2010 AnnuAl report potentiAlly ArA

potentiAlly ArA2010 AnnuAl report

ARA Crystal Lagoons project for 900 houses and apartments in Cancún, Quintana Roo, Mexico.

ConsorCio ArA follows the Code of Best CorporAte GovernAnCe prACtiCes.

in 2009 we Adopted the new inif-14 ACCountinG rule for revenue reCoGnition (internAtionAl finAnCiAl reportinG

interpretAtions Committee 15 [ifriC 15]).

we Are A soCiAlly responsiBle CompAny ConCerned ABout the welfAre of our CollABorAtors, our soCiety And the environment.

trAnspArenCy And ConsistenCy

Potentially ara : 1

ConsorCio ArA is one of the most profitABle CompAnies in the homeBuildinG seCtor in meXiCo, As A result of our eXpertise in tAKinG AdvAntAGe of eConomies of sCAle, mAintAininG hiGh QuAlity stAndArds And low produCtion Costs

CrystAllizinGdreAms to provide A GreAt QuAlity of life

mission vision

land reservecorporate profile

To develop homes and communities where Mexicans are proud to live.

To become the most reliable, profitable and innovative homebuilder in Latin America.

ara’s land reserve is strategically located in high-economic growth regions in Mexico. as of December 31, 2010, there are 43.5 million square meters of land reserve in 19 states in the country, enough to build 176,716 master plan homes. This land reserve includes 3.9 million square meters which will be assigned to other real estate projects besides housing, such as commercial and touristic developments, as well as industrial zones. Total worth of the land reserve is $5,500.2 millions of pesos.

States Units %

State of Mexico 67,219 38.0Quintana roo 39,679 22.5Nuevo León 15,201 8.6Baja California 9,250 5.2Puebla 7,062 4.0Jalisco 6,982 4.0Querétaro 6,653 3.8Guerrero 5,894 3.3Hidalgo 5,176 2.9Morelos 3,705 2.1Sonora 2,822 1.6Guanajuato 2,291 1.3Nayarit 2,074 1.2Veracruz 1,123 0.6Distrito Federal 865 0.5Michoacán 462 0.3Chihuahua 180 0.1Sinaloa 48 0.03Tabasco 30 0.02total 176,716 100

contentTransparency and Consistency 01 Message to Our Shareholders 02 Financial Highlights 04 Intelligent Growth 05 results 06 Dividends 07 Innovating and Working in Balance 08 Brand Segment 12 Sustainability and Housing 14 Casas ara 16 INTeGrara 17 ara Crystal Lagoons 18ara residencial 20 rIaLTa 21 Shopping Malls 22 Commercial ara 26 Human Capital 28 Business Development 29 ara Foundation30 Social responsibility 31 Committees 32 Board of Directors 33 Corporate Directors 34 regional Directors 36 Consolidated Financial Statements 37

land reserve by housing type

6.1% Residential

15.0% middle-income

24.8% PRogRessive

54.1% affoRdableentRy level

43,883

26,504

10,788

95,541

Since the beginning of our participation in the Mexican Stock exchange in 1996, we have become known by our sustained growth and long-term vision along with a solid financial structure reflected mainly in the efficient use of our working capital, liquidity and moderate debt level. as of 2010 we have more than 34 years of experience in housing construction and sales: low income, affordable entry-level, middle-income and residential, as well as in shopping malls operation. Throughout these years we have sold more than 258,000 homes where approximately 1,293,000 Mexicans live. We are listed in the Mexican Stock exchange under the ara*stock symbol, as well as aDrs in the New York Stock exchange. We have the best ratings in the Mexican housing sector from Standard & Poor’s and Moody’s Investors Service: “mxa” and “a2.mx” “Ba2”(Global scale), respectively.

53 developments

33 municipalities

20 cities

18 states

PreSence

messAGe to our shAreholders

innovAtion, operAtionAl effiCienCy, A solid finAnCiAl position And A diversified housinG produCt offerinG hAve Allowed us to mAintAin the profitABility thAt distinGuishes us And the ConsolidAtion of ConsorCio ArA As A CompAny of vAlue.

2010 was a year of profitable growth for Consorcio ara in a strong and competitive real estate sector. We have fulfilled our business plans based on viable projects, thanks to our financial strenght and the trust of our shareholders.

The national context is encouraging vis-à-vis the future. The data presented by the INEGI (Instituto Nacional de Estadística y Geografía) in 2010 is positive for the homebuilding sector and shows a trend of population growth and an increase in the fertility rate. We are focused on satisfying the housing needs of our clients and providing them with a better quality of life and a family patrimony.

Every Consorcio ara project is based on profitable planning and efficient and sustainable growth. We are committed to building sustainable housing which will benefit its residents and contribute to the preservation of the environment through the use of innovative and high value-added products.

Therefore, within the framework of COP16 in Cancun, México, and in support of world efforts to fight climate change, we presented our Vista real project “Social, Economic and Environmentally-focused Sustainable Community”. The project considers a complex of 48 homes, sports and commercial areas that use photovoltaic cells and solar panels, water, gas and energy-saving systems; garbage-separating containers, internal cycle path and primary road access. These homes contribute to reduce CO

2 emissions in the country.

a clear example of our commitment to innovation and value-added housing offering is the alliance of ara with Crystal Lagoons Corporation for the development of artificial-lagoon communities with the most innovative technology for energy

4 : ConsorCio ara 2010 aNNuaL rEPOrT

43.5 millionsquare meters of land bank

rESErVE PrESENT IN rEGIONS IN ThE COuNTry Of hIGh ECONOMIC GrOWTh

$2,015 million pesos of dividends paid to our shareholders

and water saving and use of water-disinfection chemicals. ara Crystal Lagoon Communities will have an important product differentiator in their aesthetic and recreational value, but above all in their preservation of natural resources.

