Strong Foundations: Leadership & Growth

104
Strong Foundations: Leadership & Growth ANNUAL AND SUSTAINABILITY REPORT 2014

Transcript of Strong Foundations: Leadership & Growth

Page 1: Strong Foundations: Leadership & Growth

Stro

ng F

ound

atio

ns: L

eade

rshi

p &

Gro

wth

Strong Foundations:Leadership & GrowthANNUAL AND SUSTAINABILITY REPORT 2014

Arcos Bosques Marco II

Paseo de Tamarindos 90, Tower 1

25th, Bosques de las Lomas

C.P. 05120, Mexico City, Mexico

consorcioara.com.mxara.com.mx AN

NU

AL A

ND

SUST

AIN

ABIL

ITY

REPO

RT 2

014

Page 2: Strong Foundations: Leadership & Growth

ARAstrengths

GEOGRAPHICAND PRODUCTDIVERSIFICATION

STRATEGICLAND BANK

MANAGEMENTTEAM WITH GREATEXPERIENCE

CORPORATEGOVERNANCE

VERTICALINTEGRATION

FINANCIALSTRENGTH

FLEXIBLECONSTRUCTIONPROCESS

InvestorRelationsAlicia Enriquez Pimentel [email protected](52.55) 5596 8803(52.55) 5246 3100 x. 4096

IndependentAuditorGalaz, Yamazaki, Ruiz Urquiza, S.C.Member of Deloitte Touche Tohmatsu Limited

FOUNDING MEMBER OF

VIVIENDA Y ENTORNO

SUSTENTABLE, A.C.

DES

IGN

& P

HO

TOG

RA

PHY:

33

VIS

UA

L | P

RIN

TIN

G: E

AR

THC

OLO

R, H

OU

STO

N

Page 3: Strong Foundations: Leadership & Growth

38.49461739%

383098

years ofexperience

million m2 of land bank, in 19 states

shopping malls:155,500 m2 of grossleasable area

segments:Progresiva, affordableentry level, middleincome and residential

consecutive years with the best credit ratings in the sector

of the titled housesin 2014 were vertical

of 11 Board Membersare independent

plants to produce our own ready-mixed concrete

thousand houses sold inour history, inhabited by 1.24 million Mexicans

Page 4: Strong Foundations: Leadership & Growth

] 2 [ANNUAL AND SUSTAINABILITY REPORT 2014

| 3 | Corporate profile| 5 | Financial highlights| 6 | Strong foundations| 8 | Land bank| 10 | Message to our investors | 14 | Housing sector in Mexico| 18 | Housing products| 21 | Shopping Malls| 24 | Financial strength| 28 | Integration and value chain| 30 | Sustainability| 38 | ARA Foundation| 46 | Corporate Governance| 50 | Board of Directors| 51 | Management Team

Contents

LAS MISIONESState of Mexicosegment: Middle income

Page 5: Strong Foundations: Leadership & Growth

] 3 [STRONG FOUNDATIONS: LEADERSHIP & GROWTH

We are a Company that engages in the construction and marketing of progresiva, affordable entry level, middle income and residential housing. Beyond this, Consorcio ARA creates communities by carrying out the infrastructure, urbanization and equip-ping of our housing projects, as well as building and operating six shopping centers as the ideal complement to our developments.

In our more than 38 years of experience, we have built 309 thousand homes where 1.24 million Mexicans live. Since we began, we have become known for our diverse product range, long-term vision, healthy financial structure and moderate debt level.

For nine consecutive years we have maintained the highest credit ratings in the Mexican housing sector: “mxA” by Standard & Poor’s and “A2.mx” by Moody’s.

Since 1996, we have been listed on the Mexican Stock Exchange under the symbol ARA*. We currently have presence in 16 states with 44 housing developments.

MissionTo develop homes and communities for Mexican lifestyles, where people can be proud to live.

VisionTo be the most reliable, profitable and innova-tive real estate developer in Latin America.

Values• Honesty • Commitment• Responsibility • Quality

CorporateProfile

PASEO DE LOS SAUCESPueblasegment: Affordable entry level

Page 6: Strong Foundations: Leadership & Growth

] 4 [ANNUAL AND SUSTAINABILITY REPORT 2014

PARAISO COUNTRY CLUBMorelossegment: Residential

Page 7: Strong Foundations: Leadership & Growth

] 5 [STRONG FOUNDATIONS: LEADERSHIP & GROWTH

FinancialhighlightsMillions of pesos

2014 2013

RESULTS

Revenues 6,206.1 5,735.7

Units Sold 10,765 10,862

Average Price (thousands of pesos) 563.9 515.1

Gross profit 1,644.8 1,550.3

Income from operations 608.1 528.4

Financial (Income) Expense - Net -11.7 8.1

Net Income 490.0 464.3

EBITDA 903.1 897.3

Free Cash Flow for the Firm 862.6 -50.8

Gross Margin 26.5% 27.0%

Operating Margin 9.8% 9.2%

Net Margin 7.9% 8.1%

EBITDA Margin 14.6% 15.6%

FINANCIAL POSITION

Cash and Cash Equivalents 1,075.6 643.0

Total Current Assets 14,284.8 13,602.9

Total Assets 16,300.6 15,716.5

Total Current Liabilities 1,958.4 1,564.7

Total Liabilities 5,568.1 5,489.3

Retained Earnings 9,643.0 9,154.6

Stockholders’ Equity 10,732.5 10,227.1

Net Working Capital 13,078.8 13,123.1

Capital Expenditures 17.0 22.5

Cost Bearing Debt 2,147.0 2,430.6

Net Debt 1,071.4 1,787.6

LEVERAGE RATIOS (times)

/ Stockholders’ Equity 0.20 0.24

Cost Bearing Debt / Total Assets 0.13 0.15

/ EBITDA (12m) 2.38 2.71

Net Debt / EBITDA (12m) 1.19 1.99

Net Debt / Stockholders’ Equity 0.10 0.17

Interest Coverage 5.91 4.37

Total Current Assets Less Inventories / Total Current Liabilities

1.36 1.38

Total Liabilities / Stockholders’ Equity 0.52 0.54

6,2

06

.1

Revenues+8.2%

5,73

5.7

‘14 ‘13

1,0

75

.6

Cash and Cash Equivalents

+67.3%64

3.0

60

8.1

Incomefrom Operations

+15.1%

528.

41,

787.

6

1,0

71

.4

NetDebt

-40.1%

‘14 ‘13

‘14 ‘13

‘14 ‘13

G4-9

Page 8: Strong Foundations: Leadership & Growth

] 6 [ANNUAL AND SUSTAINABILITY REPORT 2014

Strongfoundations

FUENTES DE TIZAYUCAHidalgosegment: Affordable entry level

LeadershipIn 2014, Consorcio ARA consolidated its leadership in the Mexican housing sector.

Elements such as our vertical integration, product innovation and solid sustainability practices, all based on an excellent human team and strong corporate governance, make the future look promising for our Company.

GrowthIn 2014, Consorcio ARA got back on the growth track with a solid 8.2% expansion in revenues. With this performance, the Company far exceeded the behavior of the Mexican economy.

With a strategic land bank, diversified range of housing products, the added value of its shopping centers and characteristic financial soundness, Consorcio ARA is ready to leverage the momentum of today’s housing market in the medium and long term.

Page 9: Strong Foundations: Leadership & Growth

] 7 [STRONG FOUNDATIONS: LEADERSHIP & GROWTH

Progresiva Affordable entry level Middle income Residential Other projects

Infonavit Fovissste SHF, banks and without credit

7.8

26.0

66.2

9.624.4

66.0

15.3

34.8

2.5

20.3

27.1

15.2

43.5

2.2

18.3

20.8

2013

2013

Revenue mixby housing type

Titled homesby type of financing

2014 2013

INSTITUTION NUMBER OF TITLED

HOMES%

NUMBER OF TITLED HOMES

%

Infonavit 6,158 57.2 5,937 54.7

Infonavit total and Cofinavit 967 9.0 1,230 11.3

Subtotal 7,125 66.2 7,167 66.0

Fovissste 2,799 26.0 2,648 24.4

SHF, banks and without credit 841 7.8 1,047 9.6

Total titled homes 10,765 100 10,862 100

2014 2013

UNITS AVERAGEPRICE [1] REVENUES [2] % UNITS AVERAGE

PRICE [1] REVENUE [2] %

Progresiva 3,138 301.4 945.9 15.2 3,110 282.0 877.0 15.3

Affordable entry level 3,477 370.1 1,286.9 20.8 4,297 361.4 1,552.7 27.1

Middle income 3,521 766.9 2,700.3 43.5 2,779 719.5 1,999.4 34.8

Residential 629 1,809.0 1,137.9 18.3 676 1,724.1 1,165.5 20.3

Total housing 10,765 563.9 6,070.9 97.8 10,862 515.1 5,594.5 97.5

Other real estate projects 135.3 2.2 141.2 2.5

Total 10,765 6,206.1 100 10,862 5,735.7 100

[1] Figures in thousands of pesos [2] Figures in millions of pesos

2014

2014

% of revenues

% of homes

Page 10: Strong Foundations: Leadership & Growth

] 8 [ANNUAL AND SUSTAINABILITY REPORT 2014

One of our priority strategies is to have a strong land bank both in surface area and location. As of December 31, 2014, Consorcio ARA’s land bank amounted to 38.4 million m2 in nineteen states, enough area to build 155,576 master plan homes. Of this area, 2.8 million m2 are classified for real estate projects like commercial deve-lopments, tourism centers and industrial zones.

The book value of our land bank at the close of last year was $4,747.8 million. It should be noted that this figure relates to the cost of acquisition, as required by the International Financial Reporting Standards (IFRS).

As well as being located in states and zones of economic and demographic growth, our land bank is suitable for housing development in accordance with the current housing policy, a competitive advantage that set us apart during the crisis facing the public housing sector in 2013.

The core of our long-term vision is selectivity in our land purchases; today we are looking for more compact projects with more efficient densification. In 2015, we will continue our strategy of buying in places which require the continuity of our opera-tions, given the current and potential demand, and in favorable locations in light of the housing policy.

LandBank G4-5, G4-6, G4-8

Page 11: Strong Foundations: Leadership & Growth

] 9 [STRONG FOUNDATIONS: LEADERSHIP & GROWTH

Land bankby housing type% by revenues [1]

[1] Percentage obtained from multiplying units per 2014 average price.

Operating in:

16states

18cities

34municipalities

44developments

STATE UNITS [2] %

State of Mexico 51,314 33.0

Quintana Roo 37,232 23.9

Nuevo León 9,717 6.2

Baja California 8,727 5.6

Veracruz 7,738 5.0

Hidalgo 6,807 4.4

Guerrero 6,675 4.3

Puebla 6,469 4.2

Jalisco 4,740 3.0

Tamaulipas 4,433 2.8

Querétaro 3,761 2.4

Sonora 2,382 1.5

Guanajuato 2,241 1.4

Morelos 1,872 1.2

Nayarit 724 0.5

Mexico City 528 0.3

Chihuahua 115 0.1

Sinaloa 71 0.05

Tabasco 30 0.02

Total 155,576 100

[2] Master plan subject to market modifications and approvals.

States in which we operate

States withland bank

24.7

23.8

40.0

11.5 19.816.8

56.5

6.9

% by units

Progresiva Affordable entry level Middle income Residential

Page 12: Strong Foundations: Leadership & Growth

] 10 [ANNUAL AND SUSTAINABILITY REPORT 2014

In 2014, Consorcio ARA’s strategy to build strong foundations with a long-term vision proved to be the right one, allowing us to return to a path of healthy growth and thus consolidate our leadership in the Mexican housing sector.

Economic Environment and Housing Sector

During 2014, the Mexican economy grew by 2.1%, which was lower than expected. How-ever, legislative progress was made in the approval of the secondary laws of the structural reforms. This suggests a better outlook for the coming years.

Although the increase in national economic activity was less than expected, the housing sector was able to reverse the negative trend it presented since the end of 2012. The con-struction industry expanded, driven by a rebound in the building subsector1 of 10.1%, which reaffirmed it as a vital factor for economic growth, social development and job generation.

It is important to highlight Consorcio ARA’s performance in this environment; growth of 8.2% in revenues far exceeded the behavior of the economy, as well as meeting the goal we announced at the beginning of the year.

Message to ourShareholders

(1) The Building subsector comprises residential building (housing), and non-residential building such as industrial warehouses and commercial, institutional and service properties.

8.2%growth in revenues

G4-1, G4-2

Page 13: Strong Foundations: Leadership & Growth

] 11 [STRONG FOUNDATIONS: LEADERSHIP & GROWTH

The housing policy is focused on a sustainable ur-

ban development model and has contributed to

the upturn in our field. Consorcio ARA has had

the institutional strength and flexibility, both op-

erationally and financially, to adapt to the policy

to the benefit of ever more Mexican people.

This year was a remarkable example of how gov-

ernment authorities, through entities like the

Ministry of Agricultural, Territorial and Urban

Development (SEDATU), the National Housing

Commission (CONAVI), INFONAVIT, FOVISSSTE

and Federal Mortgage Society (SHF) can join

forces with the private sector to give housing a

decisive boost.

The 2014 subsidy program made a significant

contribution to the recovery. The program was re-

sponsible for the allocation of $11,495 million, a

47.1% growth over 2013, of which $7,931 million,

69%, went to the acquisition of new housing.

Clear rules, increased assignment of resources

and a higher number of workers eligible to re-

ceive a subsidy were factors that enabled us to

leverage the program so that 18% of our revenue

was related to subsidized housing, compared to

7% in the previous year. For 2015, a budget of

$8,435 million has been allocated to the subsidy

program.

Strategy and Achievements 2014

In 2014, we maintained our strategy of offering

a diverse mix of products (progresiva, affordable

entry level, middle income and residential hous-

ing) aimed at different market segments and

through different mortgage sources, allowing us

to meet the needs of an ever growing number of

families. It is worth mentioning that middle in-

come housing revenues represented 43.5% of our

total revenues (their biggest contribution in the

last five years) and grew 35%, confirmation that

our diversification strategy has been on track.

Consorcio ARA has always been distinguished by

quality, location, environment, sustainability and

the architectural and urban design of our devel-

opments. We maximize the value proposal for our

35%growth in middle income housing revenues

Page 14: Strong Foundations: Leadership & Growth

] 12 [ANNUAL AND SUSTAINABILITY REPORT 2014

customers through sports installations, green ar-

eas, swimming pools, schools and even lagoons

and golf courses. We also equip our homes with

green technologies that in addition to their envi-

ronmental benefits, support the family budget by

reducing water and energy consumption. In 2014,

Consorcio ARA applied a total of 7,125 green

mortgages.

In line with international standards and to meet

the new market requirements, at the end of 2014

we began the implementation of the BIM (Build-

ing Information Modeling) system. This technol-

ogy tool will increase our productivity, quality and

efficiency by facilitating communication between

the different areas of the construction process,

since it enables us to view the different stages in

3D and simulate the performance of materials in

real processes.

We have diversified our business portfolio with

six strategically placed shopping centers on the

outskirts of our housing developments, with a

gross leasable area (GLA) of 157,000m2. In 2015,

we began the second phase of the Paseo Ven-

tura construction, our seventh shopping cen-

ter, which will add 24,000m2 to our total GLA.

It should be noted that in 2014, our Shopping

Malls Division reported a growth of 6%, in line

with the Group’s results.

We are working to make sustainability an inte-

gral part of the way we operate because of our

conviction that this is the best way to achieve

our long-term permanence. In addition, sustain-

ability is a fundamental element of the current

housing policy.

For the third consecutive occasion, we are report-

ing our sustainability behavior under the standards

of the Global Reporting Initiative (GRI), with the

aim of measuring progress, defining strengths

and recognizing areas of opportunity. It should

be mentioned that for the ninth consecutive time,

6%growth

in shopping mall revenues

DREAM LAGOONVeracruzsegment: Residential

Page 15: Strong Foundations: Leadership & Growth

] 13 [STRONG FOUNDATIONS: LEADERSHIP & GROWTH

Ing. Germán Ahumada Russek Ing. Luis Felipe Ahumada Russek CHIEF EXECUTIVE OFFICER CHIEF EXECUTIVE OFFICER Housing Division Shopping Malls Division

Consorcio ARA was distinguished as a Socially Re-

sponsible Company by the Mexican Philanthropy

Center, in recognition of our achievements in 2014.

Also in the social aspect, we must highlight the

work of the ARA Foundation and its strategic

partners, whose more than 521 thousand actions

in 2014 benefitted a total of 1.6 million Mexicans.

Financially, we made significant achievements. We

increased our revenues by 8.2% and generated a

record $863 million in free cash flow for the firm,

doubling the $400 million originally predicted; we

reduced our net debt by 40%, and improved our

leverage ratios compared to the last three years,

particularly net debt to EBITDA, which reached 1.19

times against 1.99 times in 2013. It should be em-

phasized that the free cash flow came in a year in

which 39% of the units we sold were vertical.

The above, in addition to the prudent manage-

ment of our finances, helped us to maintain the

industry’s highest credit rating for the ninth con-

secutive year: “mxA” by Standard & Poor’s and

“A2.mx” by Moody´s.

The financially and operationally good year we re-

ported was reflected in the annual yield of the ARA

share* in 2014, which reached 27%, well above the

1% of the IPC in the same period. The cumula-

tive yield of the ARA share* since 2013, when the

housing companies listed in the Mexican Stock Ex-

change suffered a liquidity crisis, is 57%, against

-1.3% of the IPC during the same period.

Our achievements in 2014 left us satisfied, but

not content. The challenges remain to build an

ever broader customer base, to serve the non-

salaried workers market, and consolidate new

credit schemes. The market changes, the industry

evolves and we must continue to show the flex-

ibility to adapt, with the unwavering commitment

to always offer housing that is a pride to live in.

The results of Consorcio ARA would not be pos-

sible without the participation of our employ-

ees, whose professionalism and commitment

have been central to overcoming difficult times

and leveraging the opportunities of this new

environment. With this letter, we express our

deepest gratitude.

We are also grateful for the confidence of our

shareholders, customers and suppliers, which has

been crucial throughout the Company’s life.

We will continue to build strong foundations so

that our leadership and growth remain.

27%profit of the ARA* share

Page 16: Strong Foundations: Leadership & Growth

] 14 [ANNUAL AND SUSTAINABILITY REPORT 2014

BOSQUE SANCTORUM,Pueblasegment: Middle income

Housing Sectorin Mexico

Page 17: Strong Foundations: Leadership & Growth

] 15 [STRONG FOUNDATIONS: LEADERSHIP & GROWTH

During 2014, Mexico saw an economic growth of 2.1%, above the 1.1% of the previous year but still below original expectations.

According to data from INEGI, the construction industry grew by 6.8%, while the building subsector expanded by 10.1%, driven mainly by housing construction, whose development made it the branch with the second highest growth, behind the automotive industry.

Total investment in the housing sector in 2014, including construction financing, was $350 billion. The subsidy program was central to the sector’s rebound in 2014, allocating a total of $11,495 million (47.1% more than in 2013), of which 69% was for new housing. It should be noted that in 2014, 18% of our revenues came from subsidized housing, against 7% the previous year.

The current housing policy promotes the ordered and sustainable devel-opment of our sector; the leadership of SEDATU and the work of CONA-VI, INFONAVIT, FOVISSSTE and SHF have been key to its recovery. Among

PASEO DE LOS SAUCESPueblasegment: Progresiva

Page 18: Strong Foundations: Leadership & Growth

] 16 [ANNUAL AND SUSTAINABILITY REPORT 2014

the most significant actions that were pushed were

the following adjustments and/or enhancements to

loan schemes to boost demand:

- Subsidies: i) Broadening the base of people eligi-

ble for subsidy by increasing the wage range from

2.6 to 5 times the minimum wage for a worker

to gain access. ii) Promotion of housing subsi-

dies through eighteen state conferences entitled

“México, la Casa de Todos.”

- Raising the maximum amount of INFONAVIT

credit, from $483 thousand to $850 thousand, an

increase of 76%.

- Reduction from five to two years of consecutive

contributions and from one year to six months’

wait to apply for a second INFONAVIT loan.

PASEOS DEL BOSQUEPueblasegment: Residential

COLINAS DE LA PIEDADQuerétarosegment: Affordable entry level

69.0

10.0

10.3

7.63.0

New homesUsed homesImprovementSelf constructionOther

Subsidiesby type, 2014(amount %)

- Release of the housing sub-account as collateral

for improvement and expansion loans.

Furthermore, other measures were announced in 2014

and are expected to be consolidated during 2015:

- INFONAVIT loan denominated in pesos, at a fixed

rate and up to 30 years, and the elimination of

titling costs for borrowers with an income of less

than 2.6 minimum wages.

- New FOVISSSTE in pesos, allowing the worker to

obtain a higher loan by adding guaranteed com-

pensations to the basic wage, for up to 25 years at

a fixed rate, in co-financing with SHF or banking

institutions.

- Mortgage financing for the armed forces and state

Page 19: Strong Foundations: Leadership & Growth

] 17 [STRONG FOUNDATIONS: LEADERSHIP & GROWTH

CITARAState of Mexicosegment: Affordable entry level

and municipal government employees, whose po-

tential demand is estimated at 2.5 million loans.

