Inversiones y Representaciones Sociedad Anónima. Board Report and Financial Statements For the fiscal years ended June 30, 2000 and 1999.

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1 Inversiones y Representaciones Sociedad Anónima Board Report and Financial Statements For the fiscal years ended June 30, 2000 and

2 TABLE OF CONTENTS Page Corporate profile 3 Letter to the shareholders 4 Macroeconomic context 9 Description of business 12 Subsequent events 32 Summary of selected consolidated financial and operating data 33 Management s discussion and analysis of financial condition and results of operations 35 Management and administration 51 Nature of trading market 56 Transactions with related parties 58 Financial statements 63 2

3 Corporate Profile Inversiones y Representaciones Sociedad Anónima (IRSA or the Company), which was founded in 1943, is the biggest Argentine real estate investment company; it also does significant business in Brazil and is the only one whose shares are quoted both in the Buenos Aires Stock Exchange and the New York Stock Exchange. IRSA is the best vehicle for gaining access to the Latin American real estate market thanks to its past achievements, its important and diversified portfolio of properties, which make it the market leader in nearly all the areas where it has made inroads, and thanks to the ability and soundness of its management in taking advantage of opportunities and maximizing value for the Company and yields for the shareholders. 3

4 LETTER TO THE SHAREHOLDERS To the Shareholders, At the conclusion of fiscal year 2000, we submit for your consideration the performance of the Company and its results for the year. Fiscal year 2000 has been marked by the continuation of the recession which set in around the middle of Although the worst of the recession appears to have been between the third and fourth quarters of 1999, the slight recovery which started being evident during the first quarter of 2000 has not yet been translated into a recovery of the level of activity on the real estate and consumer market. The net income for the fiscal year amounted to Ps. 5.9 million. We want to point out the negative effect stemming from the valuation of the shares held in Banco Hipotecario at their market quotation, which led to a loss of Ps. 3.9 million, as well as the decline in the results of our subsidiary Alto Palermo, which accounts for a loss of Ps. 1.6 million in our own results. Our net sales went down to Ps million, which means a 3% decrease as compared with the previous fiscal year. The net income per share for the fiscal year stood at Ps. 0,028 per share. Our total assets went down by 3.8 % and stand at Ps million, and financing debt was reduced 9%, totals Ps million as of June 30, The long time that the economic recover is delaying has affected the Company s operations in different ways; the office and shopping center segments have recorded relatively better performances, while there has been a decline in sales revenue and the performance of new developments and hotels. Where the investments in Brazil and Venezuela are concerned, two distinct panoramas are observable: in the case of Brazil Realty there has been a marked improvement in revenue and results in the first full fiscal year after the devaluation, thus demonstrating the undeniable potential of the Brazilian real estate market. The results reported by Fondo de Valores Inmobiliarios FVI Venezuela have been adversely affected due to the payment of the indemnity for the rescission of the management contract with Asesoría Financiera Velutini y Asociados C.A. in October The relative share of different segments in net sales was as follows: sales and developments Ps million, offices and other lease properties Ps million, shopping centers Ps million, hotels Ps million and the international segment Ps.26.7 million. Our operating profit for the year was Ps million, which is a 30.7% decline as compared with the previous year. The strategy implemented by the Company was put to the test under the aforementioned unfavorable market conditions, yet we have continued to show a profit. Furthermore, the Board of Directors was of the opinion that in view of the high financing cost prevailing on the domestic market, the settlement of the financial liabilities and repurchase of Company shares at a significant discount would strengthen the Company s net asset position and therefore safeguard and strengthen the per-share value, as it has. We want to highlight the fact that this year the Company has made inroads in the internet business, thus keeping up with the development of this new technology. The strategy for this new business alternative has included the development of portals linked with the Company s activity, the definition of a limited investment budget and the possibility of generating new strategic alliances with leading companies in the industry. 4

5 Shopping Centers Alto Palermo S.A. (APSA) The shopping centers felt the impact of the generalized drop in consumption and the increase in areas available for lease in the Federal Capital and the Province of Buenos Aires, totaling 61,000 m2, which is equivalent to 16% of our available space. Under such conditions, Alto Palermo was able to keep up its market share at 41%, although the drop in sales per square meter evident in our shopping centers ended up being 8.5%, whereas it was 22.7% for the rest of the market. Lease and service revenue increased by Ps.6.9 as compared with fiscal year 1999, largely thanks to the contributions made by Abasto and Patio Bullrich, which this year recorded sales for the entire 12-month period. Furthermore, because of the unfavorable conditions on the consumer market, we adopted a conservative position regarding the uncollectibility of our receivables, increasing our bad debt allowance by Ps. 7.9 million. Nevertheless, we consider that when the market turns around and becomes more active we shall be able to recover a significant part of these reserves. Finally, this year advertising and publicity expenses were increased by Ps. 8.4 million, largely in connection with the Alto Check campaign aimed at increasing the sales of our tenants. We also want to highlight the success of the Tarjeta Shopping card operation, whose sales and portfolio continued to grow just as aggressively as in previous years. Our revenue in this connection went up by Ps. 6.1 million, which represents a growth of approximately 80%, as compared with fiscal year Our Bonus customer allegiance program recorded 670,000 members and handled close to Ps.10.0 million per month; to date we have delivered 32,000 prizes to users. Throughout the fiscal year business had to be conducted within a strong recessionary environment, whose negative impact has been felt most by residential operations, because of rescissions of contracts of sale for apartments in Torres de Abasto during the period, which led to a gross loss of Ps. 1.7 million. At June 30, 2000, our portfolio included nine shopping centers with a total of 175,271 square meters of gross leasable area (without including Bahía Blanca Plaza); this area represented 22% of the gross leasable area of all shopping centers in Argentina. Sales by our tenants were in excess of US$ 905 million for the year. Rosario Project. APSA plans to inaugurate a shopping center in 2002 which will include 30,000 square meters of gross leasable area, 175 shopping premises, a complex of 16 cinemas, a science museum, a railway museum, a major convention center and 9 apartment towers. We want to point out that Rosario is the third largest city in Argentina, with a population of 1.1 million inhabitants and that so far it has no shopping centers, so our venture has created great expectations among the population because of the size of the project. Distribution of Dividends: On October 29, 1999, Alto Palermo S.A. s shareholders meeting approved the payment of cash dividends totaling Ps. 5,250,087.6, at the rate of Ps per share, which were distributed between November and January. Acquisition of shares of Tres Ce. On January 3, 2000, Alto Palermo acquired 20% of the equity of Tres Ce S.A., the company that owns the Nuevo Noa shopping center, thus becoming the outright owner of this property. The purchase price amounted to Ps. 2.5 million. Capital contribution. During January 2000, 100% of the capital increase that had been approved by Alto Palermo S.A. s shareholders, amounting to Ps.50.1 million, was paid up. We also want to point out that a number of AFJPs (Pension Fund Management Companies) are shareholders of Alto Palermo, with aggregate holdings equal to 13% of its capital. 5

