248 (which provides that leases containing a purchase option are not subject to term limitations); and
 
·  
tenants may rescind commercial and office lease agreements after the initial six-month period.
 
As a result of the foregoing, 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 and we cannot assure you that our tenants will not exercise such rights, especially if rent values stabilize or decline in the future or if economic conditions deteriorate.
 
Eviction proceedings in Argentina are difficult and time consuming.
 
Although Argentine law permits a summary proceeding to collect unpaid rent and a special proceeding to evict tenants, eviction proceedings in Argentina are difficult and time-consuming. Historically, the heavy workloads of the courts and the numerous procedural steps required have generally delayed landlords’ efforts to evict tenants. Eviction proceedings generally take between six months and two years from the date the suit is filed to the time of actual eviction.
 
We usually attempt to negotiate the termination of lease agreements with defaulting tenants after the first few months of non-payment in order to avoid legal proceedings. Delinquency may increase significantly in the future, and such negotiations with tenants may not be as successful as they have been in the past. Moreover, new Argentine laws and regulations may forbid or restrict eviction proceedings, and in such case, they would likely have a material and adverse effect on our financial condition and results of operation.
 
We are subject to great competitive pressure.
 
Our principal properties are located in Argentina. There are other shopping centers and numerous smaller retail stores and residential properties within the market area of each of our properties. The number of competing properties in a particular area could have a material adverse effect on our ability to lease retail space in our shopping centers or sell units in our residential complexes and on the amount of rent or the sale price that we are able to charge. To date, there have been relatively few companies competing with us for shopping center properties. However, if additional companies become active in the Argentine shopping center market in the future, such competition could have a material adverse effect on our results of operations.
 
Our assets are concentrated in the Buenos Aires area.
 
Our principal properties are located in the City of Buenos Aires and the Province of Buenos Aires and a substantial portion of our revenues are derived from such properties. For our fiscal years ended June 30, 2011 and 2012, approximately 85% and 85% of our consolidated revenues were derived from properties in the Buenos Aires metropolitan area including the City of Buenos Aires. Although we own properties and may acquire or develop additional properties outside Buenos Aires, we expect continued dependance to a large extent on economic conditions affecting those areas, and therefore, an economic downturn in those areas could have a material adverse effect on our financial condition and results of operations.
 
We face risks associated with the expansion to other Latin American markets.
 
From 1994 to 2002, we had substantial investments outside of Argentina, including Brazil Realty, which was sold in 2002, and Fondo de Valores Inmobiliarios in Venezuela, which was sold in 2001.
 
We continue to believe that Brazil, Uruguay and other Latin American countries offer attractive growth opportunities in the real estate sector. We will continue to consider investment opportunities outside of Argentina as they arise.
 
Investments in Brazil and other Latin American countries are subject to significant risks including sovereign risks and risks affecting these countries’ real estate sectors. These risks include competition by well-established as well as new developers, unavailability of financing or financing on terms that are not acceptable to us, exchange rate fluctuations, lack of liquidity in the market, rising construction costs and inflation, extensive and potentially increasing regulation and bureaucratic procedures for obtaining permits and authorizations, political and economic instability that may result in sharp shifts in demand for properties, risks of default in payment and difficulty evicting defaulting tenants.
 
In 2009, we acquired a property in Partido de la Costa, Department of Canelones, Uruguay, near Montevideo, where we plan to develop a real estate housing units and commercial premises.
 
 
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We face risks associated with our expansion in the United States.
 
On July 2, 2008, we acquired 30% interest in Metropolitan, a limited liability company organized under the laws of Delaware, United States of America. During fiscal year 2011, as a result of certain negotiations, an agreement was reached to restructure Metropolitan’s debt, following such closing, we indirectly hold 49% of New Lipstick LLC, a holding company which is the owner of Metropolitan. Metropolitan’s main asset is the Lipstick Building, a 34-story building located on Third Avenue between 53rd and 54th streets in Manhattan, New York City. Metropolitan has incurred mortgage debt in connection with the Lipstick Building. For more information about Metropolitan, please see “Operating and Financial Review and Prospects”.
 
Since August 2009 we acquired and subsequently sold part of our equity interests in Hersha Hospitality Trust, therefore, on June 30, 2012 our share is 9.13%. The main assets are hotels, most of them are located on the east coast of the United States. At June 30, 2012, Hersha was the holder of an indirect controlling interest in 67 hotels. On September 4, 2012, we sold 2,000,000 common shares of Hersha. After this transaction our interest in Hersha amounts to 8.12%. For more information on Rigby, see "Business-International" and “Recent Developments”.
 
In December 2010, through Rigby 183 LLC, in which we indirectly holds a 49% equity interest through IMadison LLC, jointly with other partners, we acquired a building located at 183 Madison Avenue, Midtown South, Manhattan, New York. On August 31, 2012, we agreed to purchase to Rigby Madison LLC’s the 33.36% equity interest it holds in Rigby 183 LLC. As a result of this transaccion our interest in Rigby 183 will increase to 82.36% of its capital stock. For more information on Rigby, see“Recent Development”.
 