In 2014, INFONAVIT allocated 389,627 mortgage

loans (66.2% of which were for new housing) with

a total investment of $110 billion. FOVISSSTE, mean-

while, granted 63,693 loans (66.4% for new housing)

with a total investment of $38.5 billion.

The estimated investment for the sector in 2015 is

$370 billion for the construction of 500 thousand

houses. The goal for INFONAVIT is 350 thousand mort-

gage loans with an investment of $116 billion, while

FOVISSSTE hopes to place 70 thousand loans with an

investment of $38.2 billion.

The outlook for the housing sector for 2015 is bright.

Although the economic environment is challenging,

we believe housing will continue to be a key driver of

economic activity due to the sector’s solid founda-

tions, the country’s still attractive demographic bonus

and the availability of mortgage loans.

Satellite Housing Account in Mexico

The INEGI recently announced the Satellite Housing Ac-

count 2008-2012. Among the main results is the eco-

nomic importance of housing, which involves 78 class-

es of economic activity (8 main classes and 70 related).

Thus, the results of the account indicate that hous-

ing contributed 5.9% of GDP in 2012 and, if the at-

tributed rental value of homes inhabited by their

owners is included, the figures rise to 14.1%.

78classes of economic activity participate in the housing sector

Page 20: Strong Foundations: Leadership & Growth

] 18 [ANNUAL AND SUSTAINABILITY REPORT 2014

Consorcio ARA maintains a mix of housing products to satisfy the needs of the coun-try’s different socio-economic segments, a feature that distinguishes us from the rest of the sector. Our institutional flexibility allows us to offer innovative products and participate with different mortgage providers, including INFONAVIT, FOVISSSTE, SHF and commercial banks.

As of December 31, 2014 we had 44 progresiva, affordable entry level, middle in-come and residential housing developments in 16 Mexican states.

HousingProducts

ProgresivaProduct:

Price range:

$250,000 to $320,000

Mortgage financing: INFONAVIT,

FOVISSSTE**, SHF, SOFOLES

Monthly income: $4,200 to $8,500

TMMS***: 2 to 4

Socioeconomic level: D

Affordable entry levelProduct:

Price range:

$320,001 to $550,000

Mortgage financing: INFONAVIT*,

FOVISSSTE**, SHF, Banks, SOFOLES

Monthly income: $8,501 to $21,300

TMMS***: 4 to 10

Socioeconomic level: D+ / C-

G4-4

Page 21: Strong Foundations: Leadership & Growth

] 19 [STRONG FOUNDATIONS: LEADERSHIP & GROWTH

The middle income and residential segments are an important part of our product portfolio since they serve a demographic group with good growth expectations. Rev-enues from middle-income housing, in particular, grew 35% and represented 43.5% or our total revenues in 2014, the highest percentage in the last ten years.

Middle income ResidentialProduct:

Price range:

$550,001 to $1,100,000

Mortgage financing: INFONAVIT*,

FOVISSSTE**, SHF, Banks, SOFOLES

Monthly income: $21,301 to $42,600

TMMS***: 10 to 20

Socioeconomic level: C

Product:

Price range:

From $1,100,001

Mortgage financing: INFONAVIT*,

FOVISSSTE**, SHF, Banks, SOFOLES

Monthly income: More than $42,601

TMMS***: More than 20

Socioeconomic level: C+

* Includes every financing scheme: Infonavit Total, Cofinavit, Apoyo Infonavit and Infonavit Second Mortgage.** Includes every financing scheme: Alia2 Plus, Respalda2, Conjugal, Pensiona2 and New Fovissste in Pesos.***Times the Minimum Monthly Salary, equal to $2,131.03 in 2015.

Page 22: Strong Foundations: Leadership & Growth

] 20 [ANNUAL AND SUSTAINABILITY REPORT 2014

Revenue mix

Units

100%

80%

60%

40%

20%

0%

100%

80%

60%

40%

20%

0%2011 20112012 20122010 20102013 20132014 2014

33.921.5

34.1

30.2

18.2

25.0

3.313.7

10.5 9.6

33.819.5

34.6

28.1

3.7

13.7

26.9

34.8

27.2

37.6

25.6 32.7

34.8 43.5

6.2 5.8

20.3 18.3

4.5

15.8

1.9 2.5 2.21.03.9

32.518.5

35.8

26.2

28.6 29.215.3

39.6

32.3

27.1

15.2

20.8

Amount

Progresiva, affordable entry level and middle income housing

Productdiversification

Middle income and residential housing

Residential areas

Urban concentration and sustainability projects

Projects with lagoon

Shopping mall construction and operation

Progresiva Affordable entry level Middle income Residential Other projects

SHOPPING MALLS

Page 23: Strong Foundations: Leadership & Growth

] 21 [STRONG FOUNDATIONS: LEADERSHIP & GROWTH

In addition to complementing our housing develop-ments, shopping malls diversify ARA’s value range.

The Shopping Malls Division currently operates six

malls located in high demographic growth regions,

and which received more than 36 million visitors in

2014. This confirms that our shopping centers are lei-

sure stops and meet the needs of the population and

markets they serve.

In 2014, this business unit reported a 6.0% increase in

total revenues compared to the previous year, which,

like the Real Estate Division, surpassed the growth of

the Mexican economy. We also achieved a Net Oper-

ating Income (NOI) of $280.6 million, 6.2% more than

in 2013. We maintain a 50% share in four of the six

shopping malls, which are therefore not consolidated

into the Group’s financial statements.

At the close of 2014, our shopping centers included a

gross leasable area (GLA) of 155,532m2, in addition to

7,428m2 in unicenters and minicenters, bringing the

total GLA to 162,960m2. These malls reached a 94.2%

occupancy rate in the year.

One of the Shopping Malls Division’s strategies is to

create projects that follow new industry trends: de-

sign detail, visitor comfort and an attractive, diverse

commercial mix.

This segment maintains good growth prospects be-

cause of the strategic location of the centers. Two of

them have the potential to expand their GLA in the

medium term. The Las Americas Shopping Center, for

example, which is inside the area of influence of the

Mexico City New International Airport project.

In 2015, we will begin the second phase of construc-

tion of our seventh shopping center, Paseo Ventura,

located in the attractive commercial zone of Ecate-

pec, State of Mexico. Paseo Ventura will comple-

ment the Las Americas Shopping Mall and add

24,000m2 to the total gross leasable area, bringing

it to 180,000m2. The new shopping center will of-

fer entertainment, recreation and food areas, among

other lines.

ShoppingMalls

LAS AMERICASShopping MallState of Mexico

Page 24: Strong Foundations: Leadership & Growth

] 22 [ANNUAL AND SUSTAINABILITY REPORT 2014

Centro San Miguel Centro Las Américas Centro San Buenaventura Plaza Oasis Plaza Carey Plaza Centella Operadora

de Unicentros

Municipality or City Cuautitlán Izcalli Ecatepec Ixtapaluca Tijuana Veracruz Cuautitlán Cuautitlán, Acolman and Coacalco

State State of Mexico State of Mexico State of Mexico Baja California Veracruz State of Mexico State of Mexico

TypeCommunity Center

Regional CenterCommunity Center Community Center Community Center Community Center Strip Center

Fashion Mall Power Mall

Anchors Mega Comercial Mexicana Liverpool, Sears Walmart, SAM´S Bodega Aurrera Mega Comercial Mexicana Mega Comercial Mexicana Mega Comercial Mexicana Coppel, Bodega Aurrera Express

Sub-anchors C&A, Coppel

Sanborn's, Suburbia, C&A

Office Max, Martí, Sport City, FAMSA N/A FAMSA, Solo un Precio,

Peter Piper Pizza N/A Martí, Parisina, McDonald’s, D’Europe N/A

Cinema (# of Screens) Cinépolis (10) Cinépolis (14) N/A N/A Cinemex (9) N/A Cinepolis (10) N/A

Gross Leasable Area (GLA)All the complex (m2) 25,453 75,929 43,765 10,271 26,182 17,533 25,996 7,428

Gross Leasable Area (GLA)Propiedad ARA/Partner (m2) 25,453 47,524 14,089 10,271 26,182 17,533 14,479 7,428

Year of construction 2001 2005 2006 2007 2008 2011 2000-2010

% ARA 50% * 50% * 50% * 50% * 100% 100% 100%

* ONAPP = O’Connor North America Property Partners owns remaining 50%

LAS AMERICASShopping MallState of Mexico

Page 25: Strong Foundations: Leadership & Growth

] 23 [STRONG FOUNDATIONS: LEADERSHIP & GROWTH

Centro San Miguel Centro Las Américas Centro San Buenaventura Plaza Oasis Plaza Carey Plaza Centella Operadora

de Unicentros

Municipality or City Cuautitlán Izcalli Ecatepec Ixtapaluca Tijuana Veracruz Cuautitlán Cuautitlán, Acolman and Coacalco

State State of Mexico State of Mexico State of Mexico Baja California Veracruz State of Mexico State of Mexico

TypeCommunity Center

Regional CenterCommunity Center Community Center Community Center Community Center Strip Center

Fashion Mall Power Mall

Anchors Mega Comercial Mexicana Liverpool, Sears Walmart, SAM´S Bodega Aurrera Mega Comercial Mexicana Mega Comercial Mexicana Mega Comercial Mexicana Coppel, Bodega Aurrera Express

Sub-anchors C&A, Coppel

Sanborn's, Suburbia, C&A

Office Max, Martí, Sport City, FAMSA N/A FAMSA, Solo un Precio,

Peter Piper Pizza N/A Martí, Parisina, McDonald’s, D’Europe N/A

Cinema (# of Screens) Cinépolis (10) Cinépolis (14) N/A N/A Cinemex (9) N/A Cinepolis (10) N/A

Gross Leasable Area (GLA)All the complex (m2) 25,453 75,929 43,765 10,271 26,182 17,533 25,996 7,428

Gross Leasable Area (GLA)Propiedad ARA/Partner (m2) 25,453 47,524 14,089 10,271 26,182 17,533 14,479 7,428

Year of construction 2001 2005 2006 2007 2008 2011 2000-2010

% ARA 50% * 50% * 50% * 50% * 100% 100% 100%

Page 26: Strong Foundations: Leadership & Growth

] 24 [ANNUAL AND SUSTAINABILITY REPORT 2014

PARAÍSO COUNTRY CLUB,Morelossegment: Residential

FinancialStrength

Page 27: Strong Foundations: Leadership & Growth

] 25 [STRONG FOUNDATIONS: LEADERSHIP & GROWTH

A fundamental trait of ARA is its financial prudence, which has seen us through difficult times and set us apart during the liquidity crisis facing the public housing sector in 2013. Year after year, our strategy of being a company of high value and responsible finance has proved to be on track.

As an example of this, debt levels remain moderate and with an optimum maturity profile. Our net debt at December 31, 2014 was $1,071 million, 40% lower than that reported at the close of 2013, while cost-bearing debt was $2,147 million, 11.7% less than the previous year. Regarding the maturity profile of cost-bearing debt, 19.2% is short term and 80.8% long term, and denominated in pesos, en-abling us to avoid exchange rate losses as a result of the dollar appreciation.

Bridging loans have been a source of quick and effective financing, particularly the $1,000 million credit line with the Federal Mortgage Society (SHF), and another for $500 million with a banking institution. To date, projects have been signed for $558 million. The balance of bridging loans at the close of 2014 was $311.7 million, against only $11 million in 2013.

COLINAS DE ALTAR,Morelossegment: Middle income

Page 28: Strong Foundations: Leadership & Growth

] 26 [ANNUAL AND SUSTAINABILITY REPORT 2014

IPC

-100%

-80%

-60%

-40%

-20%

0%

20%

40%

60%

PRINCIPAL COMPETITORS IN THE MEXICAN STOCK EXCHANGECONSORCIO ARA

Similarly, our leverage ratios continue at healthy lev-

els, even below those reported in the last three years.

The net debt to EBITDA ratio stood at 1.19 times,

against 1.99 times in 2013. The cost-bearing debt to

EBITDA was 2.38 times, an annual decrease of 0.33

times, while interest coverage went from 4.37 times

in 2013 to 5.91 times in 2014.

Thus, for the ninth consecutive year the Company has

maintained the highest credit ratings for the Mexican

housing sector, “mxA” by Standard & Poor’s and “A2.

mx” by Moody´s.

Our revenues in the year were $6,206.1 million, an

increase of 8.2% compared to 2013. We reported the

generation of a record $863 million in free cash flow

for the firm, more than twice the original goal of

$400 million. It should be said that this cash flow

was achieved in a year in which 39% of our hous-

ing revenues were vertical. Cash position and cash

equivalents, meanwhile, amounted to $1,076 mil-

lion, 67.3% more than the previous year.

All of the above contributed to the 27% annual yield

per ARA* share in 2014, a particularly strong figure

when compared to the 1% of the IPC in the same

period. Cumulative yield per ARA* share since 2013,

when the housing sector’s liquidity crisis occurred,

is 57%, while the IPC in the same period has been

-1.3%.

We generated free cash flow for the firm in the amount of $863 million, a record figure

for Consorcio ARA.

Yields2013-2014

Page 29: Strong Foundations: Leadership & Growth

] 27 [STRONG FOUNDATIONS: LEADERSHIP & GROWTH

FORESTAState of Mexicosegment: Residential

Page 30: Strong Foundations: Leadership & Growth

] 28 [ANNUAL AND SUSTAINABILITY REPORT 2014

Integration, technologyand value chain

PARQUE LA GLORIAQuerétarosegment: Residential

Being a vertically integrated company affords advantages both in operating ef-ficiency and scale economy, benefitting ARA and its customers. COMACI (Con-crete, Machinery and Formwork) operates 17 ready-mixed concrete plants just outside or even inside ongoing developments, to supply ready-mixed concrete in a timely manner.

COMACI also increases quality, improves delivery times and helps sustainability, since it reduces CO2 emissions by optimizing transport.

Furthermore, in Consorcio ARA we have begun the implementation of the BIM (Building Information Modeling) System, technology that will increase our pro-ductivity, efficiency and quality. BIM enhances inter-area communication, en-ables 3D visualization of the different construction phases and simulates the performance of inputs, all with the aim of adhering to international standards and meeting the newest market requirements.

G4-12

Page 31: Strong Foundations: Leadership & Growth

] 29 [STRONG FOUNDATIONS: LEADERSHIP & GROWTH

Titling processing

Delivery

Construction

Post-saleservice

Sales

END

Procurement COMACI

BEGINNING

PurchasesProcess

management

ValueChain

Business and market

analysis

Housing and development

design

Land bank planning and purchasing

Page 32: Strong Foundations: Leadership & Growth

] 30 [ANNUAL AND SUSTAINABILITY REPORT 2014

SustainabilitySustainability

PARAISO COUNTRY CLUBMorelos

Page 33: Strong Foundations: Leadership & Growth

] 31 [STRONG FOUNDATIONS: LEADERSHIP & GROWTH

Stakeholder Groups

G4-24, G4-25 Consorcio ARA maintains produc-

tive, long-term relationships with our stakeholder

groups: employees, customers, suppliers, sharehold-

ers, community and authorities in the different lev-

els of government. These relationships are based on

respect, transparency and the behavior established in

our Code of Conduct and Ethics at Work.

G4-26 We use a number of mechanisms to inter-

act with our stakeholders, such as the contact line

(01800 0220581) and the customer services line

LineARA (01800 5463272), quarterly telephone con-

ferences with our shareholders and internal e-mail,

among others. We also have profiles on Facebook and

Youtube.

Economic Dimension

G4-EC1 Housing is a key driver of development in

the Mexican economy, as its contribution of 5.9% to

GDP in 20121 shows. Consorcio ARA is one of the sec-

tor’s leading players and the economic value it gener-

ated and distributed in 2014 can be seen in the Con-

solidated Financial Statements.

1 Source: Satellite housing account in Mexico, INEGI

G4-EC4 G4-SO6, G4-SO7, G4-SO8 Consorcio

ARA made no contributions to political parties or re-

ceived any financial help from the government. The

Company did not receive any complaints of monopo-

listic or anti-competitive practices, or incur any pen-

alties for breach of regulations.

G4-EC6, G4-EC7, G4-EC9 Most of our suppliers

are domestic and we make our purchases centrally. In

the plants. In the same way, all our senior executives

are Mexican and as far as possible have experience in

the locations where they work.

Environmental Dimension

For Consorcio ARA, protection of the environment

is a priority. We work to ensure that our production

processes are eco-friendly and comply with the ap-

plicable environmental legislation.

Energy and Sustainable Housing

G4-EC2, G4-EN7, G4-EN19, G4-EN27 The IN-

FONAVIT Green Mortgage program seeks to promote

sustainability in housing developments. The scheme

grants eligible borrowers an additional amount to pur-

Sustainability in Consorcio ARA consists of aligning environmental performance, community quality of life and employee wellbeing to the financial and operating performance of the Company.

Page 34: Strong Foundations: Leadership & Growth

] 32 [ANNUAL AND SUSTAINABILITY REPORT 2014

chase housing with eco-techniques, which optimize

water and energy consumption and reduce CO2 emis-

sions. ARA applied a total of 7,125 green mortgages

during 2014, which yielded savings of 5,486 ton of CO2.

Description 2014 2013Solar heaters 805 1,627

Water heaters 8,872 9,225

Energy-saving bulbs 77,537 79,072

Mixer/single lever faucets 25,567 27,886

Water purifiers 6,557 6,887

Econ. and residential ecological toilets 16,275 16,199

Water-saving showers 14,677 4,301

In addition to their environmental advantages, eco-

techniques contribute to the household economy and

generate savings of between $100 and $400[2] by re-

ducing water and energy consumption.

To further enhance the quality of life of our home-

owners, we afford our housing developments the in-

frastructure and utilities that increase the value of

their homes, including:

Infrastructure 2014 Units / Extension (m2)

School classrooms 29

Community gardens 9,026m2

Sports area 16,821m2

Urbanization 610,366m2

Materials, Water, Biodiversity and Waste

G4-EN1, G4-EN2 In 2014, we consumed around

445,000m3 of concrete, 12,429 tons of steel, and 3

million m2 of electrowelded wire mesh, which are

the materials most used in housing construction.

We do not use recycled materials in our building

processes.

G4-EN9 G4-EN10 Aware of the importance and

vulnerability of water, we have launched specific ac-

tions to protect it, such as the eco-techniques and

treatment plants we provide in our developments,

which are located so as not to affect any primary

water source.

In 2014 we built 32 hydraulic infrastructure works,

such as treatment plants, water purification plants,

pumping sumps and elevated tanks, among others.

G4-EN11 Our developments, shopping centers and

entire land bank are located outside protected or high

biodiversity areas.

G4-EN22, G4-EN23, G4-EN24, G4-EN25, G4-

26, G4-EN29 In 2014, no waste was transported or

managed nor were there any sewage spills. We did

not incur any significant environmental fines or pen-

alties.

G4-EN30 We have four personnel transport routes

used by 164 employees and which covered more than

50,000 km in 2014. Similarly, the COMACI plants are

located close to our developments to further reduce

environmental impact from transportation.

G4-EN31 In 2014, Consorcio ARA allocated a total

investment of $54 million into environmental tech-

nologies (like eco-techniques).

G4-EN32, G4-LA14, G4-HR4, G4-HR10, G4-

SO9 Although Consorcio ARA has not investigated

the environmental, labor, social or human rights

practices of its suppliers, we strive to incorporate our

vision of sustainability throughout our value chain.

Social Dimension

For Consorcio ARA, our social responsibility consists

of providing excellent working conditions for our em-

ployees on the inside, and contributing to the well-

being of the communities we come into contact with

on the outside.

[2] [3] Source: INFONAVIT

7,125 green

mortgages applied in

2014

Page 35: Strong Foundations: Leadership & Growth

] 33 [STRONG FOUNDATIONS: LEADERSHIP & GROWTH

LAS MISIONES,State of Mexico

PASEO DE LOS SAUCES,Puebla

CITARA,State of Mexico

COLINAS DE ALTAR,Morelos

Page 36: Strong Foundations: Leadership & Growth

] 34 [ANNUAL AND SUSTAINABILITY REPORT 2014

Human Capital

In Consorcio ARA we are convinced that the commit-

ment of our employees translates into the quality of

our products and services, and so we encourage their

personal and professional growth in a respectful and

safe environment that allows them to develop their

potential to the full.

Employment

G4-9, G4-10, G4-11, G4-LA1, G4-HR4 Al-

though we recognize and respect the right of every

worker to belong to the union of his or her choice,

none of our workforce is unionized or attached to

collective bargaining agreements. We ended 2014

with 802 employees in the Housing Division, distrib-

uted as follows:

G4-LA2, G4-EC3, G4-EC5 Consorcio ARA pays

its workers at least four times the current minimum

wage and provides allowances and benefits above the

requirements of the law:

- Thirty days’ annual bonus

- Vacation bonus

- Savings fund

- Punctuality and attendance bonus

- Arrangements with restaurants

- Personnel transport

- Arrangements with businesses for worker dis-

counts

G4-LA4 Due to the nature of its activities, Consorcio

ARA is unable to provide its employees a minimum

period of notice prior to organizational changes.