6 Issuance of Negotiable Obligations. On April 7, 2000, the Company issued Argentine peso negotiable obligations for Ps million maturing on April 7, 2005 at an annual yield of % under an interest yield swap contract executed with Morgan Guaranty Trust Company of New York, which together with certain currency derivative contracts will enable us, subject to market conditions, to reduce the level of our financing cost for the issue to less than 10% per annum. Galerías Pacífico. In March 2000, we transferred 100% of the outstanding shares of Inversora del Pacífico S.A., which owns the property where the Galerías Pacífico shopping center operates, to the Sutton Group. The buyer was in charge of running the shopping center until the year 2019, under a concession agreement signed during 1990 granting it this right. The transaction was carried out for US$ 3.0 million and included the transfer of a liability of US$ 12.0 million. It generated a profit of Ps. 2.9 million. Offices During the year under review demand for top class office space kept up and even increased for certain exceptional locations. This trend confirms that direct investments are still coming to Argentina, which is a further indication of trust in the country s future by local and foreign companies. Rent from our rental properties went up to US$ 23.9 million, as compared with US$ 22.9 million for fiscal year The occupancy level was below that recorded last year, although in this case we must remember that our portfolio increased by approximately 13,000 square meters of new office space, which represents approximately 17% in leasable areas. In the period under review we carried on expanding our office portfolio. In September 1999, construction was completed on the Edificios Costeros in Dock 2 of Puerto Madero. During October 1999 the annual interior design and decoration exhibition known as Casa FOA was carried out there. The completed work, which represents the first stage of the overall project, consists of two buildings with a gross leasable area of 6,399 square meters. At June 30, 2000, 48% thereof had already been leased. During November 1999, conveyances were executed for the five floors and 75 parking places in the Laminar Plaza office building in the Catalinas district. From March 1999, when the operation was arranged, until the date when the conveyances were executed, 80 % of the leasable area had been occupied; 100% thereof has now been leased. Developments As mentioned earlier, the sales and development segment is among those most affected by the recession, which was felt more strongly by the middle-income population. Despite this, the selling prices for our properties did not decline significantly. It is also worth mentioning that despite the fact that there is a significant and varied offer of housing mortgage loans on the market, under present circumstances consumers are being very conservative and postponing any decisions involving long-term commitments. In view of this scenario, the Company decided to review its inventory by not embarking on any new ventures, while awaiting a recovery of activity level. Abril, Hudson, Province of Buenos Aires. At the end of fiscal year 2000, 14 of the 20 districts planned for the complex as a whole were being marketed and 79% of them had been sold. We also carried on executing conveyances for the plots concerned, had completed 202 houses, had 120 more houses under construction and had submitted 57 new projects. It is worth noting that 190 families are already living in this urban development and that 360 children are attending the bilingual school that was inaugurated in March