In March 2012, IRSA, through its subsidiary Real Estate Strategies, L.P., consummated the transaction for the acquisition of 3,000,000 Series C convertible preferred shares issued by Supertel Hospitality Inc. in an aggregate amount of US$ 30,000,000. As of the date of this annual report, Real Estate Strategies, L.P has appointed the directors and holds voting rights in respect of a 34% interest in Supertel Hospitality Inc. Supertel is a REIT listed in Nasdaq with the symbol “SPPR” and is focused on middle-class and long-stay hotels in 23 states in the United States of America, which are operated by various operators and franchises such as Comfort Inn, Days Inn, Hampton Inn, Holiday Inn, Sleep Inn and Super 8, among others.
 
The U.S. markets have recently experienced extreme dislocations and a severe contraction in available liquidity globally as important segments of the credit markets were frozen. Global financial markets have been disrupted by, among other things, volatility in securities prices, rating downgrades and declining valuations, and this disruption has been acute in real estate and related markets. This disruption has lead to a decline in business and consumer confidence and increased unemployment and has precipitated an economic recession around the globe. As a consequence, owners and operators of commercial real estate, including hotels and resorts, and commercial real estate properties such as offices, have experienced dramatic declines in property values and may continue to experience declines in business and real estate values in the U.S. or elsewhere. We are unable to predict the likely duration or severity of the effects of the disruption in financial markets and adverse economic conditions and the effects they may have on our business, financial condition and results of operations.
 
If the bankruptcy of Inversora Dársena Norte S.A. is extended to our subsidiary Puerto Retiro, we will likely lose a significant investment in a unique waterfront land reserve in the City of Buenos Aires.
 
On November 18, 1997, in connection with the acquisition of our subsidiary Inversora Bolívar S.A. (“Inversora Bolívar”), we indirectly acquired 35.2% of the capital stock of Puerto Retiro. Inversora Bolívar purchased such shares of Puerto Retiro from Redona Investments Ltd. N.V. in 1996. In 1999, we, through Inversora Bolívar, increased our interest in Puerto Retiro to 50.0% of its capital stock. On April 18, 2000, Puerto Retiro received notice of a complaint filed by the Argentine government, through the Ministry of Defense, seeking to extend the bankruptcy of Inversora Dársena Norte S.A. (“Indarsa”). Upon filing of the complaint, the bankruptcy court issued an order restraining the ability of Puerto Retiro to dispose of the real property it had purchased in 1993 from Tandanor S.A. (“Tandanor”). Puerto Retiro appealed to the restraining order which was confirmed by the court on December 14, 2000.
 
In 1991, Indarsa purchased 90% of Tandanor, formerly a government-owned company, which owned a large piece of land near Puerto Madero of approximately 8 hectares, divided into two spaces: Planta 1 and 2. After the purchase of Tandanor by Indarsa, in June 1993 Tandanor sold “Planta 1” to Puerto Retiro, for a sum of US$18 million pursuant to a valuation performed by J.L. Ramos, a well-known real estate brokerage firm in Argentina. Indarsa failed to pay to the Argentine government the outstanding price for its purchase of the stock of Tandanor. As a result, the Ministry of Defense requested the bankruptcy of Indarsa. Since the only asset of Indarsa was its holding in Tandanor, the Argentine government is seeking to extend Indarsa’s bankruptcy to the companies or individuals which, according to its view, acted as a single economic group. In particular, the Argentine government has requested the extension of the bankruptcy to Puerto Retiro, which acquired Planta 1 from Tandanor.
 
The time for producing evidence in relation to these legal proceeding has expired. The parties have submitted their closing arguments and are awaiting a final judgment. However, the judge has delayed his decision until a final judgment in the criminal proceedings against the former Defense Minister and former directors of Indarsa has been delivered. It should be noticed, regarding the above mentioned criminal procedure that on February 23, 2011 it was resolved to declare its expiration, and to dismiss certain defendants. However, this resolution is not final because it was appealed. We cannot give you any assurance that we will prevail in this proceeding, and if the plaintiff’s claim is upheld by the courts, all of the assets of Puerto Retiro would likely be used to pay Indarsa’s debts and our investment in Puerto Retiro, valued at Ps. 54.3 million, as of June 30, 2012, would be lost. As of June 30, 2012, we had not established any reserve with respect to this contingency.
 