G4-LA3 During the year, fifteen of our 306 employ-

ees enjoyed a total of 983 days’ maternity leave, and

all were given the opportunity to return to work at

the end of their leave. In addition, one employee exer-

cised his right to paternity leave, at the end of which

he returned to his activities.

As part of our efforts to provide a collaborative,

pleasant working environment, we launched the

Quiniel-ARA competitions and the bowling tourna-

ment, activities that helped to create harmony in the

work centers and which drew the participation of 142

employees.

G4-LA16 Twelve work-related complaints were re-

ceived in 2014, of which nine were admissible.

By Age

By Gender

By service time

Under 18 0From 18.1 to 25 years 24From 26 to 30 years 125From 31 to 40 years 342From 41 to 50 years 229From 51 to 60 years 66Over 61 years 16

Total 802

Under 1 188 From 1 to 3 163 From 3.1 to 5 122 From 5.1 to 10 175 From 10.1 to 20 134 More than 20.1 20

Total 802

3%

16%

43%

62%38%

20%

15%

22%

17%

2%

29%

8%

2%

Female 306Male 496

Total 802

23%

Page 37: Strong Foundations: Leadership & Growth

] 35 [STRONG FOUNDATIONS: LEADERSHIP & GROWTH

Training

We encourage the ongoing training and development

of our employees to ensure they have the skills they

need to properly perform their activities. For this rea-

son we implement training programs across all levels

of the Company.

G4-LA9, G4-LA10 In this way, as part of the broad

range of professional training we offer, both in-per-

son and distance, our employees received a total of

14,629 man-hours of training on topics including:

- Induction: new intakes and sales consultants.

- Housing loans.

- Development plans for management personnel.

- Situational Leadership Fundamentals

- Technical topics for staff.

It should be noted that 124 sales consultants met the

performance criteria in housing loans and were certi-

fied under the ECO458 standard.

G4-52, G4-LA11 We are certain that measuring

the performance of our personnel helps to ensure the

ongoing improvement of their duties. Thus, in 2014,

we performed a total of 3,120 quarterly evaluations

on our employees across all areas.

Diversity and Equal Opportunities

G4-LA12, LA13 Consorcio ARA recognizes and

enforces gender equality across-the-board, including

wages, hiring, training, development and promotions.

Female personnel occupy 23% of all managerial and

executive positions.

Furthermore, 34 employees were promoted during

the year and 33 others received salary adjustments.

Health and Safety

Our occupational safety strategy is based on shared re-

sponsibility between the Company and employees, and

so we promote a safety culture focused on prevention.

G4-LA5 A vital piece of this approach is the ARA

Brigade, which is made up of 45 brigade members

whose aim is to disseminate self-protection mea-

sures, encourage personnel to participate in accident

prevention and occupational risk management, and

respond in a timely manner to any event that threat-

ens the continuity of the business. The ARA Brigade

organized a building evacuation course in which 28

employees participated.

124employees certified under the ECO458 standard

Page 38: Strong Foundations: Leadership & Growth

] 36 [ANNUAL AND SUSTAINABILITY REPORT 2014

Briefings were held which were attended by 235

employees, a desk drill with 205 participants and

a mock evacuation with 213 employees.

G4-LA5, We have disease prevention and

healthcare programs for our employees. Our en-

tire workforce is registered with the Mexican So-

cial Security Institute (IMSS).

G4-LA6 A total of thirteen accidents were re-

ported during the year, six of which were on the

way to work. However, we achieved another year

without fatalities in our operations.

Human Rights

G4-HR3, G4-HR5, G4-HR6, G4-HR8,

G4-HR12 The Company does not employ people

who are under-age and none of our employees

works with us against their will. There were no re-

ports of incidents or grievances related to discrim-

ination or violation of human rights or indigenous

rights during the year.

Product Responsibility

G4-PR2, G4-PR7 Our developments meet all

current regulations in terms of urban develop-

ment and housing both in design and construc-

tion. During 2014, there were no incidents of

non-compliance with advertising or marketing

regulations.

G4-PR8, G4-PR9 Consorcio ARA protects the

personal data of its customers in accordance with

the Federal Law on the Protection of Personal

Data Held by Private Parties, and no significant

complaints were received in this regard.

Customer Service

In Consorcio ARA we seek to build long-term

relationships with our customers and so their

satisfaction is our priority. Our Customer Service

team provides information and attention to en-

sure that new residents get to know the ameni-

ties and services and become familiar with the

development where they will live, so they can

enjoy it to the full.

In 2014, we created “LineARA” (01 800 5463272),

a telephone service through which homeowners

can inquire about the delivery of their home,

Customer Service

PASEO DE LOS SAUCES,Puebla

Page 39: Strong Foundations: Leadership & Growth

] 37 [STRONG FOUNDATIONS: LEADERSHIP & GROWTH

make a report to validate its warranty, ask about

neighborhood events and in general, use it for

suggestions, questions or complaints. Also, to

maintain proximity to current and potential

customers, we directed significant efforts to our

Facebook page: www.facebook.com/ARAContigo,

which at the end of 2014 had 45,000 followers.

In addition to housing quality, one of the most

important factors for homeowners is the proper

functioning of the development and its contribu-

tion to the urban image. “ARA Community” is an

area whose aim is to promote good neighborhood

organization to enhance the value and quality of

life of every home in our developments.

To this end, thirty of our fifty-eight Customer

Service executives have been trained and certi-

fied as “Neighborhood Promoters” by the Com-

petency Standardization and Certification Coun-

cil (CONOCER), under the competency standard

“Consulting for Neighborhood Organization in

Housing Areas.”

G4-SO1 During the year, we held 43 integration

events that generated 65,980 positive impacts for

families within our housing developments:

Actions Description Positive Impacts(people benefitted)

Cultural and Integration

23 integration events nationwide, such as the Day of Kings, Children’s Day, Mother’s Day, Mexican nights, Day of the Dead and Christmas posadas, among others.

4,600

Sports Karate and Zumba classes and a Mini Marathon. 600

Security Proximity Policing Program, with workshops on theft prevention and security. 200

Health Five conferences on health and vaccination. 1,000

Environment and Rescue of Spaces

- Four clean-up days. - Painting and Maintenance events. - Two Fumigations. - “Water Care” workshop

50,888

Reforestations - Reforestation of 1,000 White Cedar trees. - Planting of 150 trees: 40 Acacia, 40 Pirul and 40 Palm, 20 Olneya and 10 Mesquite.

8,692

65,980

Neighborhood Meetings

In 2014, 237 neighborhood meetings - assemblies

were held and we delivered 140 condominiums.

We these actions we generate communities that

learn to self-manage and to manage the tools

that help them to improve their environment and

quality of life.

Page 40: Strong Foundations: Leadership & Growth

] 38 [ANNUAL AND SUSTAINABILITY REPORT 2014

ARAFoundation

Page 41: Strong Foundations: Leadership & Growth

] 39 [STRONG FOUNDATIONS: LEADERSHIP & GROWTH

The balance between good operational and economic performance and equally solid environmental and social practices is one of Consorticio ARA’s great strengths.

G4-15 So, for the ninth consecutive year, the Mexican Philanthropy Center (CEMEFI) awarded Consorcio ARA the distinction of Socially Responsible Company, under more rigorous standards and with the delivery of more detailed information, while for the second year in a row PRONA-TURA México A.C. recognized our efforts towards nature conservation.

G4-16 The ARA Foundation (the Foundation) helps the country’s most vulnerable sectors and contributes to the care of the environment through projects to mitigate or offset its environmen-tal footprint.

G4-SO1 In 2014, the Foundation and its allies carried out more than 521,852 actions to benefit more than 1.6 million people. Through strategic partnerships we strengthened ties with compa-nies, foundations, associations, governments and society to raise the quality of life of Mexicans with construction, urban improvement, educational, health, environmental and volunteer projects.

Mission: To provide development opportunities to raise the quality of life of Mexicans.

Vision: For Consorcio ARA, through its Foundation, to be recognized as the construction company doing the most social work.

Values: • Respect• Service• Transparency• Integrity • Loyalty

Page 42: Strong Foundations: Leadership & Growth

] 40 [ANNUAL AND SUSTAINABILITY REPORT 2014

In addition, we work to achieve our objectives to:

i) be a Foundation of partnerships, with our em-

ployees and our society; ii) be a Foundation with

clear and transparent financial operations; iii),

deliver quality homes, contributing to the con-

servation of the environment and the life of the

community; iv) support communities through

programs that provide vision aids, training and

development, scholarships and improvements to

urban, housing and educational infrastructure,

and v) support families affected by natural di-

sasters.

1. HabitARA For a decent home

Every family in Mexico has the right to a decent

home. The Foundation and its partners have cre-

ated quality projects to generate lasting proper-

ties to benefit ever more Mexican families.

a. Partnerships That Build

As an important part of the PROVIVAH Fund,

3,824 homes were built in 2014 to benefit

more than 19,100 people, with an invest-

ment of $865 million. In particular, during

the year homes were delivered to victims of

Hurricane Manuel in Guerrero in collabora-

tion with the DIF Nacional, the Anahuac Uni-

versity and the United for Them (Unidos por

Ellos) partnership.

These actions bring the total number of homes

to 23,477 benefitting 117,380 people over the

course of nine years.

b. Urban Heart

The Urban Heart (Corazón Urbano) partner-

ship trained more than 3,600 people in trades

such as painter, weather proofer and plas-

terers. With a total investment of $360 mil-

lion, we painted 72,004 façades altogether in

twenty-one states and Mexico City.

With PEMEX’s involvement in Urban Heart

since 2014, we have been able to extend the

benefit to the country’s oil states and zones.

2. EducARA For a Better Future

The high rate of children who abandon school

because of lack of resources leads to delinquen-

cy and hinders the country’s progress. To fight

3,824homes built,PROVIVAH

Trust

for the benefitof over

19 thousandpeople

Page 43: Strong Foundations: Leadership & Growth

] 41 [STRONG FOUNDATIONS: LEADERSHIP & GROWTH

this phenomenon we created partnerships that

support education, and have joined the National

Program for the Social Prevention of Violence

and Crime to further the development of Mexi-

can children.

a. Just raise your hand

For the fourth consecutive year our partner-

ship with HSBC México and Fundación Lazos

achieved its goal to reach 34 schools and 26

states. In these four years some 5,593 chil-

dren have benefitted, with the contribution of

11,334 voluntary man-hours and an invest-

ment of $64.9 million.

b. See Well to Learn Better

With this program we have been able to

change the future of twenty-five children ev-

ery half hour, by delivering 438,329 pairs of

eyeglasses in partnership with the See Well to

Learn Better Trust Fund.

Between 2013 and 2014, the Ministries of the

Interior, Education and Health and the Inte-

grated Family Development (DIF) system in

the framework of the PreVer program (part of

the National Program for the Social Preven-

tion of Violence and Crime) have joined the

effort to provide free eyewear to all elemen-

tary school children who need them.

With the participation of 131 municipalities

and 5 delegations in 31 states and Mexico City,

during the 2013-2014 school season a team

of optometrists tested more than 1.2 million

children with an investment of $657.4 million.

c. Ethical and Sustainable Leaders to

Antarctica

The Directorate General of Innovation and

Academic Strengthening (DGIFA) of the Fed-

eral Administration of Educational Services

in Mexico City (AFSEDF) and the Karla Whee-

lock Foundation launched the Fourth Invita-

tion to public high school students in Mexico

City to participate in the contest “Ethical and

Sustainable Leaders to Antarctica,” consist-

ing of the development and operation of

sustainable projects.

The prize awarded to these young people was

an experience in the Antarctic led by moun-

438,329glasses given

to 1.2 million children evaluated under the See Well to Learn Better program

34schools in 26 states

5,593 children sponsored

Page 44: Strong Foundations: Leadership & Growth

] 42 [ANNUAL AND SUSTAINABILITY REPORT 2014

taineer Karla Wheelock. The support from

the ARA Foundation consisted of a $163,000

grant for one of the winners.

d. Virtual Vaccine

Together with the Vizcarra Foundation,

$240,000 was contributed to the develop-

ment of the “Virtual Vaccine” project, a digi-

tal application aimed at children from six to

twelve years that will be a friendly, didactic

tool to help prevent addictions.

3. ARA Community We want a great fu-

ture for all.

a. I Volunteer

For Children’s Day and with the participation

of Consorcio ARA personnel, more than 1,740

toys were collected for children in twelve pe-

diatric hospitals in Mexico City.

A partnership with the Government of the

Interior and VIRAL as part of the National

Program for the Prevention of Violence and

Crime seeks to integrate communities and

rescue public spaces in the Tepito neighbor-

hood to improve the family life and quality of

life of its residents.

b. Summer Telethon and Campaign 2014

The Foundation participated in the Summer

Telethon through events attended by 400

children and more than 210 volunteers, in

addition to in-kind donations from compa-

nies partnered with our Foundation. Con-

sorcio ARA personnel made their donation

to the annual national Telethon collection

through the “ARA Foundation Digital Piggy-

bank.”

c. Health Rally

The Board of Communication organized the

family day race and CONFE held the “Run for

You and Walk with Me” race, with the partici-

pation of people with different abilities.

d. Area Rehabilitation Project

This project aims to rehabilitate public and

private areas through paint donations. In

2014, the following institutions were helped:

- Instituto José David A.C. in Chihuahua.

- The Tres Piedritas shelter, together with

the Checo Pérez Foundation in Zapopan,

Jalisco.

- Asociación Nuestro Hogar for three shel-

ters for abandoned children in Mexico City.

- DIF Huehuetoca for the rehabilitation of

the Women’s Clinic.

- Restoration of various areas in Casa de la

Amistad para Niños con Cáncer.

e. Sale of Products with a Cause

The ARA Boutique sold more than 1,700 Prod-

ucts with a Cause among our employees, in col-

laboration with the Friendship Home for Chil-

dren with Cancer, CONFE, KADIMA, Chunches

and the Checo Pérez Foundation. The resources

obtained are used to provide employment to

young people with different abilities, treatment

for children with cancer and care for aban-

doned children in shelters in Jalisco.

4. SustentARA for our world.

The partnership between the ARA Foundation and

PRONATURA is vital to our objective of achieving

optimal environmental development in our op-

erations. Our key lines of action are:

- Improved process efficiency.

- Saving and optimization of materials and

natural resources.

400children

and over

210volunteers

participated in the Telethon Summer

activities

Page 45: Strong Foundations: Leadership & Growth

] 43 [STRONG FOUNDATIONS: LEADERSHIP & GROWTH

- Prevention, control and mitigation of emis-

sions and waste.

- Compliance with environmental regulations.

G4-EN13 Regarding environmental investment,

we have supported three important projects: the

rehabilitation of mangroves with the non-profit

organization Flora, Fauna y Cultura de México; the

natural resources conservation project of the Izta

Popo national park; and the recycling program of

Consorcio ARA’s corporate offices. These efforts

have the following objectives:

• CLIMATE CHANGE

To promote greater environmental responsi-

bility that allows us to reduce greenhouse gas

emissions.

• WATER

To raise awareness among our employees on

the use of water through technology.

• BIODIVERSITY

To offset the negative impact of our opera-

tions; recycle and utilize waste; promote pro-

grams to conserve our natural and cultural

heritage; and conserve our ecosystem.

a. Corporate Sustainability Standard

The Diagnosis of Environmental Performance

was performed in conjunction with PRONA-

TURA to identify improvement opportunities

to offset negative impacts on nature and

reduce energy and water consumption and

waste generation.

In 2014, we reached our goal of having a

“Green Purchasing Manual” with which we

are able to quantify the technologies, savings

and benefits of the inputs we use.

G4-15 From the results of this diagnosis,

PRONATURA granted Consorcio ARA the Cor-

porate Sustainability Standard of “Satisfac-

tory” for the second consecutive year.

CITARA,State of Mexico

1,700products with a cause sold

over 6 civil organizations beneffited

Page 46: Strong Foundations: Leadership & Growth

] 44 [ANNUAL AND SUSTAINABILITY REPORT 2014

b. Mangrove rehabilitation

G4-EN12 During 2013 and 2014 the resourc-

es given by the Foundation and its allies to the

Mangrove Rehabilitation Program of the Flora,

Fauna y Cultura de México civil association,

resulted in the rehabilitation of 64.48 hectares

of mangrove with 360,000 red and botoncillo

mangroves in Quintana Roo, the elimination of

the invading species casuarina equisetifolia in

2,403 trees, and the training and employment

of over 30 people, among other actions.

c. Conservation of natural resources in

the Izta Popo National Park

In partnership with PRONATURA, the Founda-

tion aims to preserve 10 damaged hectares,

monitor the development of the plantings

made, estimate the potential capture of CO2

from those hectares and estimate the volume

of surface water they provide. This will help to

preserve the biodiversity of native and en-

demic species of the volcano region.

d. Recycling campaign

G4-EN6 A recycling and waste management

campaign was implemented in the corporate

offices of Consorcio ARA, in conjunction with

Recupera recycling centers. We advocate recy-

cling to reduce the use of natural resources and

generate alternative energies to mitigate eco-

logical harm. In 2014 we managed to collect:

- 2,653 kilos of different types of paper

- 141 kilos of PET

- 37 kilos of aluminum cans

- 362 kilos of cardboard

Action Total Comment / Conversion

44 Trees from being felled to make new paper.

65,754 Liters of water that would be used to make new paper; the equivalent of leaving a shower running for almost 56 hours.

7 Kilos of aluminum, enough to keep a 60 watt bulb lit for 2.3 months.

349 Kilos of plastic PET bottles, enough to manufacture 3,629 extra-large textile fiber shirts.

2,529Kilos of paper and cardboard that contributed to not using 10,368.9 kw to manufacture virgin fiber paper, enough to supply electricity to an average home for 2.42 years.

We would like to thank our partners:

Companies 3e de México, Alltournative, ANTAD, CANADEVI, Cementos Moctezuma, CEMEX, Cinépolis, COMEX, Costco de México, FTP, Galia Moss, HSBC México, Office Depot, Universidad Anáhuac,

Vitromex de Norte América Construcción, Volaris, Walmart de México, Kenworth Metropolitanos, Grupo Industrial de Poliestireno, Protección Anticorrosiva de Cuautitlán, Shunko Technology,

Cocinas Ferreti, Industrias Ridolfi.

NGOsBécalos, Casa de la Amistad para niños con Cáncer, Centro Mexicano para la Filantropía, CENACED, Chunches, Comité de Ayuda en casos de Emergencias Nacionales, Consejo de la

Comunicación, Corazón Urbano, Cruz Roja de México, Fideicomiso PROVIVAH, Fideicomiso Ver Bien para Aprender Mejor, Flora, Fauna y Cultura de México, Fundación Audios, Fundación

Chedraui, Fundación Chrysler, Fundación COMEX, Fundación Gonzalo Río Arronte, Fundacion Karla Wheelock, Fundación Lazos, Fundación Telefónica, Fundación TELETÓN, Fundación Te-

levisa, Fundación Vizcarra, Inclúyeme, KADIMA, Nacional Monte de Piedad, PRONATURA, Recupera Centros de Reciclaje, UNICEF, UNIRED, CONFE, Instituto José David, Fundación Checo

Pérez, Asociación Nuestro Hogar ANAR.

GovernmentCONAVI, Iztacalco delegation, DIF of the State of Mexico, FONHAPO, the State Governments of Baja California Norte, Baja California Sur, Chiapas, Chihuahua, Coahuila, Colima, Distrito

Federal, State of Mexico, Guanajuato, Guerrero, Hidalgo, Jalisco, Michoacán, Morelos, Puebla, Quintana Roo, Sonora, Tabasco, Tamaulipas, Yucatán, the municipalities of Cozumel, Ecatepec,

El Marqués, Huehuetoca, Naucalpan, Pachuca, Tlajomulco de Zúñiga, Zapopan, Office of the First Lady of Mexico, Ministry of Public Education and its State Delegations, Ministry of Health of

the Federal Government, Ministry of Health of the Government of Mexico City, National System for Integrated Family Development (DIF Nacional), Ministry of the Interior, Under-Ministry of

Prevention and Citizen Engagement of SEGOB, PEMEX.

64restored

hectares in Quintana Roo

with 360,000 red and botoncillo

mangrove plants

Visit our 2014 Annual Report at: www.fundacionara.org.mx

Page 47: Strong Foundations: Leadership & Growth

] 45 [strong foundations: leadership & growth

EX-HACIENDA SANTA INÉS,State of Mexico

PASEO DE LOS SAUCES, Puebla

Page 48: Strong Foundations: Leadership & Growth

] 46 [ANNUAL AND SUSTAINABILITY REPORT 2014

CorporateGovernanceCorporateCorporateGovernanceCorporateGovernanceCorporate

COLINAS DE ALTARMorelossegment: Middle income

Page 49: Strong Foundations: Leadership & Growth

] 47 [STRONG FOUNDATIONS: LEADERSHIP & GROWTH

Solid Corporate Governance practices are a pillar of Consorcio ARA’s leadership.