7 Torres de Abasto (Alto Palermo S.A.): During the second half of 1999 when the conveyances for the housing units sold were to be executed, as well as during the initial month of the third quarter of 2000, there were 115 rescissions of contracts of sale previously signed, which had an adverse effect on the bottom line for the year. During the second quarter of 2000 this trend showed a turnaround and the sale of 62 units materialized. As of June 30, 2000, out of the total of 545 units of which the project consists, 410 had been sold, 32 had been bespoken, 2 had been rented out, and 101 were available. On March 31, 2000, IRSA sold 50% of block 1M of Dock IV to ING REI Investment II BV for US$ 5.6 million. Subject to the fulfillment of certain conditions, the Company expects to record this sale during the second quarter of Hotels Hotel activities were adversely affected by the recession during the year under review, thus recording a negative performance as compared with the previous year. Revenue for this segment went down by approximately 10%, and was US$ 30.2 million; average occupancy levels were sustained, although there were declines in average rates. Sale of Llao Llao Hotel: On March 31, 2000, the transfer of the Llao Llao Hotel to the Company called Llao Llao Resorts S.A. was arranged. At the same time, IRSA sold 50% of the share package to the Sutton Group and kept the other 50%. The value of this transaction was US$ 7.5 million and it left a profit of US$ 1.5 million. International The strengthening of the Brazilian economy since the beginning of the year 2000 presents an unequalled opportunity for the growth of the real estate industry in that country. The results of our Brazilian subsidiary, Brazil Realty, for the year exceeded our expectations, as it displayed a tremendous ability to recovery from the effects of the devaluation of the Real. In order to capitalize on this excellent performance and the soundness of the Brazilian economy, Brazil Realty has embarked on an ambitious investment plan that will definitively position the Company as a Brazilian real estate market leader. In order to provide the Company with financing, during June the Shareholders Meeting decided to increase its capital through a private offering of shares for a total of R$ 18.1 million, which was fully paid up on August 10, Sale of the equity held in FVI: An agreement was signed on August 1, 2000, covering the transfer of the entire equity holdings in FVI Fondo de Valores Inmobiliarios S.A.C.A. and Venezuela Invest Ltd. to Asesoría Financiera Velutini & Asociados C.A. The price agreed upon by the parties for this sale was US$ 67.0 million. This transaction afforded IRSA an excellent opportunity to review portfolio risk and realize the profit on its investment, considering moreover that the per share value obtained was 82% higher than the average market price for the last six months. At the same time we managed to strengthen our cash position at a time when the high cost of financing makes it more expensive to maintain assets, while enabling us to take advantage of any opportunities that may arise on the local real estate market. 7

8 Financial Situation During the year under review, our aim in the financial area was focused on reducing indebtedness and lengthening the terms under which it had been arranged. We also kept a careful look out for financing opportunities that might arise in either the domestic or the international market. Repurchase of Company Shares: Starting in May 2000, the Company announced a number of programs involving the repurchase of its shares. Their aim was to minimize the loss to the Company and its shareholders stemming from the volatility of the share quotations on the market. A further positive factor was that the repurchase of shares was carried out at a significant discount in relation to both the book value of the shares and their Net Asset Value (NAV). During June, July and August 2000, we repurchased 15,202,977 of our own shares for approximately Ps million, at an average per share price of Ps Repurchase of IRSA Debt: In the second quarter of 2000, through a purchase offer made through UBS Warburg Trading S.A. we repurchased all the Company s outstanding convertible negotiable obligations (PARCKS) for a fixed value of approximately US$ 55.2 million. Syndicated loan for US$ 80.0 million: In May 2000, IRSA obtained a syndicated loan from a leading group of financial institutions headed by BankBoston, for US$ 80 million. The loan repayment is due in 24 months and the interest rate is Libo plus 350 basis points, rising by 50 basis points at the beginning of each six-monthly period, payable quarterly. The financing stemming from this loan was mainly used for repurchasing the convertible negotiable obligations (PARCKS). Commercial paper for US$ 25.0 million: On September 7, 2000, the Company issued a commercial paper spanning one year at a discount rate of 11% for a par value of US$ 25.0 million. This operation was headed by BankBoston N.A. Management Consolidation within the share structure: At June 30, 2000, the Management s participation in the Company s capital was increased and now stands at 13.43%, thus ensuring a strengthening of the lining up of the management s interests and those of the shareholders. Reduction of Geosor s holding. Within the framework of the marked restructuring of the Quantum funds administered by George Soros, which was begun in 1999, the interest held by one of our founding partners has been reduced to 3.0%. We believe that the Company is in an exceptional position to benefit from any recovery that may be experienced by the local economy. The improvement in consumption indicators will automatically influence our existing transactions (price per square meter for sales and leases, variable rents at shopping centers, average rates at hotels) and will have a multiplying effect on the ventures we are about to embark on. We have projects in nearly all the segments which are ready to be launched, including the Rosario project in the shopping center segment, Santa María del Plata in the residential segment and Puerto Retiro in the office. We are convinced that all the projects represent unique opportunities and will become extremely profitable developments that will change the look of the areas for which they have been conceived. Our greatest challenge continues to be maintaining IRSA as the best real estate investment alternative and one of the most attractive within the Latin American scenario. Finally, I would like to thank all those who have accompanied us this year. Let me thank our shareholders, bankers, tenants and customers and particularly our staff for their support and confidence, which has made our work possible. Eduardo S. Elsztain Chairman 8

9 MACROECONOMIC CONTEXT MACROECONOMIC CONTEXT International overview After the international crises which affected the world economy during the second half of 1998 and part of 1999 and produced a moderate world GDP growth of 3.3%, the prospects for the year 2000 are more encouraging and an annual growth of 4.1% in GDP is expected. Despite these good prospects, during the second quarter of 2000, some international factors produced an adverse effect on emerging markets. The decline in technology shares on the American stock exchanges and the stricter United States monetary policy due to the fear of a heating up of its economy, led to a rise in interest rates in almost all developed countries. Accordingly, this led to an increase in financial costs throughout Latin America, especially in Argentina, when the latter s economic activity seemed to recover slightly. Nevertheless, the favorable recovery of the Brazilian economy, one of the main targets for Argentine exports, and the improvement in the prices of some commodities, particularly petroleum, are the principal drivers of the activity rate for the second half of The Argentine economy The recession affecting the Argentine economy extended until the fourth quarter of 1999, and there was a change in the activity rate towards the first quarter of Source: Estudio Miguel Angel Broda y Asoc. Fluctuation in GDP as compared with same quarter of previous year 8% 6% 4% 2% 0% -2% -4% -6% I 98 II 98 III 98 IV 98 I 99 II 99 III 99 IV 99 I 2000 II 00(ep) III 00(p) IV 00(p) Global demand showed a decreasing trend in the first quarter of 2000, continuing with that recorded since the last quarter of Investment was one of the most affected variables, which showed a stronger decline than that of GDP. There was a slight increase in consumption during the first months of 2000 which reached 1.1% in the first quarter and became strong towards June and July, which showed a more positive trend. There was a significant increase in exports, which were mainly driven by the sustained increase in petroleum prices and, to a lesser extent, by the improvement in the price of commodities. These factors, in addition to the growth of the Brazilian economy, augur well for the Argentine foreign sector within the next months. 9