Property ownership through joint ventures or minority participation 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, in our Shopping Center segment, as of June 30, 2012, we owned approximately 95.6% of Alto Palermo. Through our subsidiary Alto Palermo S.A. (“Alto Palermo” or “APSA”), we own 80% of Panamerican Mall S.A., while another 20% is owned by Centro Comercial Panamericano S.A and 50% of Quality Invest S.A.. In our Development and Sale of Properties segment, we have ownership of 50% in Puerto Retiro and 50% in Cyrsa S,A. In our Hotel segment, we own 50% of the Llao Llao Hotel, while the other 50% is owned by the Sutton Group. We own 80% of the Hotel Libertador, Hoteles Sheraton de Argentina S.A. owns 20%. We own 76.34% of Hotel Intercontinental. In the Financial Operations and others segment, we own approximately 29.77% of Banco Hipotecario, while the Argentine government has a controlling interest. Finally, we own a 49% interest in Metropolitan, 49% in a building located at Madison Avenue in New York, 9.3% in Hersha (As of the date of this annual report our interest in Hersha amounts to 8.12%. For more information please see “Recent Development”) and holds voting rights with respect to a 34% interest in Supertel Hospitality Inc. For more information please see “Recent Developments”.
 
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.
 
 
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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 share of joint venture liabilities.
 
Dividend restrictions in our subsidiaries’ debt agreements may adversely affect it.
 
We have subsidiaries and an important source of funds for are cash dividends and other permitted payments from its subsidiaries. The debt agreements of our subsidiaries contain covenants restricting their ability to pay dividends or make other distributions. If our subsidiaries are unable to make payments to us, or are able to pay only limited amounts, we may be unable to make payments on its indebtedness.
 
We are dependent on our board of directors and certain other senior managers.
 
Our success depends on the continued employment of Eduardo Elsztain, our Chied Executive Officer and Chairman of the Board of Directors, and certain members of our board of directors and senior management, who have significant expertise and knowledge of our business and industry. The loss of or interruption in his services for any reason could have a material adverse effect on our business. 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. A failure to hire or retain qualified personnel may have a material adverse effect on our financial condition and results of operations.
 
We may face potential conflicts of interest relating to our principal shareholders.
 
Our largest beneficial owner is Mr. Eduardo S. Elsztain, through his indirect shareholding through Cresud S.A.C.I.F.y A. (“Cresud”). As of June 30, 2012, such beneficial ownership consisted of: (i) 371,517,973 common shares held by Cresud, (ii) 8,998,030 common shares held by Inversiones Financieras del Sur S.A., (iii) 628,070 common shares held by Consultores Assets Management S.A., and (iv) 1,218,600 common shares held directly by Mr. Elsztain
 
Conflicts of interest between our management, Cresud  and our affiliates may arise in the performance of our business activities. As of June 30, 2012, Mr. Elsztain also beneficially owned (i) approximately 38.79% (on a fully diluted basis) of Cresud’s common shares and (ii) approximately 95.6% of the common shares of our subsidiary Alto Palermo. We cannot assure you that our principal shareholders and their affiliates will not limit or cause us to forego business opportunities that our affiliates may pursue or that the pursuit of other opportunities will be in our interest.
 
Due to the currency mismatches between our assets and liabilities, we have significant currency exposure.
 
As of June 30, 2012, the majority of our liabilities, such as our 7.45%, 8.5% and 11.5% notes due 2014, 2017 and 2020 respectively, Alto Palermo’s Series I Notes and Alto Palermo’s convertible notes are denominated in U.S. Dollars, while a significant portion of our revenues and assets as of June 30, 2012, are denominated in Pesos. This currency gap exposes us to a risk of exchange rate volatility, which would negatively affect our financial results if the Dollar were to appreciate against the Peso. Any further depreciation of the Peso against the U.S. Dollar will correspondingly increase the amount of our debt in Pesos, with further adverse effects on our results of operation and financial condition and may increase the collection risk of our leases and other receivables from our tenants and mortgage debtors, most of whom have Peso-denominated revenues.
 
The shift of consumers to purchasing goods over the Internet may negatively affect sales in our shopping centers.
 
During the last years, Internet retail sales by have grown significantly in Argentina, even though the market share of Internet sales related to retail sales is still not significant. The Internet enables manufacturers and retailers to sell directly to consumers, diminishing the importance of traditional distribution channels such as retail stores and shopping centers. We believe that our target consumers are increasingly using the Internet from home, work or elsewhere, to shop electronically for retail goods. We believe that this trend is likely to continue. If e-commerce and retail sales through the Internet continue to grow, consumers’ reliance on traditional distribution channels such as our shopping centers could be materially diminished, having a material adverse effect on our financial condition, results of operations and business prospects
 
Risks Related to our Investment in Banco Hipotecario
 
Our investment in Banco Hipotecario is subject to risks affecting Argentina’s financial system.
 
As of June 30, 2012, we owned approximately 29.77% of the outstanding capital stock of Banco Hipotecario (without considering treasury shares) which represented 15.51 % of our consolidated assets as of such date. Substantially all of Banco Hipotecario’s operations, properties and customers are located in Argentina. Accordingly, the quality of Banco Hipotecario’s loan portfolio, financial condition and results of operations depend to a significant extent on economic and political conditions prevailing in Argentina. The political and economic crisis in Argentina during 2002 and 2003 and the Argentine government’s actions to address it have had and may continue to have a material adverse effect on Banco Hipotecario’s business, financial condition and results of operations.
 