G4-34 The Board of Directors of Consorcio ARA meets four times a year, in accordance with the provi-

sions of the Securities Market Law (LMV for its Spanish acronym) and the Company’s bylaws. In 2014,

the attendance at those meetings was 95%.

G4-39 The Chairman of the Board is also the CEO of the Housing Division.

G4-38 The Board has eleven members, all men (one woman acts as an alternate). Eight of the mem-

bers are independent, well above that established by the LMV. The length of service of Board members

is given below:

Length of Service in YearsAs of Dec 31, 2014

Germán Ahumada Russek 26 Chairman

Luis Felipe Ahumada Russek 26 Vice Chairman

Germán Ahumada Alduncin 11 Vice Chairman

Pedro Alonso Angulo 11 Board Member

Luis Ramón Carazo Preciado 11 Board Member

Roberto Danel Díaz 11 Board Member

Félix Gavito Marco 19 Board Member

Francisco Javier Lomelín Anaya 7 Board Member

Andrés Massieu Berlanga 16 Board Member

Ricardo Paullada Nevarez 1 Board Member

Raúl Robledo Tovi 8 months Board Member

Page 50: Strong Foundations: Leadership & Growth

] 48 [ANNUAL AND SUSTAINABILITY REPORT 2014

G4-40, G4-41, G4-51 To select its independent mem-

bers, the Board of Directors considers experience, capa-

bility, professional prestige and absence of conflicts of

interest in the performance of their duties. The appoint-

ment and endorsement of the members is subject to the

approval of the Meeting of Shareholders, and their remu-

neration is described in the Company’s Financial State-

ments. All the Board Members have a proven track record

and expertise in strategic topics for Consorcio ARA, such

as housing, finance and corporate governance.

G4-34, G4-42 The Board has an Audit Committee and

a Corporate Practices Committee, presided over by Félix

Gavito Marco and Roberto Danel Díaz, both of whom are

independent Board Members.

The responsibilities of the Audit Committee are: to dis-

cuss the Company’s financial statements; monitor the

internal control system; evaluate the performance of

external auditors; report on internal audit functions;

inform the Board of any irregularities of which it be-

comes aware; receive and analyze the comments and

observations made by the shareholders, Board members

and executive officers; and other powers under the Se-

curities Market Law.

G4-51, G4-52 Among the activities of the Corporate

Practices Committee are to deliver an opinion on the

policies and guidelines for the use of Company assets by

related parties, and the evaluation and compensation of

the CEO and senior officers.

G4-46 It should be mentioned that from 2014, the ac-

tivities of the Planning and Finance Committee were ab-

sorbed by the Corporate Practices Committee, which to-

day also oversees the policies and practices of Consorcio

ARA in matters of finance, provides a strategic overview

to ensure its stability and permanence and is responsible

for risk management.

G4-45 The Board of Directors advises about risks,

manages impacts and evaluates the economic oppor-

tunities for the Company through the Annual Report

that is presented in accordance with the general pro-

visions applicable to Securities Issuers and other Se-

curities Market participants, for the fiscal year ending

December 31, 2014.

G4-35, G4-36, G4-47 The Consorcio ARA manage-

ment team interacts with the committees at least once a

quarter to review issues relevant to the Company.

Page 51: Strong Foundations: Leadership & Growth

] 49 [STRONG FOUNDATIONS: LEADERSHIP & GROWTH

G4-15 Since 2003, Consorcio ARA has adhered to the

Code of Best Corporate Practices issued by the Business

Coordinating Council, and reports its compliance annu-

ally to the Mexican Stock Exchange through the Best Cor-

porate Practices Questionnaire.

G4-SO8 In 2014, Consorcio ARA did not incur any pen-

alties or significant fines resulting from non-compliance

with laws and regulations.

Code of Conduct and Ethics

G4-56, G4-SO4 The Code of Conduct and Ethics fol-

lows our values of Honesty, Commitment, Responsibility

and Quality, and regulates the ethical behavior that en-

sures integrity and transparency in all our actions. It can

be seen at: www.consorcioara.com.mx

In 2014, a nationwide awareness campaign of the Code

was launched to enable our employees to know, under-

stand and apply these criteria in their personal, family

and corporate life.

G4-34, G4-37, G4-57, G4-58, G4-LA16 The ARA

Advisory and Reporting System includes the ARA Con-

fidential Hotline which is available to our stakeholder

groups to report any violation of the Code of Ethics:

- Metropolitan area: 5251 7489

- Interior of the Republic: 01800 823 07 22

- E-mail [email protected]

From 2012 to date, the number of grievances received

and dealt with were as follows:

Year Num. of Grievances2014 25

2013 37

2012 34

G4-49, G4-50, The most frequent topics were re-

ported to the Board of Directors. Of the 25 grievances

received in 2014, 20 were investigated, and their resolu-

tion ranged from reprimands to final dismissal (in the

case of corruption).

G4-EN34, G4-LA16, G4-HR3, G4-HR12, G4-SO5,

G4-SO11 During the year, no complaints were received

on environmental issues, discrimination, human rights

violations or claims about social impacts.

Page 52: Strong Foundations: Leadership & Growth

] 50 [ANNUAL AND SUSTAINABILITY REPORT 2014

Board ofDirectorsThe members of the Board of Directors and the presidents of the auxiliar

committees for 2015, will be appointed or ratified at the Ordinary

Shareholders’ Meeting on April 27, 2015

• Independent Board member Related Board member Owner Board member

COMMITTEE NAME POSITION ALTERNATE

Germán Ahumada Russek chairman Miguel Lozano Guillermo Pardinas

Luis Felipe Ahumada Russek vice chairman Guillermo Alberto Riveroll López

Germán Ahumada Alduncin vice chairman J. Sacramento Soto Solís

P Pedro Alonso Angulo• board member María Cristina Hernández Trejo•

P Luis Ramón Carazo Preciado• board member Eugenio Riveroll Picazo•

A y P Roberto Danel Díaz• board member Manuel Gutiérrez García•

A y P Ricardo Paullada Nevárez• board member Alfredo Sánchez Torrado•

A Félix Gavito Marco• board member Lorenzo Lucas Sánchez•

Francisco Javier Lomelín Anaya• board member Carlos Hernández Magallanes•

A Y P Andrés Massieu Berlanga• board member Alejandro C. Álvarez Certucha•

P Raúl Robledo Tovi• board member José Alberto Flores Athié•

Ricardo Maldonado Yáñez secretary

Lorenza K. Langarica O’hea pro-secretary

A: AuditP: Corporate Practices

Page 53: Strong Foundations: Leadership & Growth

] 51 [STRONG FOUNDATIONS: LEADERSHIP & GROWTH

CorporateDirectors

Germán Ahumada Russek | CHIEF EXECUTIVE OFFICER, HOUSING DIVISION

Luis Felipe Ahumada Russek | CHIEF EXECUTIVE OFFICER, SHOPPING MALLS DIVISION

Housing Division

Gabriel Altamirano Hernández | GOVERNMENT RELATIONS DIRECTOR AND ARA FOUNDATION

Alicia Enriquez Pimentel | INVESTOR RELATIONS DIRECTOR

Martín Guevara Hernández | BUSINESS DEVELOPMENT DIRECTOR

Carlos López Pérez | INTERNAL AUDIT DIRECTOR

Miguel Lozano Pardinas | OPERATIONS DIRECTOR

Edgar Martínez Chavolla | PROJECT DIRECTOR

J. Sacramento Soto Solís | FINANCIAL AND HUMAN RESOURCES DIRECTOR

Rodolfo Trujillo Mondragón | LEGAL DIRECTOR

Regional Commercial Directors |Housing Division

Carlos Ávila Viveros | STATE OF MEXICO | BAJÍO

State of Mexico, Guanajuato, Hidalgo, Querétaro

Fernando Calderón Nava | MEXICO CITY

Carlos Falcón Pimienta | EAST Puebla, Veracruz

Ricardo Martínez Hernández | CENTER | SOUTH Guerrero, Morelos, Quintana Roo

Eduardo Ordaz de la Fuente | RIALTA | NORTH | WEST Baja California, Chihuahua, State of Mexico, Jalisco, Morelos, Nayarit, Nuevo León,

Sinaloa, Sonora, Tamaulipas

Page 54: Strong Foundations: Leadership & Growth

] 52 [annual and sustainability report 2014

CLUB HOUSE, PARAÍSO COUNTRY CLUBMorelos

Page 55: Strong Foundations: Leadership & Growth

] 53 [STRONG FOUNDATIONS: LEADERSHIP & GROWTH

About thisReport

G4-28, G4-29, G4-30, G4-32 This is our third annual sustainability report; it was prepared in accordance with the G4 guidelines of the Global Reporting Initia-tive (GRI), in its essential core and covers the 2014 fiscal year. For more information about our Company, its operative and financial performance, and previous annual reports in electronic formats, please refer to: www.consorcioara.com.mx

G4-17, G4-20 This report covers all the operations of Consorcio ARA and those subsidiaries under our control or over which we exercise significant influence, and communicates in an open, objective and transparent manner the major develop-ments, challenges and areas of opportunity in sustainability issues which we con-sider priorities.

G4-18, G4-19 The material issues for Consorcio ARA were defined through an analysis of the key sustainability issues facing the sector in which we participate, as detailed in the preceding chapters.

G4-48 The Investor Relations Department is the area responsible for reviewing and approving this financial and sustainability report.

G4-22, G4-23 The information presented on sustainability has not been reformu-lated, nor has its coverage and scope changed compared to previous reports.

G4-31, G4-33 This sustainability report has not been audited by an independent third party. Any comment related to this report should be directed to [email protected].

The Company does not have information available regarding the G4 indicators that are not answered in this Report.

Page 56: Strong Foundations: Leadership & Growth

] 54 [ANNUAL AND SUSTAINABILITY REPORT 2014

GRI Index

GENERAL BASIC CONTENTS

Indicator Page

Strategy and Analysis

G4-1 10

G4-2 10

Organizational Profile

G4-3 55

G4-4 18

G4-5 8

G4-6 8

G4-7 55

G4-8 8

G4-9 5, 34

G4-10 34

G4-11 34

G4-12 28

G4-15 39, 43, 49

G4-16 39

Material Aspects and Boundaries

G4-17 52

G4-18 52

G4-19 52

G4-20 52

G4-22 52

G4-23 52

Stakeholder Engagement

G4-24 31

G4-25 31

G4-26 31

Report Profile

G4-28 52

G4-29 52

G4-30 52

G4-31 52

G4-32 52, 53

G4-33 52

G4-32

Indicator Page

Governance

G4-34 47, 48, 49

G4-35 48

G4-36 48

G4-37 49

G4-38 47

G4-39 47

G4-40 48

G4-41 48

G4-42 48

G4-45 48

G4-46 48

G4-47 48

G4-48 52

G4-49 49

G4-50 49

G4-51 48

G4-52 35, 48

Ethics and Integrity

G4-56 49

G4-57 49

G4-58 49

Economic Performance

G4-EC1 31

G4-EC2 31

G4-EC3 34

G4-EC4 31

G4-EC5 34

G4-EC6 31

G4-EC7 31

G4-EC9 31

Environment

G4-EN1 32

G4-EN2 32

Page 57: Strong Foundations: Leadership & Growth

] 55 [STRONG FOUNDATIONS: LEADERSHIP & GROWTH

Indicator Page

G4-EN6 31

G4-EN7 31

G4-EN9 32

G4-EN10 32

G4-EN11 32

G4-EN13 43, 44

G4-EN19 31

G4-EN22 32

G4-EN23 32

G4-EN24 32

G4-EN25 32

G4-EN26 32

G4-EN27 31

G4-EN29 32

G4-EN30 32

G4-EN31 32

G4-EN32 32

G4-EN34 49

Labor Practices and Decent Work

G4-LA1 34

G4-LA2 34

G4-LA3 34

G4-LA4 34

G4-LA5 35, 36

G4-LA6 36

G4-LA9 35

G4-LA10 35

G4-LA11 35

Indicator Page

G4-LA12 35

G4-LA13 35

G4-LA14 32

G4-LA16 34, 49

Human Rights

G4-HR3 36, 49

G4-HR4 32, 34

G4-HR5 36

G4-HR6 36

G4-HR8 36

G4-HR9 36

G4-HR10 32

G4-HR12 36, 49

Society

G4-SO1 37, 39

G4-SO4 49

G4-SO5 49

G4-SO6 31

G4-SO7 31

G4-SO8 31, 49

G4-SO9 32

G4-SO11 49

Product Responsibility

G4-PR2 36

G4-PR7 36

G4-PR8 36

G4-PR9 36

Page 58: Strong Foundations: Leadership & Growth

] 56 [ANNUAL AND SUSTAINABILITY REPORT 2014

PARAÍSO COUNTRY CLUB,Morelos

Page 59: Strong Foundations: Leadership & Growth

] 57 [strong foundations: leadership & growth

| 58 | Informe de los auditores independientes| 60 | Estados consolidados de posición fi nanciera| 61 | Estados consolidados de resultados y otros resultados integrales| 62 | Estados consolidados de cambios en el capital contable| 64 | Estados consolidados de fl ujos de efectivo| 66 | Notas a los estados fi nancieros consolidados

Contents

Consorcio ARA, S. A. B. de C. V. and Subsidiaries

Consolidated FinancialStatementsfor the Years Ended December 31, 2014 and 2013, and Independent Auditors’ Report

Dated March 27, 2015

Page 60: Strong Foundations: Leadership & Growth

] 58 [ANNUAL AND SUSTAINABILITY REPORT 2014

To the Board of Directors and Stockholders

of Consorcio ARA, S. A. B. de C. V.

We have audited the accompanying consolidated fi nancial statements of Consorcio ARA, S. A. B. de C.

V. and subsidiaries (the Entity), which comprise the consolidated statements of fi nancial position as of

December 31, 2014 and 2013, and the consolidated statements of profi t or loss and other comprehen-

sive income, consolidated statement of changes in stockholders’ equity and consolidated statements

of cash fl ows for the years then ended, and a summary of signifi cant accounting policies and other

explanatory information.

Management’s Responsibility for the Consolidated Financial Statements

Management is responsible for the preparation and fair presentation of these consolidated fi nancial

statements in accordance with International Financial Reporting Standards, as issued by the Internatio-

nal Accounting Standards Board, and for such internal control as management determines is necessary

to enable the preparation of consolidated fi nancial statements that are free from material misstate-

ment, whether due to fraud or error.

Auditors’ Responsibility

Our responsibility is to express an opinion on these consolidated fi nancial statements based on our au-

dits. We conducted our audits in accordance with International Standards on Auditing. Those standards

require that we comply with ethical requirements and plan and perform the audit to obtain reasonable

assurance about whether the consolidated fi nancial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures

in the consolidated fi nancial statements. The procedures selected depend on the auditor’s judgment,

including the assessment of the risks of material misstatement of the consolidated fi nancial statements,

whether due to fraud or error. In making those risk assessments, the auditor considers internal control

relevant to the Entity’s preparation and fair presentation of the consolidated fi nancial statements in

order to design audit procedures that are appropriate in the circumstances, but not for the purpose

Independent Auditors’Report

Page 61: Strong Foundations: Leadership & Growth

] 59 [STRONG FOUNDATIONS: LEADERSHIP & GROWTH

of expressing an opinion on the effectiveness of the Entity’s internal control. An audit also includes

evaluating the appropriateness of accounting policies used and the reasonableness of accounting esti-

mates made by management, as well as evaluating the overall presentation of the consolidated fi nancial

statements.

We believe that the audit evidence we have obtained is suffi cient and appropriate to provide a basis

for our audit opinion.

Opinion

In our opinion, the consolidated fi nancial statements present fairly, in all material respects, the fi nan-

cial position of Consorcio ARA, S. A. B. de C. V. and subsidiaries as of December 31, 2014 and 2013 and

their fi nancial performance and their cash fl ows for the years then ended, in accordance with Inter-

national Financial Reporting Standards, as issued by the International Accounting Standards Board.

The accompanying consolidated fi nancial statements have been translated into English for the con-

venience of readers.

Galaz, Yamazaki, Ruiz Urquiza, S. C.

Member of Deloitte Touche Tohmatsu Limited

Paseo de la Reforma 489, piso 6

Colonia Cuauhtémoc, C.P. 06500

México, D.F.

C. P. C. Rafael García Gómez

March 27, 2015

C. P. C. Rafael García Gómez

March 27, 2015

Page 62: Strong Foundations: Leadership & Growth

] 60 [ANNUAL AND SUSTAINABILITY REPORT 2014

Consorcio ARA, S. A. B. de C. V. and Subsidiaries

Consolidated Statementof Financial PositionAs of December 31, 2014 and 2013

(In thousands of Mexican pesos)

NOTES 2014 2013

ASSETS

Current assets:Cash and cash equivalents 6 $ 1,032,228 $ 599,598Trade accounts receivable - Net 7 843,741 740,283Due from equity method investees 10,561 8,608Inventories 8 11,664,675 11,494,249Golf club memberships available for sale 203,480 205,064Other current assets 10 530,095 555,077

Total current assets 14,284,780 13,602,879

Investment property 9 453,446 451,796Restricted cash 6 43,369 43,369Long-term land held for development 8 1,247,305 1,247,305Investments in equity method investees 11 27,992 57,716Employee benefi ts 18 1,554 2,142Property, machinery and equipment - Net 12 242,158 311,269

Total long-term assets 2,015,824 2,113,597Total assets $ 16,300,604 $ 15,716,476

LIABILITIES AND STOCKHOLDERS’ EQUITY

Current liabilities: Current portion of long-term debt 14 $ 409,568 $ 377,668Current portion of capital lease obligations 17 3,676 6,128Trade accounts payable 676,906 358,781Other liabilities and taxes, other than income taxes 15 748,476 698,630Advances from customers 119,767 123,448

Total current liabilities 1,958,393 1,564,655

Long-term debt 14 1,728,808 2,045,555Capital lease obligations 17 4,935 1,261Other long-term liabilities 52,377 57,683Deferred income tax 16 1,823,541 1,820,182

Total long-term liabilities 3,609,661 3,924,681Total liabilities 5,568,054 5,489,336

Stockholders’ equity:Common stock 21 $ 646,580 $ 645,746Additional paid-in capital 348,856 347,146Reserve for acquisition of own stock 57,111 44,822Retained earnings 21 9,642,972 9,154,626

Controlling interest 10,695,519 10,192,340Noncontrolling interest 37,031 34,800

Total stockholders’ equity 10,732,550 10,227,140Total stockholders’ equity and liabilities $ 16,300,604 $ 15,716,476

See accompanying notes to consolidated fi nancial statements.

Page 63: Strong Foundations: Leadership & Growth

] 61 [STRONG FOUNDATIONS: LEADERSHIP & GROWTH

Consorcio ARA, S. A. B. de C. V. and Subsidiaries

Consolidated Statements of Profi t or Loss and other Comprehensive IncomeFor the years ended December 31, 2014 and 2013

(In thousands of Mexican pesos, except common share and earnings per share amounts)

NOTES 2014 2013Revenues 23 $ 6,206,146 $ 5,735,727

Costs 23 4,561,329 4,185,396

Gross profi t 1,644,817 1,550,331

General and administrative expenses 1,040,236 1,033,572Other income - Net (3,542) (11,636)

Income from operations 608,123 528,395

Financial (income) expense:Interest expense 28,259 25,123Interest income (32,787) (39,403)Loss on derivative fi nancial instruments 20 - 21,350Exchange (gain) loss - Net (7,165) 1,078

(11,693) 8,148Equity in earnings of equity method investees 11 76,012 124,240

Income before income taxes 695,828 644,487

Income taxes 16 205,783 180,183

Consolidated income for the year $ 490,045 $ 464,304

Other comprehensive incomeRemeasurement of employee benefi ts obligations - 3,219

Total comprehensive income for the year $ 490,045 $ 467,523

Controlling interest $ 488,346 $ 462,908Noncontrolling interest 1,699 1,396

Consolidated income for the year $ 490,045 $ 464,304

Basic earnings per common share $ 0.37 $ 0.35

Weighted average number of shares outstanding 1,312,185,111 1,304,482,889

See accompanying notes to consolidated fi nancial statements.

Page 64: Strong Foundations: Leadership & Growth

] 62 [ANNUAL AND SUSTAINABILITY REPORT 2014

Consorcio ARA, S. A. B. de C. V. and Subsidiaries

Consolidated Statementsof Changes in Stockholders’ EquityFor the years ended December 31, 2014 and 2013

(In thousands of Mexican pesos)

Commonstock

Additionalpaid-incapital

Reservefor acquisition

of ownstock

Retainedearnings

Non-controlling

interest

Total stockholders’

equity

Balance as of January 1, 2013 $ 641,854 $ 328,854 $ 2,528 $ 8,687,103 $ 53,087 $ 9,713,426

Repurchase of own stock 3,892 18,292 42,294 - - 64,478

Comprehensive income for the year - - - 467,523 (18,287) 449,236

Balances as of December 31, 2013 $ 645,746 $ 347,146 $ 44,822 $ 9,154,626 $ 34,800 $ 10,227,140

Repurchase of own stock 834 1,710 12,289 - - 14,833

Comprehensive income for the year - - - 488,346 2,231 490,577

Balances as of December 31, 2014 $ 646,580 $ 348,856 $ 57,111 $ 9,642,972 $ 37,031 $ 10,732,550

See accompanying notes to consolidated fi nancial statements.