10 Fluctuation in direct Foreign Investment in Argentina as compared with same quarter of previous year 250% 200% 150% 100% 50% 0% -50% -100% I 99 II 99 III 99 IV 99 I 2000 Includes reinvestment of profits. Source: Estudio M.A. Broda y Asoc., on the basis of quarterly estimates of the Balance of Payments Ministry of Economy and Public Works and Services. During this long recession, monetary variables generally showed a positive trend. Although the Argentine Central Bank s reserves as of May 2000 were 9% below those recorded as of December 1999, the incipient improvement in the trade balance due to the increase in exports, in addition to the forecast concerning revenues from foreign investments especially because of the deregulation of the telecommunications market, ensures a rapid recovery of such reserves. The financial sector showed a different behaviour during the second half of 1999 and the first half of Total deposits grew 5.0%, which reflected once more the confidence of savers in the domestic financial system, while loans granted to the private sector decreased as a result of the rise in international interest rates and the effects of recession on consumption and investment. The following chart shows the fluctuations in total deposits and interest rate on deposits: % 10% 8% 6% 4% 2% Total Deposits in thousands of u$s 30-day rate (%) Source: Estudio M.A. Broda y Asoc. 10

11 During the first months of 2000, a significant offer of mortgage loans essentially by leading private banks appeared on the market. The competition that arose among the different banking institutions led to a decline below 10% in the annual interest rate and to an extension of up to 30 years of the periods spanned by the loans. Demand was more moderate than expected; in view of the slow recovery of the economic activity and the increase in taxes, consumers are being very conservative and postponing any decisions involving long-term commitments. Despite this behavior which affected the real estate market by reducing the number of operations, prices within the sector were not significantly affected. Source: Estudio M.A. Broda y Asoc. Mortgage Loans in Millions of US$ 17,000 16,000 15,000 14,000 13,000 12,000 11,000 10,000 I 99 II III IV I 2000 II 2000 Jul The recessionary environment within which the Argentine economy has developed during the last quarters had a foreseeable adverse impact on employment. During this fiscal year, unemployment rate increased from 14.5% in May 1999 to 15.4% in May The behavior of the stock market was erratic during the whole fiscal year. Merval index reached the highest level in the period towards March 2000 and has accumulated an increase of around 30% since June At June 30, 2000, the said index closed with a slight decrease of 0.36%, as compared with the same month of the previous year. The average daily volume traded on the Buenos Aires Stock Exchange showed a slight increase in June 2000, as compared with that recorded in the same month of the previous year. Argentine bonds performance showed an improvement and their spread over the United States Treasury bonds went down by 160 basis during the period. The following macroeconomic indicators summarize the fluctuations in the Argentine economy during the last five years: Key economic indicators (P) Real GDP growth 5,80 (2,80) 5,50 8,10 3,90 (3,10) 1,50 Inflation (combined prices) in % * 3,30 4,90 1,70 0,30 (1,20) (2,50) 0,90 Fiscal result (in % of GDP) (0,40) (1,50) (2,30) (1,50) (1,40) (2,60) (2,10) FOB Exports (Millions of U$S) 16,02 21,16 24,04 26,43 26,44 23,33 25,90 CIF Imports (Millions of U$S) 21,68 20,20 23,85 30,45 31,40 25,50 25,89 Balance of Trade (Millions of U$S) 5,65 0,96 0,19 (4,02) (4,96) (2,17) 0,01 (p) Projected * Annual average Source: Estudio M.A. Broda y Asoc. 11

12 Description of Business IRSA is one of Argentina's leading real estate companies. IRSA is engaged directly, or indirectly through subsidiaries, joint ventures and international strategic alliances, in real estate activities in Argentina, Brazil and, since some months, Venezuela. IRSA's principal activities consist of (i) the acquisition, development and operation of office and other non-shopping center retail properties primarily for rental, (ii) the acquisition, development and operation of shopping centers, (iii) the acquisition and development of residential properties primarily for sale, (iv) the acquisition and operation of luxury hotels, and (v) the acquisition of land in strategic areas as a land reserve for future developments or sale. IRSA is the only Argentine real estate company whose shares are listed and traded on the Buenos Aires Stock Exchange and the New York Stock Exchange. Commercial Strategy As one of the few companies that develop and manage real estate in Argentina, the Company believes that it enjoys certain competitive advantages in the real estate industry, amongst which are the quality of its properties and tenants, its sound reputation and its strategy of maintaining liquid assets in order to benefit from the opportunities that arise, as well as a very experienced executive management. It is IRSA s strategy to increase its cash flow and revenue, as well as the value of its assets through a continuous expansion of its diversified portfolio of properties and assets, by purchasing, developing and operating properties either individually or with other partners, in all the different segments in which it does businesses. Offices. IRSA aims at buying, developing and operating top class office buildings in the leading office districts of Buenos Aires, as well as in other strategically located areas, with attractive yields and potential for capital appreciation. The Company believes that important Argentine and multinational companies will continue to display an increasing demand for top class office space, provided they are able to carry on expanding their business activities in Argentina and the rest of Latin America, which in turn will carry on encouraging the transfer of offices from the traditional downtown office area to other more modern zones with better highway and rail access and more advantageous space. The Company has managed to create a first-class tenant base. Shopping Centers. The Company aims at becoming the principal player in the Argentine shopping center industry, by purchasing the leading shopping centers in Buenos Aires, as well as through new developments in strategic points of this city and other major Argentine cities. The principal growth drivers in the shopping center industry are: (i) the increase in consumption of goods that can be sold in shopping centers, as a result of greater access to credit, which is possible thanks to the stable market conditions prevailing; (ii) changes in purchasing habits, where buying at street-front stores is being set aside, and (iii) the relatively low market penetration of shopping centers in Argentina as compared with many developed countries, which provides long term growth potential. The Company has managed to improve the operating margins for its shopping centers by consolidating their management under Alto Palermo S.A., which has enabled it to capitalize on operating synergies, scale economies and marketing and promotional opportunities. Residential. The Company has benefited from the increased availability of financing for purchasing housing and the improved transport infrastructure from the center of cities towards their suburban areas. In urban areas the Company tries to buy unexploited properties in strategic and highly populated points in order to develop apartment complexes providing green space for recreation, sports facilities and security services. In suburban areas, the Company tries to acquire unexploited properties close to Buenos Aires, in order to build residential districts where it later sells plots of land where housing can be built once the Company has installed the basic infrastructure. 12