Financial institutions are subject to significant regulation relating to functions that historically have been mandated by the Central Bank and other regulatory authorities. Measures adopted by the Central Bank have had, and future regulations may have, a material adverse effect on Banco Hipotecario’s financial condition and results of operations.
 
Laws and decrees implemented during and after the economic crisis in 2001 and 2002 have substantially altered contractual obligations affecting Argentina’s financial sector. Recently, Argentine Congress considered various initiatives intended to reduce or eliminate a portion of the mortgage loan portfolio on the debt owed to Banco Hipotecario. Also, there have been certain initiatives intended to review the terms pursuant to which Banco Hipotecario was privatized. As a result, we cannot assure you that the Argentine legislature will not enact new laws that will have a significant adverse effect on Banco Hipotecario’s shareholders’ equity or that the Argentine government would compensate Banco Hipotecario for the resulting loss. These uncertainties could have a material adverse effect on the value of our investment in Banco Hipotecario.
 
Financial markets in the most important countries in the world were affected by volatility, lack of liquidity and credit, which entailed a significant drop in international stock indexes, and an economic slow-down started to become evident worldwide. Our management is closely monitoring the effects in order to implement the necessary measures to minimize the impact of the financial crisis on our operations.
 
Banco Hipotecario relies heavily on mortgage lending and the value of our investment in it depends in part on its ability to implement successfully its new business diversification strategy.
 
Historically, Banco Hipotecario has been engaged exclusively in mortgage lending and related activities. As a result, factors having an adverse effect on the mortgage market have a greater adverse impact on Banco Hipotecario than on its more diversified competitors. Due to its historic concentration in this recession-sensitive sector, Banco Hipotecario is particularly vulnerable to adverse changes in economic and market conditions in Argentina due to their adverse effect on demand for new mortgage loans and the asset quality of outstanding mortgage loans. In addition, a number of governmental measures that apply to the financial sector have had a material adverse effect particularly on Banco Hipotecario, impairing its financial condition. Please see “Legislation limiting Banco Hipotecario’s ability to foreclose on mortgaged collateral may have an adverse effect on it”.
 
 
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Accordingly, Banco Hipotecario has adapted its business strategy to confront the challenges of these new market conditions. Banco Hipotecario’s ability to diversify its operation will depend on how successfully it diversifies its product offerings and transforms itself into a financial institution that no longer relies solely on mortgage lending.
 
In the past years Banco Hipotecario has made several investments that are designed to enable it to develop retail banking activities. Banco Hipotecario must overcome significant challenges to achieve this goal including, among others, its lack of experience and client relationships outside the mortgage sector, the existence of large, well-positioned competitors and significant political, regulatory and economic uncertainties in Argentina. As a result, we cannot give you any assurance that Banco Hipotecario will successfully develop significant retail banking activities in the foreseeable future. If Banco Hipotecario is unable to diversify its operations by developing its retail banking activities and other non-mortgage banking activities, the value of our substantial investment in Banco Hipotecario would likely be materially and adversely affected.
 
Banco Hipotecario’s mortgage loan portfolio is not adequately indexed for inflation and any significant increase in inflation could have a material adverse effect on its financial condition.
 
In accordance with Emergency Decree No. 214/02 and its implementing regulations, pesified assets and liabilities were adjusted for inflation as of February 3, 2002 by application of the Coeficiente de Estabilización de Referencia (“CER”) a consumer price inflation coefficient. On May 6, 2002, the Executive Branch issued a decree providing that mortgages originally denominated in U.S. Dollars and converted into Pesos pursuant to Decree No. 214/2002 and mortgages on property constituting a borrower’s sole family residence may be adjusted for inflation only pursuant to a coefficient based on salary variation, the CVS, which during 2002 was significantly less than inflation as measured by the wholesale price index, or WPI. As a result, only 10% of Banco Hipotecario’s mortgage loans are adjusted for inflation in accordance with the CER, 30% are adjusted in accordance with the CVS and 60% remain entirely unindexed. Additionally, pursuant to Law No. 25,796, Section 1, repealed effective April 1, 2004, the CVS as an indexation mechanism applied to the relevant portion of Banco Hipotecario’s mortgages loans. During 2005, the CER increased to 11.75% and the WPI 10.7%, while in 2006 the CER and WPI increased 10.3% and 7.1%, respectively. In 2008, 2009, 2010 and 2011, CER increased 7.9%, 6.9%, 11.0% and 9.5% respectively, and WPI increased 8.8%, 10.3%, 14.6% and 12.7%, respectively. As of June 30, 2012 CER increased 5.1% and the WPI 7.5%.
 
As a result of the high inflation in Argentina since 2002, Banco Hipotecario’s mortgage loan portfolio experienced a significant decrease in value and if inflation continues increasing, it might continue to undergo a major decrease in value. Accordingly, an increase in Banco Hipotecario’s funding and other costs due to inflation might not be offset by indexation, which could adversely affect its liquidity and results of operations.
 