Page 65: Strong Foundations: Leadership & Growth

] 63 [STRONG FOUNDATIONS: LEADERSHIP & GROWTH

Commonstock

Additionalpaid-incapital

Reservefor acquisition

of ownstock

Retainedearnings

Non-controlling

interest

Total stockholders’

equity

Balance as of January 1, 2013 $ 641,854 $ 328,854 $ 2,528 $ 8,687,103 $ 53,087 $ 9,713,426

Repurchase of own stock 3,892 18,292 42,294 - - 64,478

Comprehensive income for the year - - - 467,523 (18,287) 449,236

Balances as of December 31, 2013 $ 645,746 $ 347,146 $ 44,822 $ 9,154,626 $ 34,800 $ 10,227,140

Repurchase of own stock 834 1,710 12,289 - - 14,833

Comprehensive income for the year - - - 488,346 2,231 490,577

Balances as of December 31, 2014 $ 646,580 $ 348,856 $ 57,111 $ 9,642,972 $ 37,031 $ 10,732,550

See accompanying notes to consolidated financial statements.

Page 66: Strong Foundations: Leadership & Growth

] 64 [ANNUAL AND SUSTAINABILITY REPORT 2014

Consorcio ARA, S. A. B. de C. V. and Subsidiaries

Consolidated statementsof cash fl owsFor the years ended December 31, 2014 and 2013

(In thousands of Mexican pesos)

2014 2013

OPERATING ACTIVITIES:

Income before income taxes $ 695,828 $ 644,487

Items related to investing activities:Depreciation and amortization 85,437 88,241Interest income (32,787) (39,403)Derivative fi nancial instrument (Equity swap) - 782Equity in earnings of equity method investees (76,012) (124,240)

Items related to fi nancing activities:Interest expense 163,717 260,939

836,183 830,806Movements in working capital:(Increase) decrease in:

Trade accounts receivable – Net (103,459) (36,466)Due from equity method investees (1,953) 53,847Shopping mall available for sale (8,826) (35,802)Inventories and long-term land held for development (170,426) (343,207)Other current assets 25,365 (86,140)Golf club memberships available for sale 1,584 1,980

Increase (decrease) in:Trade accounts payable 318,126 32,173Accrued expenses and taxes, other than income taxes (5,673) (497,262)Advances from customers (3,681) 57,006Income taxes paid (141,419) (203,334)Employee benefi ts 588 2,016Other long-term liabilities (11) 43,531

Net cash fl ows from operating activities 746,398 (180,852)

INVESTING ACTIVITIES:

Purchase of machinery and equipment (16,972) (22,506)Collection of interest 32,787 39,403Investments in equity method investees 18,430 (27,021)Dividends received from equity method investees 82,000 140,132

Net cash fl ows from investing activities 116,245 130,008

Cash to be applied (to be obtain from) fi nancing activities 862,643 (50,844)

(Continued)

Page 67: Strong Foundations: Leadership & Growth

] 65 [STRONG FOUNDATIONS: LEADERSHIP & GROWTH

2014 2013

FINANCING ACTIVITIES:

Proceeds from long-term debt and lines of credit 804,078 2,538,921Payments of long-term debt (73,764) (84,647)Payments of long-term debt and lines of credit (1,015,161) (3,185,558)Interest paid (169,203) (254,897)Premium for acquisition of own stock 1,710 18,292Sale of own stock 120,299 212,892Purchase of own stock (108,010) (170,598)Relocation by purchase of own shares 834 3,892Other financing arrangements 9,204 (927)

Net cash from financing activities (430,013) (922,630)

Net increase (decrease) in cash and cash equivalents 432,630 (973,474)

Cash and cash equivalents at beginning of year 642,967 1,616,441

Cash and cash equivalents at end of year (including restricted cash of $43,369) $ 1,075,597 $ 642,967

(Concluded)

See accompanying notes to consolidated financial statements.

Page 68: Strong Foundations: Leadership & Growth

] 66 [ANNUAL AND SUSTAINABILITY REPORT 2014

1. Nature of business

Consorcio ARA, S. A. B. de C. V. and subsidiaries (collectively, the “Entity”) buys and sells land; designs, develops,

constructs and markets affordable entry-level and middle-income residential housing developments; and markets

commercial and industrial developments. In addition, the Entity rents mini-supermarkets under operating leases in

México.

The Entity hires the services of subcontractors in order to construct its housing developments. The terms of such ar-

rangements include the subcontractors’ obligations to fulfi ll, using their own resources or with the assistance of third

parties, the construction commitments in accordance with technical requirements set by the Entity.

The Entity has a duration of 99 years and the principal place of business is Arcos Bosques Marco II, Paseo de Tama-

rindos No. 90, Tower I, 25th Floor, Bosques de las Lomas, CP 05120, Mexico, D.F.

2. Basis of presentation

Explanations for translation into English - The accompanying consolidated fi nancial statements have been translated

from Spanish into English for use outside of Mexico.

a. New and revised IFRSs affecting amounts reported and/or disclosures in the fi nancial statements

In the current year, the Entity has applied a number of new and revised IFRSs issued by the International Ac-

counting Standards Board (IASB) that are mandatorily effective for an accounting period that begins on or after

January 1, 2014.

Amendments to IFRS 10, IFRS 12 and IAS 27 Investment Entities

The Group has applied the amendments to IFRS 10, IFRS 12 and IAS 27 Investment Entities for the fi rst time in the

current year. The amendments to IFRS 10 defi ne an investment entity and require a reporting entity that meets

the defi nitions of an investment entity not to consolidate its subsidiaries but instead to measure its subsidiaries

at fair value through profi t or loss in its consolidated and separate fi nancial statements.

To qualify as an investment entity, a reporting entity is required to:

• Obtain funds from one or more investors for the purpose of providing them with investment management

services.

• Commit to its investor(s) that its business purpose is to invest funds solely for returns from capital apprecia-

tion, investment income, or both; and

Consorcio ARA, S. A. B. de C. V. and Subsidiaries

Notes to Consolidated Financial StatementsFor the years ended December 31, 2014 and 2013

(In thousands of Mexican pesos, except share amounts)

Page 69: Strong Foundations: Leadership & Growth

] 67 [STRONG FOUNDATIONS: LEADERSHIP & GROWTH

• Measure and evaluate performance of substantially all of its investments on a fair value basis.

Consequential amendments have been made to IFRS 12 and IAS 27 to introduce new disclosure requirements for

investment entities

As the Entity is not an investment entity (assessed based on the criteria set out in IFRS 10 as of January 1, 2014),

the application of the amendments has had no impact on the disclosure or the amounts recognized in the Entity

consolidated financial statements.

Amendments to IAS 32 Offsetting Financial Assets and Financial Liabilities

The Group has applied the amendments to IAS 32 Offsetting Financial Assets and Financial Liabilities for the first

time in the current year. The amendments to IAS 32 clarify the requirements relating to the offset of financial

assets and financial liabilities. Specifically, the amendments clarify the meaning of ‘currently has a legally enforce-

able right of set-off’ and ‘simultaneous realization and settlement’.

As the Entity does not have any financial assets and financial liabilities that qualify for offset, the application

of the amendments did not have a significant impact on these disclosures or on the amounts recognized in the

Group’s consolidated financial statements.

Amendments to IAS 19 Defined Benefit Plans: Employee Contributions

The amendments to IAS 19 clarify how an entity should account for contributions made by employees or third

parties to defined benefit plans, based on whether those contributions are dependent on the number of years of

service provided by the employee.

For contributions that are independent of the number of years of service, the entity may either recognize the

contributions as a reduction in the service cost in the period in which the related service is rendered, or to

attribute them to the employees’ periods of service using the projected unit credit method; whereas for con-

tributions that are dependent on the number of years of service, the entity is required to attribute them to the

employees’ periods of service.

The Entity’s management does not anticipate that the application of these amendments to IAS 19 will have a

significant impact on the Group’s consolidated financial statements.

Annual Improvements to IFRSs 2010-2012 Cycle

The Annual Improvements to IFRSs 2010-2012 Cycle include a number of amendments to various IFRSs, which are

summarized below.

The amendments to IAS 16 and IAS 38 remove perceived inconsistencies in the accounting for accumulated

depreciation/amortization when an item of property, plant and equipment or an intangible asset is revalued. The

amended standards clarify that the gross carrying amount is adjusted in a manner consistent with the revaluation

of the carrying amount of the asset and that accumulated depreciation/amortization is the difference between

the gross carrying amount and the carrying amount after taking into account accumulated impairment losses.

Page 70: Strong Foundations: Leadership & Growth

] 68 [ANNUAL AND SUSTAINABILITY REPORT 2014

The amendments to IAS 24 clarify that a management entity providing key management personnel services to

a reporting entity is a related party of the reporting entity. Consequently, the reporting entity should disclose as

related party transactions the amounts incurred for the service paid or payable to the management entity for the

provision of key management personnel services. However, disclosure of the components of such compensation

is not required.

The application of these amendments did not have a significant impact on the Group’s consolidated financial

statements.

Annual Improvements to IFRSs 2011-2013 Cycle

The Annual Improvements to IFRSs 2011-2013 Cycle include a number of amendments to various IFRSs, which are

summarized below.

The amendments to IFRS 13 clarify that the scope of the portfolio exception for measuring the fair value of a

group of financial assets and financial liabilities on a net basis includes all contracts that are within the scope of,

and accounted for in accordance with, IAS 39 or IFRS 9, even if those contracts do not meet the definitions of

financial assets or financial liabilities within IAS 32.

The amendments to IAS 40 clarify that IAS 40 and IFRS 3 are not mutually exclusive and application of both

standards may be required. Consequently, an entity acquiring investment property must determine whether:

a) The property meets the definition of investment property in terms of IAS 40; and

b) The transaction meets the definition of a business combination under IFRS 3.

The application of these amendments did not have a significant impact on the Group’s consolidated financial

statements.

b. New and revised IFRSs in issue but not yet effective

The Group has not applied the following new and revised IFRSs that have been issued but are not yet effective:

IFRS 9 Financial Instruments3

IFRS 15 Revenue from Contracts with Customers2

Amendments to IAS 16 and IAS 38 Clarification of Acceptable Methods of Depreciation and Amortisation1

2 Effective for annual periods beginning on or after January 1, 2016, with earlier application permitted.

3 Effective for annual periods beginning on or after January 1, 2017, with earlier application permitted.

4 Effective for annual periods beginning on or after January 1, 2018, with earlier application permitted.

IFRS 9 Financial Instruments

IFRS 9 issued in November 2009 introduced new requirements for the classification and measurement of finan-

cial assets. IFRS 9 was subsequently amended in October 2010 to include requirements for the classification and

measurement of financial liabilities and for derecognition and in November 2013 to include the new requirements

for general hedge accounting. Another revised version of IFRS 9 was issued in July 2014 mainly to include a)

Page 71: Strong Foundations: Leadership & Growth

] 69 [STRONG FOUNDATIONS: LEADERSHIP & GROWTH

impairment requirements for financial assets and b) limited amendments to the classification and measurement

requirements by introducing a ‘fair value through other comprehensive income’ (FVTOCI) measurement category

for certain simple debt instruments.

Key requirements of IFRS 9:

• All recognized financial assets that are within the scope of IAS 39 Financial Instruments: Recognition and

Measurement are required to be subsequently measured at amortized cost or fair value. Specifically, debt

investments that are held within a business model whose objective is to collect the contractual cash flows,

and that have contractual cash flows that are solely payments of principal and interest on the principal out-

standing are generally measured at amortized cost at the end of subsequent accounting periods. Debt instru-

ments that are held within a business model whose objective is achieved both by collecting contractual cash

flows and selling financial assets, and that have contractual terms that give rise on specified dates to cash

flows that are solely payments of principal and interest on the principal amount outstanding, are measured

at FVTOCI. All other debt investments and equity investments are measured at their fair value at the end of

subsequent accounting periods:

• With regard to the measurement of financial liabilities designated as of fair value through profit or loss, IFRS

9 requires that the amount of change in the fair value of the financial liability that is attributable to changes

in the credit risk of that liability is presented in other comprehensive income, unless the recognition of the

effects of changes in the liability’s credit risk in other comprehensive income would create or enlarge an ac-

counting mismatch in profit or loss. Changes in fair value attributable to a financial liability’s credit risk are

not subsequently reclassified to profit or loss. Under IAS 39, the entire amount of the change in the fair value

of the financial liability designated as fair value through profit or loss is presented in profit or loss.

• In relation to the impairment of financial assets, IFRS 9 requires an expected credit loss model, as opposed to

an incurred credit loss model under IAS 39.

The Entity’s management has not concluded its analysis of the impact in the Group’s consolidated financial state-

ments.

IFRS 15 Revenue from Contracts with Customers

In May 2014, IFRS 15 was issued which establishes a single comprehensive model for entities to use in accounting

for revenue arising from contracts with customers. IFRS 15 will supersede the current revenue recognition guid-

ance including IAS 18 Revenue, IAS 11 Construction Contracts and the related Interpretations when it becomes

effective.

The core principle of IFRS 15 is that an entity should recognize revenue to depict the transfer of promised

goods or services to customers in an amount that reflects the consideration to which the entity expects to be

entitled in exchange for those goods or services. Specifically, the Standard introduces a 5-step approach to

revenue recognition:

• Step 1: Identify the contract(s) with a customer

• Step 2: Identify the performance obligations in the contract

Page 72: Strong Foundations: Leadership & Growth

] 70 [ANNUAL AND SUSTAINABILITY REPORT 2014

• Step 3: Determine the transaction price

• Step 4: Allocate the transaction price to the performance obligations in the contract

• Step 5: Recognize revenue when (or as) the entity satisfies a performance obligation

Under IFRS 15, an entity recognizes revenue when (or as) a performance obligation is satisfied, i.e. when ‘control’

of the goods or services underlying the particular performance obligation is transferred to the customer. Far more

prescriptive guidance has been added in IFRS 15 to deal with specific scenarios. Furthermore, extensive disclo-

sures are required by IFRS 15.

The Entity’s management has not concluded its analysis of the impact in the Group’s consolidated financial state-

ments.

Amendments to IAS 16 IAS 38 Clarification of Acceptable Methods of Depreciation and Amortization

The amendments to IAS 16 prohibit entities from using a revenue-based depreciation method for items of prop-

erty, plant and equipment. The amendments to IAS 38 introduce a rebuttable presumption that revenue is not an

appropriate basis for amortization of an intangible asset. This presumption can only be rebutted in the following

two limited circumstances:

a) when the intangible asset is expressed as a measure of revenue; or

b) when it can be demonstrated that revenue and consumption of the economic benefits of the intangible asset

are highly correlated.

The amendments apply prospectively for annual periods beginning on or after January 1, 2016. Currently, the

Group uses the straight-line method for depreciation and amortization for its property, plant and equipment, and

intangible assets respectively. The Entity’s management believes that the straight-line method is the most appro-

priate method to reflect the consumption of economic benefits inherent in the respective assets and accordingly,

does not anticipate that the application of these amendments to IAS 16 and IAS 38 will have a material impact

on the Group’s consolidated financial statements.

3. Significant accounting polices

a. Statement of compliance

The consolidated financial statements have been prepared in accordance with International Financial Reporting

Standards released by IASB.

b. Basis of measurement

The consolidated financial statements have been prepared on the historical cost basis except for certain financial

instruments that are measured at revalued amounts or fair values at the end of each reporting period, as ex-

plained in the accounting policies below:

i. Historical cost

Page 73: Strong Foundations: Leadership & Growth

] 71 [STRONG FOUNDATIONS: LEADERSHIP & GROWTH

Historical cost is generally based on the fair value of the consideration given in exchange for goods and

services.

ii. Fair value

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transac-

tion between market participants at the measurement date.

c. Presentation of the income statement and other comprehensive income

The Entity presents its costs and expenses according to their function, allowing know its gross profit. Additionally,

in order to provide a better understanting of the Entity’s economic and financial performance, the Entity presents

income from operations which is the result of subtracting cost and general and administrative expenses from

revenues.

d. Basis of consolidation

The consolidated financial statements incorporate the financial statements of the Consorcio ARA, S. A. B. de C. V.

(ARA) and its subsidiaries controlled by it. Control is achieved when the Consorcio ARA, S. A. B de C. V:

• Has power over the investee;

• Is exposed, or has rights, to variable returns from its involvement with the investee; and

• Has the ability to use its power to affect its returns.

The Entity reassesses whether or not it controls an investee if facts and circumstances indicate that there are

changes to one or more of the three elements of control listed above.

When the Consorcio ARA, S. A. B. de C. V. has less than a majority of the voting rights of an investee, it has power

over the investee when the voting rights are sufficient to give it the practical ability to direct the relevant activi-

ties of the investee unilaterally. Consorcio ARA, S. A. B de C. V. considers all relevant facts and circumstances in

assessing whether or not the Entity’s voting rights in an investee are sufficient to give it power, including:

• The size of the Consorcio ARA, S. A. B. de C. V holding of voting rights relative to the size and dispersion of

holdings of the other vote holders;

• Potential voting rights held by the Entity, other vote holders or other parties;

• Rights arising from other contractual arrangements; and

• Any additional facts and circumstances that indicate that the Entity has, or does not have, the current ability

to direct the relevant activities at the time that decisions need to be made, including voting patterns at previ-

ous shareholders’ meetings.

Consolidation of a subsidiary begins when the Consorcio ARA, S. A. B de C. V. obtains control over the subsidiary

and ceases when the Entity loses control of the subsidiary. Specifically, income and expenses of a subsidiary

acquired or disposed of during the year are included in the consolidated statement of profit and other compre-

hensive income from the date of acquisition or until the date of disposal, as appropiate.

Page 74: Strong Foundations: Leadership & Growth

] 72 [ANNUAL AND SUSTAINABILITY REPORT 2014

Net income and each component of other comprehensive income are attributed to the owners of the Entity and

to the non-controlling interests. Total comprehensive income of subsidiaries is attributed to the owners of the

Entity and to the non-controlling interests even if this results in the non-controlling interests having a deficit.

When necessary, adjustments are made to the financial statements of subsidiaries to bring their accounting poli-

cies into line with the Consorcio ARA, S. A. B. de C. V. accounting policies.

All balances and transactions between entities of the entity have been eliminated in consolidation.

e. Golf club memberships available for sale

Are initially recorded at the lower of acquisition cost or realizable value.

f. Investments in associates

An associate is an entity over which the Entity has significant influence. Significant influence is the power to

participate in the financial and operating policy decisions of the investee but is not control or joint control over

those policies.

The results and assets and liabilities of associates are incorporated in these consolidated financial statements

using the equity method of accounting, except when the investment, or a portion thereof, is classified as held for

sale, in which case it is accounted for in accordance with IFRS 5. Under the equity method, an investment in an

associate is initially recognized in the consolidated statement of financial position at cost and adjusted thereafter

to recognize the Entity’s share of the profit or loss and other comprehensive income of the associate. When the

Entity’s share of losses of an associate exceeds the Entity’s interest in that associate (which includes any long-

term interests that, in substance, form part of the Entity’s net investment in the associate), the Entity discontinues

recognizing its share of further losses. Additional losses are recognized only to the extent that the Entity has

incurred legal or constructive obligations or made payments on behalf of the associate.

An investment in an associate is accounted for using the equity method from the date on which the investee

becomes an associate. On acquisition of the investment in an associate, any excess of the cost of the investment

over the Entity’s share of the net fair value of the identifiable assets and liabilities of the investee is recognized

as goodwill, which is included within the carrying amount of the investment. Any excess of the Entity’s share of

the net fair value of the identifiable assets and liabilities over the cost of the investment, after reassessment, is

recognized immediately in profit or loss in the period in which the investment is acquired.

The requirements of IAS 39 are applied to determine whether it is necessary to recognize any impairment loss

with respect to the Entity’s investment in an associate. When necessary, the entire carrying amount of the invest-

ment (including goodwill) is tested for impairment in accordance with IAS 36 Impairment of Assets as a single

asset by comparing its recoverable amount (higher of value in use and fair value less costs to sell) with its carrying

amount. Any impairment loss recognized forms part of the carrying amount of the investment. Any reversal of

that impairment loss is recognized in accordance with IAS 36 to the extent that the recoverable amount of the

investment subsequently increases.

The Entity discontinues the use of the equity method from the date when the investment ceases to be an associ-

ate, or when the investment is classified as held for sale. When the Entity retains an interest in the former as-

Page 75: Strong Foundations: Leadership & Growth

] 73 [STRONG FOUNDATIONS: LEADERSHIP & GROWTH

sociate and the retained interest is a financial asset, the Entity measures the retained interest at fair value at that

date and the fair value is regarded as its fair value on initial recognition in accordance with IAS 39. The difference

between the carrying amount of the associate at the date the equity method was discontinued, and the fair value

of any retained interest and any proceeds from disposing of a part interest in the associate or joint venture is

included in the determination of the gain or loss on disposal of the associate or joint venture.