13 Hotels. The Company tries to buy leading hotels when the opportunities arise, after which it delegates their management to first-class hotel operators in order to capitalize on their operating experience and expertise, international networks and marketing arrangements, thereby taking advantage of the benefits stemming from the increased flow of tourists and trade. Land Reserves. The Company will carry on buying unexploited land and strategically located properties both within the city and outside it. In all cases, its objective is to acquire land with a potential for development or for appreciation and subsequent sale. The Company believes that by having reserve land it will be able to count on having an ample supply of land for developing new projects, in addition to setting up a barrier against potential competitors. International. The Company aims at becoming a leading real estate business in the attractive Latin American market, by applying the strategy developed in Argentina to other countries of the region by means of strategic alliances with established local partners, in a manner similar to what it has already done in Brazil Realty and FVI. Real Estate Scenario At June 30, 2000 the Company either directly or through its subsidiaries and joint ventures, owned significant interests in a portfolio of 68 properties in Argentina, located principally in Buenos Aires, as well as 52 properties in Brazil most of which were located in San Pablo, and 19 properties in Venezuela largely located in Caracas. The following table shows Consolidated Operating Results (1) Year ended June 30, (Ps. 000) (Ps. 000) (Ps. 000) (Ps. 000) Offices and other non-shopping center rental properties... 16,031 16,476 12,277 8,892 Shopping centers... 12,264 15,598 11, Sales and Developments... 2,982 16,959 22,898 4,489 Hotels... 1,466 1, International... 10,569 11,710 1,992 23,407 Total... 43,312 62,536 48,421 36,798 (1) Prepared observing the proportionate consolidation method. Consolidated Portfolio (1) (2) Real Estate Assets US$ million US$ 1,366.8 million (1) (2) Reserva de tierras 14% Internacional 19% Centros Comerciales 26% Hoteles 8% Oficinas 22% Ventas y Desarrollos 11% Internacional 24% Reserva de tierras 7% Oficinas Hoteles 11% 4% Ventas y Desarrollos 6% Centros Comerciales 48% Notes: Notes: (1) As of June 30, (1) As of June 30, (2) Includes the proportions of assets of consolidated subsidiaries held by IRSA and equity values. (2) Corresponding to 100% of IRSA s, Alto Palermo s, Brazil Realty s and FVI s real estate assets. 13

14 Offices and Other Non-Shopping Center Rental Properties The acquisition, development and management of offices and other non-shopping center rental properties in Argentina is one of the Company's core business activities. As of June 30, 2000, IRSA, directly and indirectly, owned interests in 29 office and other non-shopping center rental properties in Argentina which comprised 146,222 square meters of gross leaseable area. Of these properties, 13 were office properties which comprised 87,929 square meters of gross leaseable area. For the fiscal year 2000, IRSA had net revenues from office and other nonshopping center rental properties of Ps.23.9 million. All of the IRSA's office rental properties in Argentina are located in Buenos Aires. Five of the properties are currently single tenant properties while the remaining properties are leased to multiple tenants. As of June 30, 2000, the average occupancy rate of all of IRSA's office properties was approximately 92%. Five different tenants accounted for approximately 36.0% of IRSA's monthly office rental income and less than 4.5% of IRSA's total revenues for fiscal year These five office tenants are: Grupo Total Austral, Grupo Techint, Aguas Argentinas S.A. ("Aguas Argentinas"), Grupo Telecom and Grupo Danone. Administration and Management. IRSA generally acts as the managing agent of the office properties in which it owns an interest. These interests consist primarily of the ownership of entire buildings or a substantial number of floors in a building. The buildings in which IRSA owns floors are generally managed pursuant to the terms of a condominium agreement that typically provides for control by a simple majority of the interests (based on the area owned) in the building. As the managing agent of operations, IRSA is responsible for handling services, such as security, maintenance and housekeeping. These services are generally contracted to third party providers. The cost of the services are passed-through and paid for by the tenants, except in the case of IRSA's unrented units, in which case IRSA absorbs the cost. IRSA's leaseable space is marketed through commissioned brokers, the media and directly. IRSA generally leases space in its offices and other non-shopping center rental properties pursuant to lease agreements with terms of three to five years that are renewable at the option of the tenant for additional two or three year terms. IRSA's non-shopping center lease agreements are generally denominated in U.S. dollars and, in accordance with Argentine law, are not subject to inflation indexation. Rents for renewal periods are set based upon projected estimates of United States inflation or other customary factors. The following table sets forth certain information regarding IRSA's direct and indirect ownership interest in offices and other non-shopping center rental properties. 14