Legislation limiting Banco Hipotecario’s ability to foreclose on mortgaged collateral may have an adverse effect on it.
 
Like other mortgage lenders, the ability to foreclose on mortgaged collateral to recover on delinquent mortgage loans impacts the conduct of Banco Hipotecario’s business. In February 2002, the Argentine government amended Argentina’s Bankruptcy Law, suspending bankruptcies and foreclosures on real estate that constitutes the debtor’s primary residence, initially for a six-month period and subsequently extended until November 14, 2002. Since 2003, the Argentine government has approved various laws that have suspended, in some cases, foreclosures for a period of time in accordance with Law No. 25,972 enacted on December 18, 2004, and, in some cases, temporarily suspended all judicial and non-judicial mortgage and pledge enforcement actions. Several laws and decrees extended this mortgage foreclosure suspension period. Most recently, on June 14, 2006, Argentine Law 26,103 was enacted which established a 180-day suspension period for mortgage foreclosure proceedings affecting debtors where the subject mortgage related to the debtor’s sole residence and where the original loan was not greater than Ps.100,000.
 
Law No. 25,798, enacted November 5, 2003, and implemented by Decrees No. 1284/2003 and No. 352/2004, among others, sets forth a system to restructure delinquent mortgage payments and to prevent foreclosures on a debtor’s sole residence (the “Mortgage Refinancing System”). The Mortgage Refinancing System establishes a trust composed of assets contributed by the Argentine government and income from restructured mortgage loans. Banco de la Nación Argentina, in its capacity as trustee of said trust, enters into debt restructuring agreements with delinquent mortgage debtors establishing the following terms: (i) a grace period on the mortgage loan of one year and (ii) monthly installment payments on the mortgage loan not to exceed 30% of the aggregate income of the family living in the mortgaged property. Banco de la Nación Argentina then subrogates the mortgagee’s rights against the debtor, by issuing notes delivered to the mortgagee to settle the amounts outstanding on the mortgage loan. The sum restructured under the Mortgage Refinancing System may not exceed the appraisal value of the property securing the mortgage after deducting any debts for taxes and maintenance. The Mortgage Refinancing System was established for a limited period of time, during which parties to mortgage loan agreements could opt to participate and was subsequently extended by a number of decrees and laws.
 
Law No. 26,167 enacted on November 29, 2006, suspended foreclosures and also established a special proceeding for the enforcement of certain mortgage loans. Such special proceedings give creditors a 10-day period to inform the court of the amounts owed under the mortgage loans. Soon thereafter, the judge will call the parties for a hearing in order to reach an agreement on the amount and terms of payment thereunder. In case of failure by the parties to reach such agreement, they will have a 30-day negotiation period, and if the negotiations do not result in an agreement, then, payment and conditions will be determined by the courts.
 
On November 29, 2006, Law No. 26,177 created the Unidad de Reestructuración, a government agency responsible for the revision of each of the mortgage loans granted by the state-owned Banco Hipotecario Nacional, the predecessor of Banco Hipotecario, before the enactment of the Convertibility Law in 1991. The Unidad de Reestructuración was authorized to make non-binding recommendations to facilitate the restructuring of such mortgage loans. The Unidad de Reestructuración submitted a proposal to the National Congress recommending forgiveness or other write-off of such loans, extensions of their scheduled maturities or other subsidies that were capable of adversely affecting Banco Hipotecario’s ability to foreclose on such mortgage loans. On November 21, 2007, the National Congress enacted Law No. 26,313, establishing a procedure for the restructuring of certain mortgage loans made by its predecessor, the former Banco Hipotecario Nacional. Law No. 26,313 restructures the affected loans by recalculating and reducing their unpaid balance (which had been previously restructured pursuant to a prior law). In December 2008, the applicability of Law No. 26,313 was limited to certain of Banco Hipotecario’s mortgage loans made prior to April 1, 1991 to finance the construction of residential complexes which as of December 31, 2008, had been delinquent since November 2007 or earlier. Therefore, 16,443 loans started to be recalculated, 7,283 of which are in force as of June 30, 2012 amounting to approximately Ps. 213,817. The bank considers that it has sufficient allowances for loan losses to face any possible negative effect resulting from the involved portfolio.
 
We cannot assure you that the Argentine government will not enact further laws restricting the ability of Banco Hipotecario to enforce its rights as creditor. Any such limitation on its ability to successfully implement foreclosures could have a material adverse effect on its financial condition and results of operations.
 
Banco Hipotecario’s non-mortgage loan portfolio has grown rapidly and is concentrated in the low- and middle-income segments.
 