In addition, the Entity accounts for all amounts previously recognized in other comprehensive income in re-

lation to that associate on the same basis as would be required if that associate had directly disposed of the

related assets or liabilities. Therefore, if a gain or loss previously recognized in other comprehensive income

by that associate would be reclassified to profit or loss on the disposal of the related assets or liabilities, the

Entity reclassifies the gain or loss from equity to profit or loss (as a reclassification adjustment) when the

equity method is discontinued.

The Entity continues to use the equity method when an investment in an associate becomes an investment in a

joint venture or an investment in a joint venture becomes an investment in an associate. There is no remeasure-

ment to fair value upon such changes in ownership interests.

When the Entity reduces its ownership interest in an associate but the Entity continues to use the equity method,

theEntity reclassifies to profit or loss the proportion of the gain or loss that had previously been recognized in

other comprehensive income relating to that reduction in ownership interest if that gain or loss would be reclas-

sified to profit or loss on the disposal of the related assets or liabilities.

When an Entity carries out transactions with an associate, profits and losses resulting from the transactions with

the associate are recognized in the Entity’s consolidated financial statements only to the extent of interests in the

associate that are not related to the Entity.

g. Investment property

Investment properties are properties held to earn rentals and/or for capital appreciation (including property under

construction for such purposes). Investment properties are measured initially at cost, including transaction costs.

Subsequent to initial recognition, investment properties are measured at cost model. After recognition as an asset

an item of investment property is carried at cost less any accumulated depreciation and any accumulated impair-

ment losses.

An investment property is derecognized upon disposal or when the investment property is permanently with-

drawn from use and no future economic benefits are expected from the disposal. Any gain or loss arising on

derecognition of the property (calculated as the difference between the net disposal proceeds and the carrying

amount of the asset) is included in profit or loss in the period in which the property is derecognized.

h. Recognition of revenue and customer advances

Revenues are recognized when the Entity transfers to its customers the significant risks and rewards derived

from the ownership of the real estate property, which normally occurs at the time the transactions are legalized

(transfer of title) Furthermore, current liabilities for advances from customers represent cash received from the

customers for the down payment and expenses and payments received during the presale stage before the trans-

actions are legalized.

Page 76: Strong Foundations: Leadership & Growth

] 74 [ANNUAL AND SUSTAINABILITY REPORT 2014

i. Leases

Leases are classified as finance leases whenever the terms of the lease transfer substantially all the risks and

rewards of ownership to the lessee. All other leases are classified as operating leases.

The Entity as lessor - Revenues and costs for leasing and mini shopping Unicentros are recognized as earned.

The Entity as lessee - The assets held under finance leases are initially recognized as assets of the Entity at

their fair value at the inception of the lease or, if lower, at the present value of the minimum lease payments.

The corresponding liability to the lessor is included in the consolidated statement of financial position as a

finance lease obligation.

Lease payments are apportioned between finance expenses and reduction of the lease obligation so as to

achieve a constant rate of interest on the remaining balance of the liability. Finance expenses are recognized

immediately in profit or loss, unless they are directly attributable to qualifying assets, in which case they are

capitalized in accordance with the Entity’s general policy on borrowing costs (see Note 3j). Contingent rentals

are recognized as expenses in the periods in which they are incurred.

Operating lease payments are recognized as an expense on a straight-line basis over the lease term, except

where another systematic basis is more representative of the time pattern in which economic benefits from

the leased asset are consumed. Contingent rentals arising under operating leases are recognized as an ex-

pense in the period in which they are incurred.

j. Borrowing costs

Borrowing costs directly attributable to the acquisition, construction or production of qualifying assets, which are

assets that necessarily take a substantial period of time to get ready for their intended use or sale, are added to

the cost of those assets, until such time as the assets are substantially ready for their intended use or sale.

Investment income earned on the temporary investment of specific borrowings pending their expenditure on

qualifying assets is deducted from the borrowing costs eligible for capitalization.

All other borrowing costs are recognized in profit or loss in the period in which they are incurred.

k. Employee benefits from termination, retirement and statutory employee profit sharing (PTU)

Payments to defined contribution retirement benefit plans are recognized as an expense when employees have

rendered service entitling them to the contributions.

For defined benefit retirement benefit plans, the cost of providing benefits is determined using the projected unit

credit method, with actuarial valuations being carried out at the end of each annual reporting period. Remeasure-

ment, comprising actuarial gains and losses, the effect of the changes to the asset ceiling (if applicable) and the

return on plan assets (excluding interest), is reflected immediately in the statement of financial position with a

charge or credit recognized in other comprehensive income in the period in which they occur. Remeasurement

recognized in other comprehensive income is reflected immediately in retained earnings and will not be reclassi-

Page 77: Strong Foundations: Leadership & Growth

] 75 [STRONG FOUNDATIONS: LEADERSHIP & GROWTH

fied to profit or loss. Past service cost is recognized in profit or loss in the period of a plan amendment. Net inter-

est is calculated by applying the discount rate at the beginning of the period to the net defined benefit liability or

asset. Defined benefit costs are categorized as follows:

• Service cost (including current service cost, past service cost, as well as gains and losses on curtailments and

settlements).

• Net interest expense or income.

• Remeasurement.

The Entity presents the first two components of defined benefit costs in profit or loss in the line item. Gains and

losses for reduction of service are accounted for as past service costs

The retirement benefit obligation recognized in the consolidated statement of financial position represents the

actual deficit or surplus in the Entity’s defined benefit plans. Any surplus resulting from this calculation is limited

to the present value of any economic benefits available in the form of refunds from the plans or reductions in

future contributions to the plans.

A liability for a termination benefit is recognized at the earlier of when the entity can no longer withdraw the offer

of the termination benefit and when the entity recognizes any related restructuring costs.

PTU is recorded in the results of the year it is incurred and presented under other income and expenses in the

income statement.

PTU is determined based on the taxable income under Section I of Article 10 of the LISR.

l. Income taxes

Income tax expense represents the sum of the tax currently payable and deferred tax.

1. Current tax

Current income tax (ISR) is recognized in the results of the year in which is incurred. Until December 31, 2013,

current income tax was calculated as the higher of the ISR and the Business Flat Tax (“IETU”).

2. Deferred income tax

Deferred tax is recognized on temporary differences between the carrying amounts of assets and liabilities

in the consolidated financial statements and the corresponding tax bases used in the computation of tax-

able profit. Deferred tax liabilities are generally recognized for all taxable temporary differences. Deferred tax

assets are generally recognized for all deductible temporary differences to the extent that it is probable that

taxable profits will be available against which those deductible temporary differences can be utilized.

Such deferred tax assets and liabilities are not recognized if the temporary difference arises from the initial

recognition of assets and liabilities in a transaction that affects neither the taxable profit nor the account-

ing profit.

Page 78: Strong Foundations: Leadership & Growth

] 76 [ANNUAL AND SUSTAINABILITY REPORT 2014

As a consequence of the 2014 Tax Reform, as of December 31, 2014 deferred IETU is no longer recognized.

Deferred tax liabilities are recognized for taxable temporary differences associated with investments in sub-

sidiaries and associates, and interests in joint ventures, except where the Entity is able to control the reversal

of the temporary difference and it is probable that the temporary difference will not reverse in the foreseeable

future. Deferred tax assets arising from deductible temporary differences associated with such investments

and interests are only recognized to the extent that it is probable that there will be sufficient taxable profits

against which to utilize the benefits of the temporary differences and they are expected to reverse in the

foreseeable future.

The carrying amount of deferred tax assets is reviewed at the end of each reporting period and reduced to the

extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the

asset to be recovered.

Deferred tax liabilities and assets are measured at the tax rates that are expected to apply in the period in

which the liability is settled or the asset realized, based on tax rates (and tax laws) that have been enacted or

substantively enacted by the end of the reporting period.

The measurement of deferred tax liabilities and assets reflects the tax consequences that would follow from

the manner in which the Entity expects, at the end of the reporting period, to recover or settle the carrying

amount of its assets and liabilities.

For the purposes of measuring deferred tax liabilities and deferred tax assets for investment properties that

are measured using the fair value model, the carrying amounts of such properties are presumed to be recov-

ered entirely through sale, unless the presumption is rebutted. The presumption is rebutted when the invest-

ment property is depreciable and is held within a business model whose objective is to consume substantially

all of the economic benefits embodied in the investment property over time, rather than through sale. The

Entity’s management reviewed the Entity’s investment property portfolios and concluded that none of the

Entity’s investment properties are held under a business model whose objective is to consume substantially

all of the economic benefits embodied in the investment properties over time, rather than through sale.

Therefore, the Entity’s management has determined that the ‘sale’ presumption set out in the amendments to

IAS 12 is not rebutted. As a result, the Entity has not recognized any deferred taxes on changes in fair value

of the investment properties as the Entity is not subject to any income taxes on the fair value changes of the

investment properties on disposal.

3. Current and deferred tax for the year

Current and deferred tax are recognized in profit or loss, except when they relate to items that are recognized

in other comprehensive income or directly in equity, in which case, the current and deferred tax are also rec-

ognized in other comprehensive income or directly in equity respectively. Where current tax or deferred tax

arises from the initial accounting for a business combination, the tax effect is included in the accounting for

the business combination.

Page 79: Strong Foundations: Leadership & Growth

] 77 [STRONG FOUNDATIONS: LEADERSHIP & GROWTH

4. Tax on assets

The tax on assets (IMPAC) expected to be recovered is recorded as a tax receivable is recorded as a tax credit

and is presented in the balance sheet in the deferred taxes line item.

m. Property, machinery and equipment

Property, machinery and equipment held for use in the operation of the Entity or for administrative purposes,

are presented in the statement of financial position at acquisition cost. Balances arising from acquisitions made

through December 31, 2007 were restated using National Consumer Price Index (NCPI) factors to date, in ac-

cordance with deemed cost exemptions allowed in the transition to IFRS. Depreciation is calculated under the

straight-line method based on the remaining useful life of the asset components as follows:

AVERAGE YEARS

Buildings 35Leasehold improvements 1Machinery and equipment 3Vehicles 2Office furniture and fixtures 2

The estimated useful lives, the possible residual value and depreciation method of assets in this category are

reviewed at the end of each year, and the effect of any changes in the estimate recorded is recognized on a

prospective basis.

An item of property, machinery and equipment is derecognized upon disposal or when no future economic

benefits are expected to arise from the continued use of the asset. Any gain or loss arising on the disposal

or retirement of an item of property, plant and equipment is determined as the difference between the sales

proceeds and the carrying amount of the asset and is recognized in profit or loss.

n. Impairment of tangible and intangible assets other than goodwill

At the end of each reporting period, the Entity reviews the carrying amounts of its tangible and intangible

assets to determine whether there is any indication that those assets have suffered an impairment loss. If any

such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of

the impairment loss (if any). When it is not possible to estimate the recoverable amount of an individual asset,

the Entity estimates the recoverable amount of the cash-generating unit to which the asset belongs. When a

reasonable and consistent basis of allocation can be identified, corporate assets are also allocated to individual

cash-generating units, or otherwise they are allocated to the smallest Entity of cash-generating units for

which a reasonable and consistent allocation basis can be identified.

Recoverable amount is the higher of fair value less costs to sell and value in use. In assessing value in use, the

estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects

current market assessments of the time value of money and the risks specific to the asset for which the esti-

mates of future cash flows have not been adjusted.

Page 80: Strong Foundations: Leadership & Growth

] 78 [ANNUAL AND SUSTAINABILITY REPORT 2014

If the recoverable amount of an asset (or cash-generating unit) is estimated to be less than its carrying amount,

the carrying amount of the asset (or cash-generating unit) is reduced to its recoverable amount. An impairment

loss is recognized immediately in profit or loss, unless the relevant asset is carried at a revalued amount, in which

case the impairment loss is treated as a revaluation decrease.

When an impairment loss subsequently reverses, the carrying amount of the asset (or a cash-generating

unit) is increased to the revised estimate of its recoverable amount, but so that the increased carrying

amount does not exceed the carrying amount that would have been determined had no impairment loss

been recognized for the asset (or cash generating unit) in prior years. A reversal of an impairment loss is

recognized immediately in profit or loss, unless the relevant asset is carried at a revalued amount, in which

case the reversal of the impairment loss is treated as a revaluation increase. During 2014 and prior periods

the Entity had no made reversals.

o. Inventories, long-term land held for development

Inventories are maintained at the lower of cost or net realizable value for which the entity reviews the book value

of inventories and land held for long-term development in order to verify that the value of such inventories, the

cost does not exceed or market value.

i. The construction materials are valued at acquisition cost, which includes all costs inherent to real estate

inventories. Work in process is valued equally to acquisition cost plus financial cost. The balances of work

in process and developments in progress represent the real cost incurred, and represent the cost incurred

on housing projects for which the Entity has not transferred ownership to customers.

ii. Land held for future development and real estate developments in progress are valued at acquisition cost

plus financial cost.

p. Provisions

Provisions are recognized when the Entity has a present obligation (legal or constructive) as a result of a past

event, it is probable that the Entity will be required to settle the obligation, and a reliable estimate can be made of

the amount of the obligation.

The amount recognized as a provision is the best estimate of the consideration required to settle the present

obligation at the end of the reporting period, taking into account the risks and uncertainties surrounding

the obligation. When a provision is measured using the cash flows estimated to settle the present obligation,

its carrying amount is the present value of those cash flows (when the effect of the time value of money is

material).

q. Financial instruments

Financial assets and financial liabilities are recognized when a Entity becomes a party to the contractual provi-

sions of the instruments. Financial assets and financial liabilities are initially measured at fair value. Transac-

tion costs that are directly attributable to the acquisition or issue of financial assets and financial liabilities

(other than financial assets and financial liabilities at fair value through profit or loss) are added to or deducted

Page 81: Strong Foundations: Leadership & Growth

] 79 [STRONG FOUNDATIONS: LEADERSHIP & GROWTH

from the fair value of the financial assets or financial liabilities, as appropriate, on initial recognition. Transac-

tion costs directly attributable to the acquisition of financial assets or financial liabilities at fair value through

profit or loss are recognized immediately in profit.

r. Financial assets

Financial assets are initially recognizad at fair value, plus their transaction costs; except for those financial

assets classified as financial assets at fair value through profit or loss, which are recognized at fair value. Sub-

sequent to initial recognition, the valuation depends on the classification of the financial asset.

1. Financial assets at FVTPL

Financial assets are classified into the following specified categories: financial assets ‘at fair value through

profit or loss’ (FVTPL), ‘held-to-maturity’ investments, ‘available-for-sale’ (AFS) financial assets and ‘loans

and receivables’. The classification depends on the nature and purpose of the financial assets and is deter-

mined at the time of initial recognition.

2. Held-to-maturity investments

Held-to-maturity investments are non-derivative financial assets with fixed or determinable payments and

fixed maturity dates that the Entity has the positive intent and ability to hold to maturity. Subsequent to

initial recognition, held-to maturity investments are measured at amortized cost using the effective inter-

est method less any impairment.

3. Loans and receivables

Loans and receivables are non-derivative financial assets with fixed or determinable payments that are

not quoted in an active market. Loans and receivables including trade and other receivables, bank bal-

ances and cash, and others are measured at amortized cost using the effective interest method, less any

impairment.

Interest income is recognized by applying the effective interest rate, except for short-term receivables when

the effect of discounting is immaterial.

4. Financial asset eliminations

The Entity only eliminates a financial asset when its contractual rights to the respective cash flows expire

and when it substantially transfers the risks and rewards inherent to the ownership of the financial asset.

If the Entity does not transfer or substantially retain all the risks and rewards inherent to the ownership of

the financial asset and continues to control the transferred asset, it only recognizes its equity in the asset

and the obligation associated with the amounts it will have to pay. If the Entity substantially retains all the

risks and rewards inherent to the ownership of a transferred financial asset, it continues to recognize it,

together with a collateral loan for the received resources.

Page 82: Strong Foundations: Leadership & Growth

] 80 [ANNUAL AND SUSTAINABILITY REPORT 2014

5. Effective interest method

The effective interest method is a method of calculating the amortized cost of a debt instrument and of al-

locating interest income over the relevant period. The effective interest rate is the rate that exactly discounts

estimated future cash receipts (including all fees and points paid or received that form an integral part of the

effective interest rate, transaction costs and other premiums or discounts) through the expected life of the

debt instrument, or, where appropriate, a shorter period, to the net carrying amount on initial recognition.

6. Offsetting of financial assets and liabilities

A financial asset is only presented based on its net amount in the statement of changes in financial position

when the Entity has: i) a legal right to offset the recognized amounts, and ii) the intention to settle these

amounts on a net basis or simultaneously realize the asset and cancel the liability.

s. Financial liabilities

1. Classification as debt or equity

Debt and equity instruments are classified as either financial liabilities or as equity in accordance with

the substance of the contractual arrangements and the definitions of a financial liability and an equity

instrument.

2. Financial liabilities at FVTPL

Financial liabilities clasified at fair value through profit and loss are comprised of financial liabilities clas-

sified as held for trading.

Financial liabilities at FVTPL are stated at fair value, with any gains or losses arising on remeasurement

recognized in profit or loss. The net gain or loss recognized in profit or loss incorporates any interest paid

on the financial liability and is included in the statement of profit or loss and other comprehensive income/

income statement.

3. Other financial liabilities

Other financial liabilities (including borrowings and trade and other payables) are subsequently measured at

amortized cost using the effective interest method.

The effective interest method is a method of calculating the amortized cost of a financial liability and

of allocating interest expense over the relevant period. The effective interest rate is the rate that exactly

discounts estimated future cash payments (including all fees and points paid or received that form an

integral part of the effective interest rate, transaction costs and other premiums or discounts) through

the expected life of the financial liability, or (where appropriate) a shorter period, to the net carrying

amount on initial recognition.

Page 83: Strong Foundations: Leadership & Growth

] 81 [STRONG FOUNDATIONS: LEADERSHIP & GROWTH

4. Derecognition of financial liabilities

The Entity derecognizes financial liabilities when, and only when, the Entity’s obligations are discharged, can-

celled or they expire.

t. Earnings per share

Basic earnings per common share are calculated by dividing majority net income by the weighted average number

of shares outstanding during the year.

u. Transactions in foreign currency

The individual financial statements of each of the Entity’s subsidiaries are prepared by using the currency of

the primary economic environment in which the Entity operates (its functional currency). For the purposes

of these consolidated financial statements, the results and financial position of each entity are expressed in

Mexican pesos, which is the Entity’s functional currency, as well as the presentation currency of the consoli-

dated financial statements.

Transactions performed in foreign currency are recorded at the exchange rate in effect at the date on which

each transaction is performed. Monetary assets and liabilities denominated in foreign currency are valued in

Mexican pesos based on the exchange rate in effect at the date of the financial statements. Exchange rate

fluctuations that are unrelated to the financing obtained to acquire land are recorded in results.

4. Critical accounting judgments and key sources of estimation uncertainty.

In the application of the Group’s accounting policies, which are described in Note 3, the Entity’s management is re-

quired to make judgments, estimates and assumptions about the carrying amounts of assets and liabilities that are

not readily apparent from other sources. The estimates and associated assumptions are based on historical experience

and other factors that are considered to be relevant. Actual results may differ from these estimates.

The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are

recognized in the period in which the estimate is revised if the revision affects only that period or in the period of the

revision and future periods if the revision affects both current and future periods.

The critical accounting lawsuits and key sources of uncertainty considered when applying the estimates prepared at

the date of the consolidated financial statements, and which imply a significant risk involving the adjustment of the

book values of assets and liabilities during the following financial period, are as follows:

a. Accounts receivable estimates– The Entity determines its accounts receivable reserve according to the estab-

lished policy. When estimating the allowance for bad debts, the Entity primarily considers the risk derived from

the customer’s financial position, unsecured accounts and considerable collection delays as regards estab-

lished credit conditions (see Note 7 for further details).

b. Investment properties – The Entity values its investment properties with the assistance of independent apprais-

ers. The valuation technique is based on observable data obtained by performing a market study to determine

Page 84: Strong Foundations: Leadership & Growth

] 82 [ANNUAL AND SUSTAINABILITY REPORT 2014

the fair value of investment properties. However, the Entity has opted to utilize the cost model, which requires

measuring the investment property after the initial measurement at its depreciated cost (less any accumulated

impairment loss).

c. Asset Life. -Management reviews the estimated useful lives of property, machinery and equipment at the end

of each annual period.

d. Fair value measurements and valuation methodology.-In estimating the fair value of an asset or a liability, the

Company uses observable market data to the extent that they are available. When the input data of level 1are

not avalible, the Entity carries out the valuation with the assistance of independent apparisers.

e. Costs. - Management determines an estimate of the costs incurred for each housing development plan. A por-

tion of the total estimated costs to be incurred is then allocated to each unit to determine the cost of sales.