15 Office and Other Non-Shopping Center Rental Properties Date Leaseable Occupancy IRSA IMonthly Total annual rental income Book value area rate interest Rental For the fiscal years ended U$S/000 (4) as of acquired m2 (1) (2) U$S/000 income (3) U$S/000 (5) Offices Inter-Continental Plaza (6) 11/18/97 22,535 96% 67% 390 4,412 4,912 2,572 22,538 Libertador /20/95 12,387 85% 100% 308 3,905 4,089 3,586 25,053 Maipú /28/95 10,425 96% 100% 248 2,942 2,996 2,798 22,104 Laminar Plaza 03/25/99 6, % 100% 231 1, ,109 Madero /21/95 5, % 100% 157 1,869 1,897 1,867 10,580 Suipacha 652/64 11/22/91 11, % 100% 127 1,626 1,651 1,576 6,791 Reconquista 823/41 11/12/93 6, % 100% 115 1,380 1,380 1,380 10,042 Edificios Costeros (7) 03/20/97 6,399 48% 100% ,263 Others (8) - 6,276 71% N/A 82 1,001 1,438 1,606 10,398 Subtotal 87,929 90% N/A 1,739 18,785 18,363 15, ,879 Other Properties Retail properties (9) 16,824 92% 100% 221 3,898 2,751 2,602 18,370 Other properties (10) 41, % N/A 96 1,350 1,798 2,102 8,081 Subtotal 58,293 97% N/A 317 5,248 4,549 4,704 26,452 Real estate Management fees TOTAL OFFICES AND OTHERS (11) 146,222 92% N/A 2,056 24,607 23,484 20, ,330 (1) Corresponds to the total leaseable area of each property. In order to obtain the square meters attributable to IRSA this column must be multiplied by IRSA s ownership interest. Excludes common and parking areas. (2) Calculated by dividing square meters leased under leases in effect as of June 30, 2000 by gross leaseable area. (3) Based on leases in effect as of June 30, 2000 giving effect to IRSA s ownership interest in each property. (4) Corresponds to total consolidated leases as authorized by the National Securities Commission. Does not include the deduction of gross revenue tax. (5) Cost of acquisition, plus improvements, plus inflation adjustment until August 31, 1995, less accumulated depreciation, plus capital expenditures (if corresponds). Gives effect to IRSA's ownership interest in each property. (6) Owned through Inversora Bolivar S.A. (7) Corresponds to Edificios Costeros A and B, included in the office property portfolio in the third quarter of fiscal year (8) Includes the following properties: Madero 942, Av. de Mayo 595/99, Av. Libertador 602, Sarmiento 517, Av. de Mayo 701, Rivadavia 2768/80, Puerto Madero Dock 5 and Puerto Madero Dock 6 (through IRSA). Accumulated rental income for fiscal year 1998 include rental income from Palacio de la Reconquista (completely sold). (9) Includes the following properties: Florida 291, Santa Fe 1588, Constitución 1111, Rivadavia 2243, Montevideo 1975 and Alsina 934/44 (through IRSA). Also includes rental income from Galerías Pacífico up to March 31, 2000, when all the shares thereof were sold. The latter transaction has been disclosed in the Development Properties table. (10) Includes the premises of Santa Maria del Plata (formerly, Ciudad Deportiva de Boca Juniors) and the land properties Monserrat - (only includes the rental value, as the book value is disclosed in the Development Properties table)-salguero 3112, Alcorta 3535, Agüero 596, Gallo 449, Guardia Vieja 3477 and R. Nuñez 4615 (Córdoba), the land properties Carlos Gardel (through Alto Palermo S.A) and Serrano 250, Thames, 5 units of Alto Palermo Plaza, 6 of Alto Palermo Park and Cerviño (through Inversora Bolivar S.A). During June 2000 Cerviño was sold; this transaction has been disclosed in the Development Properties table. Accumulated rental income for fiscal year 1998 includes rental income from Palacio Alcorta (completely sold) and Dorrego 1916, the book value for these properties is disclosed in the Development Properties table. (11) Corresponds to the business unit "Offices and Other non-shopping center rental properties" mentioned in Note 4 to the Consolidated Financial Statements. The following table shows a schedule of the lease expirations of IRSA's office and other non-shopping center properties for leases in place as of June 30, 2000, assuming that none of the tenants exercise renewal options or cancel their leases. Most tenants have renewal clauses in their leases. Fiscal year of lease expiration Number of leases expiring Squares meters subject to expiring leases Percentage of total square meters subject to expiration Annual rental income under expiring leases(1) Percentage of total rental income under expiring leases (m 2 ) (%) (US$) (%) , % 5,420, % , % 7,409, % , % 8,777, % , % 997, % , % 1,257, % Total , % 23,862, % (1) Excludes rental properties Thames and Serrano. It is not in proportion to IRSA s actual interest in each real estate property. Set forth below is information regarding the principal office properties currently owned by IRSA, including the names of the tenants occupying 5% or more of the gross leaseable area of each property. 15