As a result of Banco Hipotecario’s strategy to diversify its banking operations and develop retail and other non-mortgage banking activities, in recent years its portfolio of non-mortgage loans has grown rapidly. During the period between June 30, 2011 and June 30, 2012, Banco Hipotecario’s portfolio of non-mortgage loans increased 37.1% from Ps.4,712.0 million to Ps.6,882.3 million. A substantial portion of its portfolio of non-mortgage loans consists of loans to low- and middle-income individuals and, to a lesser extent, middle-market companies. These individuals and companies are likely to be more seriously affected by adverse developments in the Argentine economy than high income individuals and large corporations. Consequently, Banco Hipotecario may experience higher levels of past due non-mortgage loans that would likely result in increased provisions for loan losses. In addition, large-scale lending to low- and middle-income individuals and middle-market companies is a new business activity for Banco Hipotecario, and as a result its experience and loan-loss data for such loans are necessarily limited. Therefore, we cannot assure you that the levels of past due non-mortgage loans and resulting charge-offs will not increase materially in the future.
 
 
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Given the current valuation criteria of the Central Bank for the recording of government securities on Banco Hipotecario’s balance sheets, its most recent financial statements may not be indicative of its current financial condition.
 
Banco Hipotecario prepares its financial statements in accordance with Central Bank GAAP which differ in certain material respects from Argentine GAAP. As of June 30, 2012 there are included securities that were not valued according to Argentine GAAP equivalent to Ps. 647.6 million. The impact of valuing these securities in accordance with Argentine GAAP results in a decrease in net assets of Ps. 7.5 million at June 30, 2012.
 
Due to interest rate and currency mismatches of its assets and liabilities, Banco Hipotecario has significant currency exposure.
 
As of June 30, 2012, Banco Hipotecario’s foreign currency-denominated liabilities exceeded its foreign-currency-denominated assets by approximately US$ 204.9 million. This currency gap exposes Banco Hipotecario to risk of exchange rate volatility which would negatively affect Banco Hipotecario’s financial results if the U.S. Dollar were to depreciate against the Peso and/or the Euro. We cannot assure you that the U.S. Dollar will not appreciate against the Peso, or that we will not be adversely affected by Banco Hipotecario’s exposure to risks of exchange rate fluctuations.
 
Banco Hipotecario has acquired and will continue to acquire on a regular basis Dollar futures and other derivatives in order to hedge its exposure to foreign currency and interest rate mismatches of its assets and liabilities.
 
Banco Hipotecario operates in a highly regulated environment, and its operations are subject to regulations adopted, and measures taken, by the Central Bank, the Comisión Nacional de Valores and other regulatory agencies.
 
Financial institutions are subject to significant regulation relating to functions that historically have been mandated by the Central Bank and other regulatory authorities. Measures adopted by the Central Bank have had, and future regulations may have, a material adverse effect on Banco Hipotecario’s financial condition and results of operations. For example, on July 25, 2003, the Central Bank announced its intention to adopt new capital adjustment requirements which will be gradually implemented until 2009. Furthermore, the IMF and other multilateral agencies encouraged the Government to impose minimum capital adjustment, solvency and liquidity requirements, in accordance with the international guidelines, which may produce significant operating restrictions on Banco Hipotecario.
 
Similarly, the Comisión Nacional de Valores, which authorizes Banco Hipotecario’s offerings of securities and regulates the public markets in Argentina, has the authority to impose sanctions on Banco Hipotecario and its board of directors for breaches of corporate governance requirements. Under applicable law, the Comisión Nacional de Valores has the authority to impose penalties that range from minor regulatory enforcement sanctions to significant monetary fines, to disqualification of directors from performing board functions for a period of time, and (in the most serious cases) prohibiting issuers from making public offerings, if they were to determine that there was wrongdoing or material violation of law. Although Banco Hipotecario is not currently party to any proceeding before the Comisión Nacional de Valores, we cannot assure you that the Comisión Nacional de Valores will not initiate new proceedings against Banco Hipotecario, its shareholders´ or directors or impose further sanctions.
 
Commencing in 2002, laws and decrees have been implemented that substantially altered the prevailing legal regime and obligations established in contracts. In the recent past, various initiatives have been presented to Congress to reduce or eliminate the debt owed to Banco Hipotecario on a portion of its mortgage loan portfolio and there were initiatives intended to review the terms pursuant to which Banco Hipotecario Nacional was privatized. As a result, we cannot assure you that the legislative branch will not enact new laws that will have a significant adverse impact on Banco Hipotecario’s shareholders’ equity or that, if this were to occur, the Argentine government would compensate us for the resulting loss. Please see “Exchange Rates and Exchange Control”.
 
The Argentine government may prevail in all matters to be decided at a Banco Hipotecario’s general shareholders meeting.
 
According to the Privatization Law and Banco Hipotecario’s by-laws, holders of Class A and Class D Shares have special voting rights relating to certain corporate decisions. Whenever such special rights do not apply (with respect to the Class A Shares and the Class D Shares) and in all cases (with respect to the Class B Shares and the Class C Shares), each share of common shares entitles the holder to one vote. Pursuant to Argentine regulations, Banco Hipotecario may not issue new shares with multiple votes.
 