The estimate is based on a technical analysis.

f. Employee Benefits. - The valuation of other postretirement benefits to employees is based on actuarial cal-

culations using assumptions for discount rates, salary increases, among others. The assumptions are updated

annually. Changes in these assumptions could have a significant effect on the amount of the liabilities and

results of the Entity.

g. Contingencies – As the Entity is involved in certain legal proceedings, it evaluates the probability of receiving

a payment obligation, for which purpose, it analyzes its legal situation at the estimate date and requests the

opinion of its financial advisors. These evaluations are periodically reconsidered.

5. Non-cash transactions

During the current year, the Entity entered into the following non-cash investing and financing activities which are

not reflected in the consolidated statement of cash flows:

- Acquisition of machinery, furniture and equipment under capital leases for $7,971 in 2014 and $821in 2013.

6. Cash and cash equivalents

For the purposes of the consolidated statement of cash flows, cash and cash equivalents include cash on hand and

in banks, net of outstanding bank overdrafts. Cash and cash equivalents at the end of the reporting period as shown

in the consolidated statement of cash flows can be reconciled to the related items in the consolidated statement of

financial position as follows:

2014 2013Cash and cash equivalents $ 83,186 $ 77,640Readily available investments 949,042 521,958

$ 1,032,228 $ 599,598Restricted cash (1) $ 43,369 $ 43,369

(1) The Entity entered into a trust contract with Nacional Financiera, S. N. C., for the purpose of promoting the development of micro, small and medium-size

companies through a system that grants financial support to the Entity’s suppliers. For these purposes, a reserve for payment was created, which may only

be used to fund obligations payable by the fund.

Page 85: Strong Foundations: Leadership & Growth

] 83 [STRONG FOUNDATIONS: LEADERSHIP & GROWTH

7. Trade accounts receivable

2014 2013As developer:

Billed revenues $ 861,218 $ 745,171Construction costumers 10,751 12,576Receivables from lessees 7,215 4,038

879,184 761,785Allowance for doubtful accounts (35,443) (21,502)

$ 843,741 $ 740,283

Customers by titling according to mortgage credit granting institution are as follows:

2014 2013

INFONAVIT (Including cofinancing) $ 224,358 $ 225,577

SHF, FOVISSSTE and commercial banks 391,985 281,344

Financing ARA 244,875 238,250

$ 861,218 $ 74 5,171

a. Accounts receivable

Accounts receivable are stated at amortized cost. The average credit period on sales of goods is 46 days. There is

no interest charge on the receivables to such institutions.

The Entity uses rigorous processes to integrate the information be sent to institutions. Additionally, this process

is complemented by entities that grant mortgage loans used to accept clients. Strict adherence to the processes

of each institution is the only medium existingt that permit to the entity to sell, notarize and collect products

through them.

The Entity determines a customer reserve by considering overdue down payment and expense balances (the dif-

ference between the housing value and the credit granted by financial institutions), together with ARA financing.

The Entity utilizes several payment negotiation and/or restructuring schemes, while allowing the recovery of this

portfolio through internal and external procedures performed by an out-of-court collection office. The Entity’s

policy is to create a reserve based on the proportion represented by the overdue portfolio as regards the total

development portfolio. Accordingly, the reserve amount is equal to the total development portfolio multiplied by

the percentage located within the ranges detailed below:

Maturity range Reserve %

0.0% 10.0% 7.5%10.1% 20.0% 15.0%20.1% 30.0% 22.5%30.1% 40.0% 30.0%40.1% 50.0% 37.5%50.1% 60.0% 45.0%60.1% 70.0% 52.5%70.1% 80.0% 60.0%80.1% 90.0% 67.5%90.1% 100.0% 75.0%

Page 86: Strong Foundations: Leadership & Growth

] 84 [ANNUAL AND SUSTAINABILITY REPORT 2014

In the case of ARA financing transactions related to residential developments, a reserve is created for the ownership

of this real property. As it has physical collateral, percentages are reduced as follows:

Overdue portfolio range Reserve %

0.0% 10.0% 5.0%10.1% 20.0% 10.0%20.1% 30.0% 15.0%30.1% 40.0% 20.0%40.1% 50.0% 25.0%50.1% 60.0% 30.0%60.1% 70.0% 35.0%70.1% 80.0% 40.0%80.1% 90.0% 45.0%90.1% 100.0% 50.0%

Change in allowance for doubtful accounts

2014 2013Balance at beginning of year $ 21,502 $ 21,502

Increase 24,625 - Cancelation (10,684) -

Balance at end of year $ 35,443 $ 21,502

8. Inventories

2014 2013Work in process (1) $ 7,821,144 $ 7,662,148Land in process of development 1,987,996 2,156,664Land held for development short-term 1,512,448 1,330,003

Construction materials 343,086 267,800

Borrowing cost 1 77,63411,664,675 11,494,249

Land for long-term development 1,247,305 1,247,305$ 12,911,980 $ 12,741,554

(1) As of December 31, 2014 and 2013, the balance of work in process inventory includes 975 and 1,723 completed housing units, respectively:

a. The Entity’s policy is to locate and acquire land each year, classifying land currently being developed or land

planned to be developed within the Entity’s operational cycle as current assets, and as long-term all remaining

land for which the Entity has no current plans to develop.

b. The Entity to September 30, 2013 obtained a syndicated loan with a mortgage guarantee and land reserve is

long term with a book value of $1,809,400. The Entity is not authorized to grant these inventories in guarantee

of other loans or sell them to another entity.

c. Borrowing cost is based on the average annual balance of work in process and land in process that are qualify-

ing assets pending completion. In 2014 and 2013, the annualized average base was $2,315,184 and $2,437,104,

respectively.

Page 87: Strong Foundations: Leadership & Growth

] 85 [STRONG FOUNDATIONS: LEADERSHIP & GROWTH

Also, at December 31, 2014 and 2013, accumulated borrowing cost included in inventories was $135,459 and

$214,466, respectively, and borrowing cost of $213,093 and $292,348, respectively, was transferred to cost in con-

nection whith the sale of such inventory.

The annualized average capitalization rate in 2014 and 2013 was 5.85% and 6.76%, respectively.

9. Investment property

2014 2013

Buildings held for lease $ 300,713 $ 290,483Commissions paid for leasing contracts 3,411 1,997

304,124 292,480

Accumulated depreciation (45,920) (38,744)258,204 253,736

Land 186,102 196,353Construction in progress 9,140 1,707

$ 453,446 $ 451,796

All of the Group’s investment property is held under freehold interests.

The fair value of the Group’s investment property as of December 31, 2014 and 2013 has been arrived at on the basis

of a valuation carried out on the respective dates by independent appraisers not related to the Group, which are

members of the Institute of Appraisers of Mexico, and they have appropriate qualifications and recent experience in

the valuation of properties in the relevant locations. The fair value was determined based on the market comparable

approach that reflects recent transaction prices for similar properties, which corresponds to a hierarchy 2. The fair

value of the Group’s investment property as of December 31, 2014 is $749,636.

There has been no change to the valuation technique during the year.

In estimating the fair value of the properties, the highest and best use of the properties is their current use.

10. Other current assets

2014 2013

Advances to suppliers $ 186,847 $ 181,743Security deposits 128,425 127,418Recoverable taxes, principally ISR income tax 164,400 201,616Other accounts receivable 38,412 30,606Advance payments 12,011 13,694

$ 530,095 $ 555,077

Page 88: Strong Foundations: Leadership & Growth

] 86 [ANNUAL AND SUSTAINABILITY REPORT 2014

11. Investments in associates

a. The Entity’s investments accounted for by the equity method are summarized as follows:

Related party %ownership Equity in net assets Equity in earnings of equity

method investees

2014 2013 2014 2013

Centro San Miguel, S. de R. L. (i) (ii) (CSM) 50.00 $ 8,320 $ 4,598 $ 10,493 $ 9,218Centro Regional las Américas, S. de R. L. (i) (ii)

(CRAS)50.00 - 53,118 39,835 67,199

Centro San Francisco, S. de R. L. (i) (ii) 50.00 13,144 - 15,292 3,898Centro Cuautitlán, S. de R.L. (i) 50.00 6,528 - 520 -

Investments in associates- Asset 27,992 57,716 66,140 80,315

Centro Regional las Américas, S. de R. L. (i) (ii) (CRAS)

50.00 (33,764) - - -

Centro San Francisco, S. de R. L. (i) (ii) 50.00 - (30,140) - -

Exhibidora Cinematográfica San Francisco, S. de R. L. (iii)

50.00 (2,744) (13,108) 10,085 (2,694)

Fideicomiso – 738 (iv) 50.00 (3,947) (2,514) (213) 46,619Investments in associates- Liabilities (40,455) (45,762) 9,872 43,925

$ (12,463) $ 11,954 $ 76,012 $ 124,240

The Entity has significant influence over its associated companies because it is entitled to participate in the de-

termination of the financial policies and operation of each of the associated entities in which it invests. These

amounts are recognized in the consolidated financial statements by using the equity method.

(i) The main purpose of this investment is the construction, rental, and administration of all projects including

shopping malls.

(ii) As of December 31, 2014 and 2013, land sales, capitalized interest and administrative services of $67,028

and $66,475respectively, were eliminated.

(iii) The main purpose of this investment is the purchase, sale and operation of movie theatres.

(iv) On January 29, 2010, Plaza Cañada Huehuetoca, S. de R. L., a subsidiary of PDCC, executed an irrevocable

management trust contract with MRP Huehuetoca, S. de R. L., with a 50% equity interest. The purpose

of this trust is to plan, design, build, and operate a shopping center, which was inaugurated in December,

2010. In December 2013, Cañada Huehuetoca Plaza mall was sold, in which the Entity had a 50% stake.

b. The financial information relating to the most significant associated (CRAS) of the Entity is summarized below:

2014 2013Current assets $ 67,866 $ 77,604

Total Assets $ 739,466 $ 1,044,663

Current liabilities $ 772,571 $ 54,950

Total Liabilities $ 788,337 $ 810,691

Income $ 272,065 $ 257,683

(Loss) income before income taxes $ (29,797) $ 157,802

Net (loss) income $ (51,271) $ 112,169

Page 89: Strong Foundations: Leadership & Growth

] 87 [STRONG FOUNDATIONS: LEADERSHIP & GROWTH

12. Property, machinery and equipment:

Reconciliation of beginning and ending book balances in 2014 and 2013 is as follows:

Balance as of 1 January

2013Additions Disposals

Balance as of December 31,

2013Additions Disposals

Balance as of December 31,

2014Investment:

Buildings $ 36,977 $ 421 $ 874 $ 36,524 $ - $ - $ 36,524

Leasehold improvements 63,362 - 63,362 - - 63,362

Commercial facilities and mini-supermarkets for rent 30,083 - 27,397 2,686 - - 2,686

Machinery and equipment 998,527 2,216 3,392 997,351 5,868 34,256 968,963

Vehicles 118,893 4,824 8,798 114,919 4,361 6,052 113,228

Office furniture and fixtures 85,461 1,000 2,065 84,396 2,524 92 86,828

Land 36,548 4,895 18,187 23,256 - - 23,256

Improvements and adaptations in progress 9,867 77 - 9,944 189 2,178 7,955

Total investments 1,379,718 13,433 60,713 1,332,438 12,942 42,578 1,302,802

Depreciation:

Buildings (8,789) (690) (2,118) (7,361) (970) - (8,331)

Leasehold improvements (34,590) (8,940) - (43,530) (8,946) - (52,476)

Commercial facilities and mini-supermarkets for rent (13,043) - (13,043) - - - -

Machinery and equipment (799,410) (58,020) (1,494) (855,936) (53,664) (33,694) (875,906)

Vehicles (65,007) (8,516) (7,851) (65,672) (9,299) (6,176) (68,795)

Office furniture and fixtures (44,074) (6,627) (2,031) (48,670) (6,538) (72) (55,136)

Total accumulated depreciation (964,913) (82,793) (26,537) (1,021,169) (79,417) (39,942) (1,060,644)

Net investment $ 414,805 $ (69,360) $ 34,176 $ 311,269 $ (66,475) $ 2,636 $ 242,158

2014 2013

Machinery, equipment and furniture acquired under capital lease- net of accumulated depreciation of $604,809 and $572,791 at December 31, 2014 and 2013, respectively $ 20,521 $ 32,128

13. Investments in Subsidiaries

The consolidated financial statements include the financial statements of Consorcio ARA, S. A. B. de C. V. (ARA) and

those of its subsidiaries over which it maintains control. ARA’s ownership interest in its subsidiaries at December 31,

2014 and 2013, is shown below:

Percentage of equity stake and Voting Power in

Subsidiary or Subsidiary Group 2014 and 2013Consorcio de Ingeniería Integral, S.A. de C.V. (CIISA) 99.6%

Proyectos Urbanos Ecológicos, S.A. de C.V. (PUESA) 99.9%

Constructora y Urbanizadora ARA, S.A. de C.V. (CUARA) 99.9%

Inmobiliaria ACRE, S.A. de C.V. (ACRE) 99.1%

Asesoría Técnica y Administrativa GAVI, S.A. de C.V. (GAVI) 99.9%

Comercialización y Ventas, S.A. (COVENSA) 98.0%

Promotora y Desarrolladora de Centros Comerciales, S.A. de C.V. (PDCC) (i) 99.9%

Desarrollos Inmobiliarios Turísticos ARA, S.A. de C.V. (DITA) 100.0%

Consorcio ARA, LLC (ii) 100.0%

Inmobiliaria el Globo, S.A. de C.V. 99.4%

Page 90: Strong Foundations: Leadership & Growth

] 88 [ANNUAL AND SUSTAINABILITY REPORT 2014

(i) As part of the Entity’s overall development plan, the Entity created PDCC, which holds five 99.9% owned subsidiaries, Operadora de Unicentros y Locales

Comerciales, S. A. de C. V., Servicios Administrativos ARADCD, S. A. de C. V., Operadora de Espacios Las Américas, S. de R. L., Plaza Cañada Huehuetoca, S. de

R. L. and Centro Veracruzano Río Medio, S. de R. L. These entities rent commercial facilities and mini-supermarkets.

(ii) The Entity established Consorcio ARA, LLC in the United States, with representative offices in New York and Chicago. The main objective is the marketing of

its housing in Mexico to Mexican citizens residing in the United States. During 2010, the Entity decided to close such representative offices.

Intercompany balances and transactions have been eliminated in these consolidated financial statements.

Investments in associates in which the entity has significant influence, but not control, are valued as described in

Note 3f.

14. Long-term debt

2014 2013

Syndicated loan with BBVA Bancomer acting as administrative agent, collateralized by a mortgage guarantee (Note 8.b) for $2,328,000. Interest is determined based on the leverage ratio of debt to EBITDA. If this ratio is less than 2.75, the rate will be the Interbank Interest Rate Balance (TIIE) plus 250 basis points, and if greater than 2.75, the rate will be TIIE plus 300 basis points (effective interest rate of 6.53% at December 31, 2014). Tranche A is due in September 2018 and tranche B is due in September 2016, the latter was prepaid on September 30, 2014. (Effective annual weighted average rate of 5.82% and 6.53% in 2014 and 2013, respectively). $ 1,720,400 $ 2,250,300

Bridging loan contracted with Sociedad Hipotecaria Federal (SHF) through CIBanco for the amount of $198,329, which accrues monthly interest at the TIIE rate plus 2.85 basis points; principal will be payable at maturity, while interest on outstanding balances is payable monthly, with maturity on June 24, 2017 (effective interest rate of 6.17% at December 31, 2014). 135,554 -

Bridging loan contracted with Sociedad Hipotecaria Federal (SHF) through CIBanco for the amount of $140,936, which accrues monthly interest at the TIIE rate plus 2.85 basis points; principal will be payable at maturity, while interest on outstanding balances is payable monthly, with maturity on August 28, 2017 (effective interest rate of 6.17% at December 31, 2014).

88,878 -

Note payable of $80,750 guarantee ownership rights and collection with Scotiabank Inverlat, S. A., which accrues monthly interest at the TIIE rate plus 3.25%, the maturity of the note is on December 16, 2016. The effective annual interest rate as of December 31, 2014 and 2013 is 8.04%.

68,734 74,503

Bridging loan contracted with Sociedad Hipotecaria Federal (SHF) through CIBanco for the amount of $82,926, which accrues monthly interest at the TIIE rate plus 2.85 basis points; principal will be payable at maturity, while interest on outstanding balances is payable monthly, with maturity on May 23, 2017 (effective interest rate of 6.17% at December 31, 2014).

58,394 -

Note payable of $200,000 to Banco Regional de Monterrey, S. A., which accrues interest monthly at the rate of 7.26%, which was fixed by the swap agreement, the maturity of the note is on September 28, 2015. Payments of principal and interest on this note are made in monthly installments. (Effective annual weighted average rate of 5.57% and 7.26% in 2014 and 2013, respectively). 37,500 87,500

Page 91: Strong Foundations: Leadership & Growth

] 89 [STRONG FOUNDATIONS: LEADERSHIP & GROWTH

2014 2013

Bridging loan contracted with Sociedad Hipotecaria Federal (SHF) through CIBanco for the amount of $81,472, which accrues monthly interest at the TIIE rate plus 2.85 basis points; principal will be payable at maturity, while interest on outstanding balances is payable monthly, with maturity on December 17, 2017 (effective interest rate of 6.17% at December 31, 2014). 24,442 -

Note payable of $10,920 to BBVA Bancomer, S. A., bearing TIIE interest rate plus 3%; the maturity of the note is on December 8, 2015. The effective annual interest rate as of December 31, 2013 is 6.99%. The principal will be repaid at maturity and interest payments on this note are made in monthly installments. 4,474 10,920

2,138,376 2,423,223

Less - Current portion (409,568) (377,668)

Long-term debt $ 1,728,808 $ 2,045,555

As of December 31, 2014, long-term debt matures as follows:

2016 $ 785,408

2017 510,600

2018 432,800

$ 1,728,808

On September 30, 2013 the Entity entered into a syndicated loan with BBVA Bancomer, S. A. acting as admin-

istrative agent and collateralized by a mortgage guaranteein the amount of $2,328,000. The interest rate is

determined based on the leverage ratio of debt to EBITDA. If this ratio is less than 2.75, the interest rate isTIIE

plus 250 basis points, and if greater than 2.75, the rate shall be TIIE plus 300 basis points. The proceeds of the

loan were used to prepay debt on September 30, 2014. The term of this loan resulted in extends over longer a

period than the debt it replaces. (Note 8.b).

The loan agreements contain restrictive covenants, which require that the Entity maintain certain minimum financial

ratios and fulfill the contractual obligations during the period of the agreement. Management believes the Entity is

in compliance with such covenants as of December 31, 2014 and 2013.

During 2014 and 2013, the Entity drew $804,078 and $2,538,921, from available lines of credit and repaid $1,088,925

and $3,270,205 of these credits, respectively.

Additionally, as of December 31, 2014 the Entity maintains available credit lines with financial institutions of

$2,095,013.

The Entity recognizes long term debt at amortized cost, which are comprised of borrowings that yield interest at fixed

or variable rates based on market indicators. The fair value is similar to its carrying amounts due to the market value

is similar to those recorded.

Page 92: Strong Foundations: Leadership & Growth

] 90 [ANNUAL AND SUSTAINABILITY REPORT 2014

15. Other liabilities and taxes, other than income taxes

2014 2013

Taxes, other than IETU and ISR $ 175,732 $ 121,754

Accrued expenses 186,937 160,686

Accrued interest 4,427 9,912

Deposits from suppliers 370,973 396,527

Direct employee benefits 10,407 9,751

$ 748,476 $ 698,630

16. Income taxes

The Entity is subject to ISR and through December 31, 2013, to ISR and IETU. Therefore, the income tax payable was

the higher between ISR and IETU through 2013.

ISR -The rate was 30% in 2014 and 2013 and as a result of the new 2014 ISR law (“2014 Tax Law”), the rate will con-

tinue at 30% thereafter.

IETU - IETU was eliminated as of 2014; therefore, up to December 31, 2014, this tax was incurred both on revenues

and deductions and certain tax credits based on cash flows from each year. The respective rate was 17.5%.

Until 2013 income tax incurred was the higher of ISR and IETU.

Until 2013, based on its financial projections, the Entity determined that it will basically pay ISR. Therefore, it only

recognizes deferred ISR. As of 2014, only deferred ISR is calculated due to the elimination of IETU.