16 Inter-Continental Plaza, Buenos Aires. Inter-Continental Plaza is a 24-story building located next to the Inter-Continental Hotel in the historic neighborhood of Monserrat in downtown Buenos Aires. The Company owns the entire building, which has floor plates averaging 900 square meters; there are 203 parking spaces. The building is considered one of the most modern in Buenos Aires. The principal tenants currently include Total Austral S.A., Bagley S.A., Casares Grey y Asociados S.A., Mercedes Benz Leasing Argentina S.A., Vintage Oil Argentina Inc. Sucursal Argentina and Totalgaz Argentina S.A. Libertador 498, Buenos Aires. Libertador 498 is a 27-story office tower located at the intersection of Avenida 9 de Julio, Avenida del Libertador and Autopista Illia, three of the most important thoroughfares of Buenos Aires, making it accessible from the north, west and south of the city. IRSA owns 20 floors, with floor plates averaging 620 square meters. The building has a singular cylindrical design and possesses a highly visible circular neon billboard that makes it a landmark along the Buenos Aires skyline. The principal tenants in this building currently include Chrysler Argentina S.A. ("Chrysler Argentina"), Booz Allen & Hamilton Argentina S.A., Epson Argentina S.A., Techint Compañía Técnica Internacional S.A.C. e I., Warner Music Argentina S.A., Cresud S.A.C.I.F. y A., Adidas Argentina S.A., Juan Minetti S.A. and Farmanet S.A. Chrysler Argentina leases the billboard for an annual rent of US$ 240,000 through March 31, Maipú 1300, Buenos Aires. Maipú 1300 is a 23-story office tower located on the San Martín Plaza, a prime office zone, on Avenida del Libertador, a major north-south thoroughfare. The building is also located within walking distance of the Retiro commuter train station, Buenos Aires' most important public transportation hub, connecting rail, subway and bus transit. IRSA owns the entire building, which has floor plates averaging 440 square meters. The building's principal tenants currently include Tecpetrol S.A., Nova Gas International S.A., Allende & Brea, Telecom Personal S.A. and Petrolera Santa Fe S.A. Laminar Plaza, Buenos Aires. Laminar Plaza is a 20-story office building located in Catalinas, Buenos Aires' most exclusive office district. The floor plates each measure 1,453 square meters. The main tenants, amongst others, are as follows: Chubb Argentina de Seguros S.A., Cisco Systems, La Plata Cereal, Telecom, Personal S.A. and CRM-Movicom. Madero 1020, Buenos Aires. Madero 1020 is a 25-story office tower located in the center of the Catalinas area, a prime office zone, with spectacular views of the Port of Buenos Aires, the River Plate and downtown Buenos Aires. IRSA owns 10 non-contiguous floors, with the floor plates averaging 572 square meters. The building's principal tenants currently include Du Pont S.A., Compañía Ericsson S.A.C.E.I., Abeledo Gottheil Abogados S.C., and Aeroterra S.A. Suipacha 652/64, Buenos Aires. Suipacha 652/64 is a seven-floor office building wholly-owned by IRSA and located in the micro-center office district of Buenos Aires, which underwent substantial renovations shortly after being acquired in 1991 to prepare the building for rental. The floor plates are unusually large, measuring 1,580 square meters on most floors. The building's principal tenants currently include Procter & Gamble Interaméricas Inc., Suizo Arg. Cía de Seguros S.A. and Counsel S.A. Reconquista 823/41, Buenos Aires. Reconquista 823/41 is a 15-story office tower located in the Catalinas area. IRSA owns the entire building, which is currently fully leased to Aguas Argentinas. The office building is comprised of three basement levels with 56 parking spaces, a ground floor and 15 additional floors of office space. The floor plates average 540 square meters. IRSA has granted Aguas Argentinas a right of first refusal to purchase the building at the same price and upon the same terms and conditions as may be accepted from other potential buyers. 16

17 Edificios Costeros, Dock 2, Buenos Aires. Costeros A and B are two four-story buildings developed by IRSA and located in the Puerto Madero area. The Company owns the two buildings which have a total leaseable surface area of 6,399 square meters and 67 parking spaces. In September 1999 the Company completed the construction of the two buildings and in April 2000 begar to market the office spaces thereof. The main tenants of these properties are as follows: Compaq Latin America Corporation, Altoinvest S.A., Alternativa Gratis S.A., AltoCity.com S.A., Consultores Asset Management S.A. and Puntocom Holdings S.A. IRSA has the intention of developing two additional buildings in the adjacent land but it has not yet established a date to begin construction. Other Office Properties. IRSA also has interests in five other office properties, all of which are located in the city of Buenos Aires. These properties are either entire buildings or portions of buildings, none of which contributed more than US$ 1.0 million in annual rental income for fiscal year These properties include Madero 942 and Avenida de Mayo 595/99. Retail and Other Properties. IRSA's rental property portfolio includes 16 rental properties that are leased as street retail, supermarkets, a warehouse and various other uses. Most of these properties are located in the city of Buenos Aires, although some are located in other cities in Argentina. These properties include Florida 291, Santa Fe 1588/600 and Rivadavia 2243/65. Shopping Centers Other principal business activities conducted by the Company consist in purchasing, developing and administering shopping centers, mainly through its subsidiary, Alto Palermo (APSA). As of June 30, 2000, APSA had interests in nine shopping centers with a total gross leaseable area of 175,271 meters, which accounted for (without including Bahía Blanca Plaza) approximately 22% of the gross leaseable area for shopping centers in Argentina. At June 30, 2000, the average occupancy rate of the shopping center portfolio was approximately 97%. In fiscal year 2000, net revenues from shopping centers amounted to Ps.45.8 million. Management and Administration. As a result of the acquisition of several shopping centers and of the corporate reorganization of Alto Palermo, IRSA was able to reduce expenses by centralizing management of the shopping centers in Alto Palermo. All of IRSA's shopping centers are owned through Alto Palermo, and all of them, except, Mendoza Plaza and Bahía Blanca Plaza, are managed by Alto Palermo. As the manager, Alto Palermo is responsible for providing common area electrical power, a main telephone switchboard and central air conditioning and other basic common area services. As of June 30, 2000, IRSA owned 46%, Parque Arauco, 28% and GSEM /AP Holdings L.P. (Goldman Sachs Fund), 6% of Alto Palermo. Leases. Alto Palermo enters into commercial leases with tenants for terms ranging from three to ten years, with most leases having terms of no more than five years. Lease agreements are generally denominated in U.S. dollars and, generally, are subject to rent escalation clauses. Shopping center leases generally do not contain renewal options. Tenants are generally charged a rent which consists of the higher of (i) a base rent and (ii) a percentage rent which generally ranges between 4% and 8% of tenant's sales. Furthermore, pursuant to the rent escalation clause in most leases, a tenant's base rent generally increases between 4% and 7% each year during the term of the lease. Tenants are also required to pay for the direct expenses of their units, such as electricity, water, telephone and air conditioning, as well as their proportion of the common area expenses. In addition, tenants pay between approximately 12% and 15% of their base rent into a common promotion fund. In those cases where Alto Palermo acts as manager, Alto Palermo receives, generally, an administration fee, for administering the common area maintenance and promotional fund. 17