The holders of Class D Shares have the right to elect nine of Banco Hipotecario’s board members and their respective alternates. In addition, so long as Class A Shares represent more than 42.0% of Banco Hipotecario’s capital, the Class D Shares shall be entitled to three votes per share, provided that holders of Class D Shares will be entitled to only one vote per share in the case of a vote on:
 
 
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·  
a fundamental change in Banco Hipotecario’s corporate purpose;
 
·  
a change in Banco Hipotecario’s domicile outside of Argentina;
 
·  
dissolution prior to the expiration of Banco Hipotecario’s corporate existence;
 
·  
a merger or spin-off after which Banco Hipotecario would not be the surviving corporation;
 
·  
a total or partial recapitalization following a mandatory reduction of capital; and
 
·  
approval of voluntary reserves, other than legally mandated reserves, when their amount exceeds Banco Hipotecario’s capital stock and its legally mandated reserves.
 
In addition, irrespective of what percentage of Banco Hipotecario’s outstanding capital stock is represented by Class A Shares, the affirmative vote of the holders of Class A Shares is required to adopt certain decisions. Class D Shares will not be converted into Class A Shares, Class B Shares or Class C Shares by virtue of their reacquisition by the Argentine government, PPP or Programa de Propiedad Participada (or the Shared Property Program) participants or companies engaged in housing development or real estate activities.
 
According to the Privatization Law, there are no restrictions on the ability of the Argentine government to dispose of its Class A shares, and all but one of such shares could be sold to third parties in a public offering. If the Class A shares represent less than 42% of Banco Hipotecario’s total voting stock as a result of the issuance of new shares other than Class A shares or otherwise, the Class D shares we hold would automatically lose their triple voting rights. If this were to occur, we would likely lose its current ability, together with our affiliates that also hold Class D shares of Banco Hipotecario, to exercise substantial influence over decisions submitted to the vote of Banco Hipotecario’s shareholders.
 
Banco Hipotecario will continue to consider acquisition opportunities which may not be successful.
 
From time to time in recent years, Banco Hipotecario has considered certain possible acquisitions or business combinations, and Banco Hipotecario expects to continue considering acquisitions which offer attractive opportunities and are consistent with its business strategy. We cannot assure you, however, that Banco Hipotecario will be able to identify suitable acquisition candidates or that Banco Hipotecario will be able to acquire promising target financial institutions on favorable terms. Additionally, its ability to obtain the desired effects of past and future acquisitions will depend in part on its ability to successfully complete the integration of those businesses. The integration of acquired businesses entails significant risks, including:
 
·  
unforeseen difficulties in integrating operations and systems;
 
·  
problems assimilating or retaining the employees of acquired businesses;
 
·  
challenges retaining customers of acquired businesses;
 
·  
unexpected liabilities or contingencies relating to the acquired businesses; and
 
·  
the possibility that management may be distracted from day-to-day business concerns by integration activities and related problem solving.
 
Risks Related to the Global Depositary Shares and the Shares
 
Shares eligible for sale could adversely affect the price of our common shares and Global Depositary Shares.
 
The market prices of our common shares and GDS could decline as a result of sales by our existing shareholders of common shares or GDSs in the market, or the perception that these sales could occur. These sales also might make it difficult for us to sell equity securities in the future at a time and at a price that we deem appropriate.
 
The GDSs are freely transferable under US securities laws, including shares sold to our affiliates. Cresud, which as of June 30, 2012, owned approximately 64.2% of our common shares (or approximately 371,517,973 common shares which may be exchanged for an aggregate of 37,151,797 GDSs), is free to dispose of any or all of its common shares or GDSs at any time in its discretion. Sales of a large number of our common shares and/or GDSs would likely have an adverse effect on the market price of our common shares and the GDS.
 
We are subject to certain different corporate disclosure requirements and accounting standards than domestic issuers of listed securities in the United States
 
There may be less publicly available information about the issuers of securities listed on the Buenos Aires Stock Exchange (the “Bolsa de Comercio de Buenos Aires”) than publicly available information about domestic issuers of listed securities in the United States and certain other countries. In addition, all listed Argentine companies must prepare their financial statements in accordance with regulations of the Comisión Nacional de Valores and Argentine GAAP except for financial institutions and insurance companies which must comply with the accounting standards issued by BCRA and the National Insurance Superintendance, respectively, which differ in certain significant respects from U.S. GAAP. For this and other reasons, the presentation of Argentine financial statements and reported earnings may differ from that of companies in other countries in this and other respects.
 
We are exempted from the rules under the Exchange Act prescribing the furnishing and content of proxy statements, and our officers, directors and principal shareholders are exempted from the reporting and short-swing profit recovery provisions contained in Section 16 of the Exchange Act.
 
 Investors may not be able to effect service of process within the U.S. limiting their recovery of any foreign judgment.
 