For ISR purposes, effective in 2005, cost of sales is deducted instead of inventory purchases. Taxpayers had the op-

tion, in 2005, to ratably increase taxable income over a period from 11 to 12 years by the tax basis of inventories as

of December 31, 2004, determined in conformity with the respective tax rules, and taking into account inventory

turnover. The net balance of this deferred income for tax purposes as of December 31, 2014 and 2013 was $624,126

and $997,962, respectively. PTU paid is fully deductible.

a. ISR consist of the following:

2014 2013ISR:

Current $ 202,424 $ 220,110

Deferred 3,359 (39,927)

$ 205,783 $ 180,183

Page 93: Strong Foundations: Leadership & Growth

] 91 [STRONG FOUNDATIONS: LEADERSHIP & GROWTH

The effective ISR rate for fiscal 2014 and 2013 differs from the statutory rate, mainly due to permanent differ-

ences, such as nondeductible expenses and the effects of inflation as follows:

2014 2013% %

Statutory rate 30.0% 30.0%Effect of permanent differences:

Effect of inflation 2.6% 1.8%Nondeductible expenses 1.9% 1.7%Land 3% accumulation 5.6% 6.3%Others (10.5)% (11.8)%Effective tax rate 29.6% 28.0%

b. The main items comprising the liability balance of deferred income tax are as follows:

2014 2013Deferred income tax liabilities:

Inventories and long-term land for development

$ (1,858,350) $ (1,832,431)

Property, machinery and equipment (9,416) (26,965)Others – Net (543) -

Total deferred income tax liabilities (1,868,309) (1,859,396)

Deferred income tax assets:Effect of tax loss carryforwards 90,589 85,890Recoverable tax on assets paid 10,413 12,388Advances from customers 8,725 8,706

Allowance for doubtful accounts 8,919 3,400

Others – Net - 1,465Total deferred income tax assets 118,646 111,849

Valuation allowance for the deferred ISR (1) (73,878) (72,635)

Net long-term deferred ISR liability $ (1,823,541) $ (1,820,182)

(1) Certain deferred income tax assets generated by ARA and PDCC were not recorded because there is not a high probability of recovery.

c. Tax loss carryforwards and recoverable IMPAC for which the deferred ISR asset and prepaid ISR, respectively,

have been partially recognized can be recovered subject to certain conditions. Restated amounts as of Decem-

ber 31, 2014 and expiration dates are:

Year ofExpiration

Tax lossCarryforwards

RecoverableIMPAC

2015 $ - $ 2,8322016 27,697 4,4562017 14,846 3,1252018 17,571 - 2019 46,401 - 2020 24,690 - 2021 36,865 - 2022 61,264 - 2023 61,890 - 2024 10,740 -

$ 301,964 $ 10,413

Page 94: Strong Foundations: Leadership & Growth

] 92 [ANNUAL AND SUSTAINABILITY REPORT 2014

17. Capital lease obligations

a. Capital lease obligations for equipment bear annual compound average interest rate of 5.74% at December

31, 2014.

b. At December 31, 2014, fair values do not differ from book values because observed market values are very

similar to those recorded by the Entity.

c. At December 31, 2014 and 2013, minimum rental commitments under capital leases are comprised of the fol-

lowing:

2014 2013

Total minimum lease obligations $ 8,611 $ 7,389Current portion of obligations (3,676) (6,128)

Long-term portion of capital lease obligations $ 4,935 $ 1,261

Capital lease obligations, which have a purchase option at the end of the lease term matures as follows:

Year ending December 31

2016 $ 2,7312017 2,204

$ 4,935

18. Retirement employee benefits

The Entity operates defined contribution retirement benefit plans for all qualifying employees. The assets of the plans

are held separately from those of the Entity in funds under the control of trustees. Where employees leave the plans

prior to full vesting of the contributions, the contributions payable by the Entity are reduced by the amount of for-

feited contributions.

The related liabilities are calculated by an independent actuary on the basis of formulas defined in the plans using the

projected unit credit method.

Net period cost (income) for obligations resulting from the pension plan and seniority premiums was $1,286 and

$(1,687) in 2014 and 2013, respectively. The balances are $1,554 and $2,142 in 2014 and 2013, respectively. Other

disclosures required under accounting provisions are not considered material

19. Risk management

a. Significant accounting policies

Details of the significant accounting policies and methods adopted (including the criteria for recognition, valua-

tion basis and the basis for recognition of income and expenses) for each class of financial asset, financial liability

and equity instrument are disclosed in Note 3.

Page 95: Strong Foundations: Leadership & Growth

] 93 [STRONG FOUNDATIONS: LEADERSHIP & GROWTH

b. Categories of financial instruments and risk management policies

The main categories of financial instruments are:

2014 2013Cash and cash equivalents (i) $ 1,032,228 $ 599,598Restricted cash (i) 43,369 43,369

Accounts ReceivableCustomer – Net (i) 843,741 740,283Due from equity method investees (i) 10,561 8,608Others financial liabilitiesTrade accounts payable (ii) 676,906 358,781Long-term debt (iii) 2,138,376 2,423,223Capital lease obligations (iii) 8,611 7,389

The assets and liabilities of the Entity are exposed to various financial risks including:

(i) Credit risk

(ii) Liquidity risk, and

(iii) Financial market risks (interest rate)

The Entity seeks to minimize potential adverse effects of the above risks on its financial performance through

different strategies, which are described below:

c. Credit Risk Management

Credit risk refers to the risk that counterparties will default on their contractual obligations resulting in a loss for

the Entity. In the case of the Entity, the principal credit risk arises from cash and cash equivalents and accounts

receivable. With respect to cash and cash equivalents, the Entity’s policy to conduct transactions only with repu-

table institutions and high credit. With respect to accounts receivable, the Entity has credit policies that allow you

to adequately manage credit risk. They are described in Note 7.

d . Liquidity Risk Management

Liquidity risk refers to the risk that an entity will encounter difficulty filling its obligations associated with fi-

nancial liabilities that are covered by delivering cash or another financial asset. The Entity manages liquidity risk

through the establishment of appropriate policies for monitoring the working capital, which allows management

to manage the financing requirements. The excess cash is invested primarily in government paper. 100% of such

excess is invested regularly within less than 30 days. The Entity’s policy allows the excess may also be invested in

bank paper as long as they meet certain requirements of risk and return on investment.

The Entity has continued monitoring of projected cash flows and real and has financial factoring options and lines

of credit for working capital.

Additionally, the Entity control the cash flow allocated to the business lines in order to optimize the return on

investment, maintaining a balance between the sale and construction program.

Page 96: Strong Foundations: Leadership & Growth

] 94 [ANNUAL AND SUSTAINABILITY REPORT 2014

The maturities of long-term debt are presented in Note 14.

The following table shows the contractual maturities of financial liabilities of the entity based on pay periods are:

At December, 31 2014 Less than 1 year

More than 1 year and less

than 3More than 3

years Total

Trade accounts payable $ 676,906 $ - $ - $ 676,906

Long-term debt include interest 528,525 876,602 1,001,309 2,406,436

Capital lease obligations 4,064 2,941 2,263 9,268

$ 1,209,495 $ 879,543 $ 1,003,572 $ 3,092,610

At December, 31 2013 Less than 1 year

More than 1 year and less

than 3More than 3

years Total

Trade accounts payable $ 358,781 $ - $ - $ 358,781

Long-term debt include interest 537,960 562,155 1,813,196 2,913,311

Capital lease obligations 6,379 1,202 100 7,681

$ 903,120 $ 563,357 $ 1,813,296 $ 3,279,773

e . Financial Market Risk

Entity’s activities expose it primarily to financial risks of changes in interest rates and exchange rate.

Management the risk of interest rate-The entity is exposed to risks in the interest rate, because it has con-

tracted variable rate debt (TIIE). To mitigate this risk likely the Entity has a policy of hiring Swap which protect

the movement of the reference rate TIIE (see Note 20). In 2014, the Entity did not hire interest rate swaps.

Sensitivity analysis determines the Entity is prepared based on the exposure to interest rates do not cover the

debt, held at variable rates. For this purpose, an analysis is prepared assuming the amount of liability outstanding

at the end of the reporting has been the outstanding liability for the year.

If the interest rate TIIE have had an increase / decrease of 170 basis points at each reporting period and all other

variables had remained constant, the interest charge at December 31, 2014 and 2013 would have increased by

$37,495 and $19,272, respectively, which have been capitalized in work in progress.

Management foreign exchange risk - The Entity holds investments in foreign currencies mainly short term as part

of the diversification strategy, as well as supporting the needs of the operation. Although the Entity is exposed to

fluctuations in the exchange rate, these are marginal because the proportion who keep the assets and liabilities

in foreign currency.

Page 97: Strong Foundations: Leadership & Growth

] 95 [STRONG FOUNDATIONS: LEADERSHIP & GROWTH

At December 31, the foreign currency monetary position is as follows:

2014 2013Thousands of U.S. dollars:

Monetary assets 4,609 4,521Monetary liabilities (359) (433)

Net monetary asset position 4,250 4,088

Equivalent in Mexican pesos $ 62,645 $ 53,470

d. Transactions denominated in U.S. dollars were as follows:

2014 2013Thousands of U.S. dollars:

Equipment acquisitions 299 95

Offices leases 1,469 1,891

e. The exchange rates in effect at the dates of the balance sheets and of issuance of the consolidated financial

statements were as follows:

December 31, 2014 December 31, 2013

U.S. dollar $ 14.74 $ 13.08

a. Fair value of financial instruments

The fair value of financial instruments presented below has been determined by the Entity using available

market information or other valuation techniques that require judgment in developing and interpreting the

estimates of fair values, also uses assumptions that are based on market conditions existing at each of the

dates of the consolidated statements of financial position.

Consequently, the estimated amounts presented are not necessarily indicative of the amounts the Entity

could realize in a current market exchange. The use of different assumptions and / or estimation methods may

have a material effect on the estimated fair value amounts.

Financial instruments that are measured subsequent to initial recognition at fair value are grouped at the

levels below, covering the extent to which the fair value is observed.

Level 1, the fair value measurements are those derived from quoted prices (unadjusted) in active markets for

identical assets or liabilities;

Level 2, the fair value measurements are those derived from indicators other than quoted prices included

within Level 1, but including indicators that are observable for the asset or liability, either directly or indirectly

quoted prices, ie derivatives of these prices, and

Level 3, the fair value measurements are those derived from valuation techniques that include indicators for

the asset or liability that are not based on observable market data (unobservable indicators).

Page 98: Strong Foundations: Leadership & Growth

] 96 [ANNUAL AND SUSTAINABILITY REPORT 2014

The amounts of cash and cash equivalents of the Entity, as well as accounts receivable and payable of third

parties and related parties approximate their fair value because they have short-term maturities. The long-

term debt of the Entity is recorded at amortized cost, which is debt bears interest at fixed and variable rates

that are related to market indicators. To obtain and disclose the fair value of long-term debt, the Entity uses

the quoted market prices or quotations for similar instruments .

20. Financial instruments

The Entity entered into interest rate swaps for specific loans in 2010 and 2011with maturity on December, 2015, most

of which were prepaid in 2013. The fair value of derivative financial instruments at December 31, 2014 is $3,881.

21. Stockholders’ equity

a. Capital stock consist of 1,312,847,496 ordinary shares, with no par value, no subscription limitations, fully

subscribed and paid.

b. On October 1, 2009, a resolution was authorized to create and implement a share base payment plan for the

Entity’s executives and employees. As of December 31, 2014, such plan has not been implemented.

c. In 2014 and 2013, the Entity purchased and sold its own stock resulting in an increase in subscription premium

of $1,710 and $18,292, respectively.

At December 31, 2014, the Entity repurchased 334,368 shares. The market value of the Entity’s shares, as re-

ported on the Mexican Stock Exchange, was Ps. $6.49 per share.

d. Retained earnings include the statutory legal reserve. The General Corporate Law requires that at least 5% of

net income of the year be transferred to the legal reserve until the reserve equals 20% of capital stock at par

value. The legal reserve may be capitalized but may not be distributed unless the entity is dissolved. The legal

reserve must be replenished if it is reduced for any reason. At December 31, 2014 and 2013, the legal reserve

was $212,937.

e. Stockholders’ equity, except restated paid-in capital and tax retained earnings will be subject to income tax

payable by the Entity at the rate in effect upon distribution. Any tax paid on such distribution may be credited

against annual and estimated income taxes of the year in which the tax on dividends is paid. The contributed

capital account and consolidated net tax income account as of December are:

2014 2013Contributed capital account $ 1,894,091 $ 1,819,842

Net tax income account 6,450,261 5,882,354

Total $ 8,344,352 $ 7,702,196

Page 99: Strong Foundations: Leadership & Growth

] 97 [STRONG FOUNDATIONS: LEADERSHIP & GROWTH

22. Related party transactions

a. Transactions with investments in equity method investees and other related parties, carried out in the ordinary

course of business, were as follows:

2014 2013Revenue:Shopping mall management fees $ 6,053 $ 4,779Administrative services income $ 7,584 $ 7,557Commissions $ 72 $ 66Interests $ - $ 2,137

b. The Entity carried out transactions with other related parties as follows:

2014 2013Revenue:Management and directors:

Housing sale to employees $ 1,203 $ 1,270

Costs:Management and directors:

Direct benefits $ 91,601 $ 83,427

Members of the board of directors:Fees $ 2,689 $ 2,478Emoluments $ 1,957 $ 2,090

Offices leasing $ 497 $ 563Publicity $ 626 $ 626

23. Information by business activity

The information for business activities are presented based on the managerial approach and additional provides

information by business line and geographic area:

a. Information by business activities

The Entity operates as a developer and a lessor solely in Mexico, as mentioned in Note 1. Certain information on

revenues and costs relative to these activities is as follows:

2014 2013Revenues:

As developer $ 6,070,893 $ 5,594,498Others 135,253 141,229

$ 6,206,146 $ 5,735,727

Costs:As developer $ 4,465,916 $ 4,084,929Others 95,413 100,467

$ 4,561,329 $ 4,185,396

Gross profit:As developer $ 1,604,977 $ 1,509,569Others 39,840 40,762

$ 1,644,817 $ 1,550,331

(1) The rental revenue is derived from operating leases of commercial facilities and mini-supermarkets, which have one-year terms, and are increased in line

with inflation year, renewable annually.

Page 100: Strong Foundations: Leadership & Growth

] 98 [ANNUAL AND SUSTAINABILITY REPORT 2014

Revenues and costs by mortgage lender are as follows:

2014 2013Revenues:

INFONAVIT (Including cofinancing) $ 2,754,472 $ 2,198,067

FOVISSSTE ,SHF and commercial banks 3,316,421 3,396,431

$ 6,070,893 $ 5,594,498

Costs:

INFONAVIT (Including cofinancing) $ 2,058,634 $ 1,629,342

FOVISSSTE ,SHF and commercial banks 2,407,282 2,455,587

$ 4,465,916 $ 4,084,929

Revenues as developer, service provider and lessor, are obtained solely within Mexico.

There are no material intersegment transactions.

b. General information for business line

2014 2013Revenues:

Progressive $ 945,853 $ 876,961Social interest 1,286,888 1,552,723Middle 2,700,272 1,999,353Residential 1,137,880 1,165,461Other real-estate projects 135,253 141,229

$ 6,206,146 $ 5,735,727

c. General information for geographic area

2014 2013Revenues:Metropolitana $ 987,570 $ 1,617,791Oriente 930,008 498,318Residencial RIALTA 691,679 827,868Distrito Federal 658,028 111,466Valle de Toluca 622,108 541,861Centro 537,888 506,928Occidente 413,729 428,724Sur 374,389 281,345Bajío 332,412 296,666Noreste 271,768 240,411Noroeste 251,314 243,121

6,070,893 5,594,499Other real-estate projects 135,253 141,228

Total $ 6,206,146 $ 5,735,727

24. Commitments

a. The Entity leases offices under an operating lease that is renewable annually. The rental expense was $26,704

and $34,924 for the years ended December 31, 2014 and 2013, respectively. During 2014, the Entity signed a

leasing contract in U.S. dollars for 1 years for which the annual rent will be 2,000,000 U.S. dollars.

Page 101: Strong Foundations: Leadership & Growth

] 99 [STRONG FOUNDATIONS: LEADERSHIP & GROWTH

b. On August 18, 2004, CIISA executed a trust administration contract with a shopping mall and Banco J.P. Mor-

gan, S. A. Institución de Banca Múltiple, J.P. Morgan Grupo Financiero, Trust Division, transferring part of the

plot of land known as “las Américas” on which the “las Américas shopping mall” was developed.

CIISA obligations or the Americas Regional Center, S. de R. L. its affiliate, are among others, a) the obligation to

carry and charge your account out the construction and improvement of the mall (except department store),

including parking lot of the department store, according to the executive project; b) and operate the mall (ex-

cept for warehouse department store).

c. PDCC enter into a “Framework Agreement” with a third party, which establishes processes and procedures

related to the investment in future construction projects and operation of malls.

d. Guarantee and management trust - In July 2006, the Entity celebrated an agreement with Fomento Metropoli-

tano of Monterrey (“Fomerrey”). Fomerrey maintains documentation of consents evidencing its rights for the

substantiation and settle for the expropriation of the land.

The Entity gave to Fomerrey $5,000 at the signing of this agreement. Fomerrey will receive $25,749 if the fo-

llowing conditions occur:

a) Fomerrey becomes the legitimate owner of the land located in Nuevo León.

b) The Entity develops social interest housing with a minimal density of 50 housings by hectare on the land.

c) Water feasibility, sanitary drainage and electrical energy are obtained.

d) Fomerrey Committee authorizes this agreement.

The Entity will pay to Fomerrey 2% of the total value for the sale of houses that are built on the land.

During 2009, the conditions established in the agreement were fulfilled and the Entity was obligated to liquidate

the amount in accordance with the agreement. However Fomerrey did not honor the agreement. As of the date

of issuance of these financial statements the Entity initiated a lawsuit in order to force Fomerrey to comply with

their commitment under the agreement.

e. The Entity is party to various legal actions in the normal course of its business. According to the Entity’s legal

advisors, it is not involved in or threatened by proceedings for which the Entity believes it is not adequately

insured or indemnified or which, if determined adversely, would have a material adverse effect on its financial

position, results of operations or cash flows.

f. CIISA executed a master agreement on August 10, 2010 with Crystal Lagoons Corporation, LLC, a corporation

legally established in the State of Delaware, United States, for the licensing and use of technology for the de-

velopment and construction of lagoons. Consequently, CIISA has an urgent need for the technological support

of a Entity highly specialized in this field.

Participants - Crystal Lagoons Corporation, LLC. (CL) and Consorcio de Ingeniería Integral, S. A. de C. V. (CIISA)

Page 102: Strong Foundations: Leadership & Growth

] 100 [ANNUAL AND SUSTAINABILITY REPORT 2014

Commitment - CL grants CIISA an exclusive right to sign technology license agreements for use in projects within

certain geographical areas determined by CIISA. The objective of this agreement is to determine the terms, condi-

tions, and requirements that CIISA must fulfill to maintain the exclusive rights in those geographical areas, for

purposes of executing license agreements with CL in the future for the use of technology.

Similarly, CL will not be able to license the technology to any third party for the duration of the exclusivity in the

geographical areas, without prior authorization by CIISA.

A license agreement for the use of technology will be executed for each additional project.

Effective duration of contract - The agreement will be in effect for 24 months from its execution date. The ter-

mination of the agreement will not affect the duration of the license agreements executed thereunder or the

exclusivity granted for the period stated in the exclusivity term for each particular geographical area. Once the

exclusivity term concludes, and having executed the respective technology license agreement for the develop-

ment of a project in accordance with the “Business Plan”, CIISA will maintain exclusive rights only in the exclusion

area of the project for a four-year period as of the end of the exclusivity term.

On September 26, 2012, Crystal Lagoons Corporation LLC transfered the rights of master agreement, in addion the

license contracts to Crystal Lagoons B.V.

CIISA executed an explanation and amendment agreement on March 4, 2015 with Crystal Lagoons B. V. a corpo-

ration legally established in Netherlands, for explanations and amendment to the benefits of both sides on the

maintenance terms, decrease of royalties ratio and publicity of CL brand.

25. Authorization to issue the financial statements

On March 27, 2015, the issuance of the consolidated financial statements was authorized by C. P. J. Sacramento Soto

Solís Director of Administration and Finance of the Entity. These consolidated financial statements are subject to the

approval of the Entity’s general ordinary stockholders’ meeting, who may modify the financial statements, based on

provisions set forth by the General Corporate Law.

* * * * * *

Page 103: Strong Foundations: Leadership & Growth

ARAstrengths

GEOGRAPHICAND PRODUCTDIVERSIFICATION

STRATEGICLAND BANK

MANAGEMENTTEAM WITH GREATEXPERIENCE

CORPORATEGOVERNANCE

VERTICALINTEGRATION

FINANCIALSTRENGTH

FLEXIBLECONSTRUCTIONPROCESS

InvestorRelationsAlicia Enriquez Pimentel [email protected](52.55) 5596 8803(52.55) 5246 3100 x. 4096

IndependentAuditorGalaz, Yamazaki, Ruiz Urquiza, S.C.Member of Deloitte Touche Tohmatsu Limited

FOUNDING MEMBER OF

VIVIENDA Y ENTORNO

SUSTENTABLE, A.C.

DES

IGN

& P

HO

TOG

RA

PHY:

33

VIS

UA

L | P

RIN

TIN

G: E

AR

THC

OLO

R, H

OU

STO

N

Page 104: Strong Foundations: Leadership & Growth

Stro

ng F

ound

atio

ns: L

eade

rshi

p &

Gro

wth

Strong Foundations:Leadership & GrowthANNUAL AND SUSTAINABILITY REPORT 2014

Arcos Bosques Marco II

Paseo de Tamarindos 90, Tower 1

25th, Bosques de las Lomas

C.P. 05120, Mexico City, Mexico

consorcioara.com.mxara.com.mx AN

NU

AL A

ND

SUST

AIN

ABIL

ITY

REPO

RT 2

014