Alto Palermo S.A. (APSA)

Alto Palermo S.A. (APSA)
Notes to the Consolidated Financial Statements (continued)
(In Argentine Pesos, except as otherwise indicated)
19. Differences between Argentine GAAP and US GAAP (continued)
II. Additional disclosure requirements
g) Risks and uncertainties
The Company’s operations are subject to risks and uncertainties with respect to:
Risks associated with Argentine operations. All Company’s operations and properties are located in Argentina. As a
result, the Company financial condition and results of operations depend to a significant extent on macroeconomic and
political conditions prevailing in Argentina.
Shopping center operating risks: The development, administration and profitability of shopping centers are impacted
by various factors including: 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
within the Company’s shopping centers, the amount of rent collected from each shopping center rental unit and the
fluctuations in occupancy levels in the shopping centers. In the event that there is an increase in operational costs, caused by
inflation or other factors, it could have a material adverse effect on the Company if its tenants are unable to pay their higher
rent obligations due to the increase in expenses.
Since May 28, 1997, Law No. 24,808 provides that tenants may rescind commercial lease agreements after the initial
six months upon not less than sixty days written notice, subject to penalties of only one-and-a-half months rent if the tenant
rescinds during the first year of the lease, and one-month rent if the tenant rescinds after the first year of the lease. The
exercise of such rescission rights could materially and adversely affect the Company.
Real estate market operating risks: The Company’s property is currently and will continue to be subject to risks
incident to the ownership and operation of commercial real estate and residential development properties. The Company’s
lease sales from its real estate operations may be adversely affected by (i) local or national economic conditions in the areas
in which the properties are located; (ii) oversupply of retail space or a reduction in demand for retail space; (iii) increased
competition from other real estate operators; (iv) changes in the ability of the Company or the tenants to provide for
adequate maintenance and/or insurance; (v) increases in operating expenses; and/or (vi) adverse changes in the regional or
national economy. Other risks include the inability to collect rent due to bankruptcy or insolvency of tenants or otherwise,
the need to periodically renovate, repair and release space and the costs thereof and the ability of a tenant to provide
adequate maintenance and insurance. In addition, the failure to sell the property to be constructed (General Paz Project,
Caballito Project, Coto Residential Project and Rosario Project), could have a material adverse effect on the Company.
An economic downturn in the areas in which the shopping centers are located might adversely affect the Company’s
sales (through bankruptcy of tenants and reduction in the shopping center sales due to lower variable income). Increases in
operating costs due to inflation and other factors may result in some tenants being unable or unwilling to pay rent or expense
increases. In addition, the Company has several tenants occupying space in more than one shopping center and, as a result,
if any of such tenants should experience financial difficulties and cease paying rent, the Company’s operating results could
be adversely affected. Furthermore, as leases on properties expire, the Company may be unable to find new tenants or
tenants may enter into new leases on terms that are less favorable to the Company. The failure to lease such properties
could have a material adverse effect on the Company.
Credit card operating risks: Credit card operations are subject to federal legislation and regulation. From time to
time, such legislation, as well as competitive conditions, may affect, among other things, credit card finance charges. While
the Company cannot predict the effect of future competitive conditions and legislation or the measures the Company might
take in response thereto, a significant reduction in the finance charges imposed by Tarshop would have an adverse effect on
the Company. In addition, changes in general Argentine economic conditions, including, but not limited to, higher interest
rates and increases in delinquencies, charge-offs and personal bankruptcies could have an adverse effect on the Company.
F-68