We are a publicly held corporation (sociedad anónima) organized under the laws of Argentina. Most of our directors and 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 uncertainty as to whether the Argentine courts will enforce provisions to the same extent and in as timely a manner as a U.S. or foreign court, an action predicated solely upon the civil liability provisions of the United States federal securities laws or other foreign regulations brought against such persons or against us.
 
If we are considered to be a passive foreign investment company for United States federal income tax purposes, U.S. Holders of our common shares or GDSs would suffer negative consequences.
 
Based on the current and projected composition of our income and valuation of our assets we do not believe we were a passive foreign investment company (“PFIC”), for United States federal income tax purposes for the tax year ending June 30, 2012, and we do not currently expect to become a PFIC, although there can be no assurance in this regard. The determination of whether we are a PFIC is made annually. Accordingly, it is possible that we may be a PFIC in the current or any future taxable year due to changes in our asset or income composition or if our projections are not accurate. The volatility and instability of Argentina’s economic and financial system may substantially affect the composition of our income and assets and the accuracy of our projections. In addition, this determination is based on the interpretation of certain U.S. Treasury regulations relating to rental income, which regulations are potentially subject to differing interpretation.If we become a PFIC, U.S. Holders (as defined in “Taxation—United States Taxation”) of our shares or ADSs will be subject to certain United States federal income tax rules that have negative consequences for U.S. Holders such as additional tax and an interest charge upon certain distributions by us or upon a sale or other disposition of our shares or ADSs at a gain, as well as reporting requirements. Please see ‘‘Taxation—United States Taxation’’ for a more detailed discussion of the consequences if we are deemed a PFIC. You should consult your own tax advisors regarding the application of the PFIC rules to your particular circumstances.
 
Under Argentine law, shareholder rights may be fewer or less well defined than in other jurisdictions.
 
Our corporate affairs are governed by our by-laws and by Argentine corporate law, which differ from the legal principles that would apply if we were incorporated in a jurisdiction in the United States, such as 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 US 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 GDSs at a potential disadvantage.
 
 
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The protections afforded to minority shareholders in Argentina are different 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 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 US company.
 
 Holders of common shares may determine to not pay any dividends.
 
In accordance with Argentine corporate law we may pay dividends to shareholders out of net and realized profits, if any, as set forth in our audited financial statements prepared in accordance with Argentine GAAP. The approval, amount and payment of dividends are subject to the approval by our shareholders at our annual ordinary shareholders meeting. The approval of dividends requires the affirmative vote of a majority of the shareholders entitled to vote at the meeting. As a result, we cannot assure you that we will be able to generate enough net and realized profits so as to pay dividends or that our shareholders will decide that dividends will be paid.
 
Our ability to pay dividends is limited by law, by our by-laws and by certain restrictive covenants in our debt instruments.
 
In accordance with Argentine corporate law, we may pay dividends in Pesos only out of retained earnings, if any, to the extent set forth in our audited financial statements prepared in accordance with Argentine GAAP. In addition, our ability to pay dividends on our common shares is limited by certain restrictive covenants in our debt instruments.
 
On February 2, 2007, we issued our fixed-rate notes due 2017 in an aggregate principal amount of US$150.0 million, which accrue interest at an annual interest rate of 8.5% payable semiannualy and maturing on February 2, 2017.
 
On July 20, 2010, we issued fixed-rate notes due in 2020 in an aggregate principal amount of US$ 150.0 million, which accrue interest at an annual interest rate of 11.5% payable semiannually and mature on July 20, 2020.
 
Additionally, on February 14, 2012, we issued our Badlar notes due in 2013, in an aggregate principal amount of Ps 153.2 million which accrue interest at an annual rate of Badlar rate plus 249 basis points, and our fixed rate notes due in 2014 for a total amount of US$ 33.8 million, which accrue interest at an annual interest rate of 7.45%.
 
These notes contain a covenant limiting our ability to pay dividends which may not exceed the sum of:
 
 
·         
50% of our cumulative consolidated net income; or
 
·         
75% of our cumulative consolidated net income if our consolidated interest coverage ratio for our most recent four consecutive fiscal quarters is at least 3.0 to 1; or
 
·         
100% of cumulative consolidated net income if our consolidated interest coverage ratio for our most recent four consecutive fiscal quarters is at least 4.0 to 1; or
 
·         
100% of the aggregate net cash proceeds (with certain exceptions) and the fair market value of property other than cash received by us or by our restricted subsidiaries from (a) any contribution to our capital stock or the capital stock of our restricted subsidiaries or issuance and sale of our qualified capital stock or the qualified capital stock of our restricted subsidiaries subsequent to the issue of our notes due, (b) issuance and sale subsequent to the issuance of our notes due 2017 or our indebtedness or the indebtedness of our restricted subsidiaries that has been converted into or exchanged for our qualified capital stock, or (c) any reduction in our indebtedness or any restricted subsidiary, (d) any reduction in debt investment (other than permitted investments) and return on assets, or (e) any distribution received from non-restricted subsidiaries.
 
As a result, we cannot give you any assurance that in the future we will pay any dividends in respect of our common shares.