18 In addition to rent, tenants are generally charged key money, an admission fee that tenants may be required to pay upon entering into a lease and upon lease renewal. Key money is normally paid in one lump sum or in a small number of monthly installments. If the tenant pays this fee in installments, it is the tenant's responsibility to pay for the balance of any such amount unpaid in the event the tenant terminates its lease prior to its expiration. In the event of termination, a tenant will not be refunded its key money. The following table shows certain information concerning IRSA's shopping centers. Shopping Center Properties Date Leaseable Occupancy IRSA s Total annual rental income for the Book area rate Interest (%) Fiscal years (U$S/000) (3) Value acquired m2 (1) % (2) I U$S/000 (4) Shopping Centers (5) Alto Palermo 12/23/97 16,858 96% 46% 11,901 12,762 11,101 61,734 Alto Avellaneda 12/23/97 26,998 95% 46% 8,156 9,314 10,247 29,526 Paseo Alcorta (6) 06/06/97 14,614 97% 46% 5,702 5,549 6,079 19,291 Abasto 07/17/94 40,740 98% 46% 10,703 8,391-58,555 Patio Bullrich 10/01/98 10,983 99% 46% 3,418 2,837-30,398 Nuevo NOA (7) 03/29/95 12,409 95% 46% ,083 6,605 Others (8) 52,669 96% N/A 6,391 5,398 3,143 10,473 TOTAL SHOPPING CENTERS (9) 175,271 97% N/A 47,183 45,114 31, , (1) Total leaseable area. In order to obtain the number of square meters attributable to IRSA the figures in this column are to be multiplied by the interest actually held by IRSA. Excludes common and parking areas. (2) Calculated by dividing square meters leased by leaseable area. (3) Corresponds to total consolidated leases as authorized by the National Securities Commission. Do not include the deduction of Gross Revenue tax. (4) Cost of acquisition plus improvements, plus inflation adjustment until August 31, 1995, less accumulated depreciation, plus goodwill paid (if applicable) in proportion to the ownership interest actually held by IRSA. (5) Through Alto Palermo S.A. (6) Includes the value of Inversora del Puerto land. (7) IRSA acquired a 100% ownership interest during fiscal (8) Includes the following properties: Buenos Aires Design and Mendoza Plaza Shopping, and the sales of Tarjeta Shopping. (9) Corresponds to the "Shopping Centers" business unit mentioned in Footnote 4 to the Consolidated Financial Statements. The following table shows a schedule of lease expirations for IRSA's shopping center properties in place as of June 30, 2000, assuming that none of the tenants exercise renewal options or cancel their leases. Fiscal Year of Lease Expiration Number of Leases expiring Square meters subject to expiring leases Percentage of Total Square Meters subject to expiration Annual Rental Income under Expiring Leases (1) Percentage of Total Leases Expiring (m 2 ) (%) (US$) (%) , ,488, , ,335, , ,340, , ,533, , ,384, , ,196, TOTAL , ,278, (1) Includes only the basic rental income amount, without being proportioned based on IRSA s actual interest. Set forth below is information regarding the principal shopping center properties currently owned by IRSA. Alto Palermo Shopping, Buenos Aires. Alto Palermo Shopping is a 156-store shopping center that opened in 1990 and is located in the upper-middle income, densely populated neighborhood of Palermo in the city of Buenos Aires. Alto Palermo Shopping is located at the intersection of Santa Fe and Coronel Díaz avenues, only a few minutes from downtown Buenos Aires and has nearby access from the Bulnes subway station. Alto Palermo Shopping has a total constructed area of 64,672 square meters that consists of 16,858 square meters of gross leaseable area. The shopping center has a two-screen cinema, an entertainment center and a food court with 20 restaurants. Alto Palermo Shopping is spread out over four levels and has a 741-car pay parking. Tenants in this shopping center generated average estimated monthly retail sales of approximately Ps per square meter for the year ended June 30,