Part of our strategy for providing innovative products is our business unit for the development, operation and marketing of shopping malls, located strategically within our complexes. We are also currently awaiting the Integral Sustainable urban Developments (DuIS) certification which will conform competitive cities that will bring environmental benefits, services and welfare to their inhabitants while contributing to the development of Mexico through the generation of jobs.

The outlook for 2011 is filled with opportunites for Consorcio ara. Our solid financial position enables us to obtain financing at competitive costs in order to maintain our trademark profitability and a balanced mix of products for the most profitable segments.

We are present in regions of the country with high economic growth. We have a 43.5 m2 land reserve that gives us the possibility of building 176,716 master plan units, including 3.9 million square meters that will be assigned to other real estate projects adding more value to the community.

Our commitment is to continue to generate value for our stakeholders. We paid our shareholders dividends in the amount of $2,015 million, becoming the second public homebuilding company to generate the highest profits. regarding our responsibility with society, we have received the distinction as Socially responsible Company granted by the CEMEfI for the fifth consecutive year, and in partnership with other institutions, we have contributed to the ara foundation to improve the quality of life of underprivileged Mexican families by delivering more than 10,000 homes from 2005 to 2010.

Our work is always based on the best corporate governance practices. In 2009 we anticipated events by the early adoption of the new accounting rule for revenue recognition that differentiates us in the sector. Our 2010 results confirm our display of best practices and transparency in our performance, generating value for all those around us and opening up a future filled with opportunities.

Today we are grateful to you, our shareholders, for giving us your trust and for stimulating us to keep working on projects that will generate value, while focusing on responsible and transparent strategies. We always comply with current law and regulations to benefit society, preserve natural resources and drive the country’s economy through the homebuilding sector.

Germán ahumada russek luis Felipe ahumada russek CEO CEO real Estate Division Development and Construction Division

2010 yEar Of GrOWTh

we Believe thAt emphAsizinG the preservAtion of nAturAl resourCes And the use of sustAinABle teChnoloGies And proCesses in the desiGn And ConstruCtion of our housinG Complexes is A Good investment towArds the fulfillment of our oBjeCtives As A reAl estAte CompAny.

Potentially ara : 5

We are a vertiCally-inteGrated ComPany throuGhout the value Chain. WE TakE aDVaNTaGE Of ECONOMIES Of SCaLE.We are a transParent and Consistent ComPany ThaT IMPLEMENTS ThE bEST COrPOraTE GOVErNaNCE PraCTICES.our GroWth IS fOCuSED ON PrOfITabILITy.We are the only PubliCly traded mexiCan homebuildinG ComPany in the seCtor to Pay DIVIDENDS TO ITS SharEhOLDErS.We have ventured in the artiFiCial laGoon business model ThrOuGh Our ara CrySTaL LaGOONS NEW PrODuCT LINE. We maintain the best rates in the mexiCan housinG seCtor: “mxa” and “a2.mx” (MExICaN NaTIONaL SCaLE) aND “ba2” (GLObaL SCaLE) ISSuED by STaNDarD POOr’S aND MOODy’S INVESTOrS SErVICE, rESPECTIVELy.

hiGhliGhts


financial highlights

2010 2009

Sales 7,371.0 7,113.7

units 18,244 17,467

average Price (Thousands of Pesos) 390.9 402.5

Gross Profit 1,816.4 1,766.5

Income from Operations 1,170.7 1,130.5

Net Comprehensive financing result 11.2 34.2

Net Income 769.0 723.4

EbITDa 1,412.9 1,385.0

Gross Margin 24.6% 24.8%

Operating Margin 15.9% 15.9%

Net Margin 10.4% 10.2%

EbITDa Margin 19.2% 19.5%

Total Current assets 13,350.3 12,773.9

Total assets 15,898.7 14,836.2

Total Current Liabilities 2,991.5 2,645.2

Total Liabilities 6,456.3 6,028.2

retained Earnings 7,725.7 7,068.1

Stockholders’ Equity 9,442.4 8,807.9

Net Working Capital 10,358.7 10,128.8

Capital Expenses 58.1 35.0

Net Debt 1,115.0 747.3

Cost bearing Debt 2,325.9 2,244.2

Growth

Potentially ara: 7

Millions of pesos

intelliGent

net Comprehensive Financial result 2010 2009 variación %

Interest expense 67.1 78.3 -11.2 -14.3

Interest income -60.7 -48.6 12.1 24.9

Net exchange loss 4.8 4.5 0.3 6.6

total 11.2 34.2 23.0 -67.2

leverage ratios 2010 2009

/Stockholders’ Equity 0.25 0.25

Cost bearing Debt /Total assets 0.15 0.15

/EbITDa 1.65 1.62

Net Debt / Stockholders’ Equity 0.12 0.08

Net Debt / EbITDa 0.79 0.54

Interest coverage 6.47 5.75

Total Liability / Total assets 40.6% 40.6%

Total Liability/Total assets (a) 28.0% 27.4%

(a) Not including deferred income tax in liabilities.

results


Figures in millions of pesos

Jan-dec’10 Jan-dec’09 variation

homes by financing type# titledhomes %

# titledhomes %

# titledhomes %

Infonavit 9,067 49.7 8,045 46.1 1,022 12.7

Infonavit Total 3,247 17.8 3,402 19.5 -155 -4.5

Cofinavit 857 4.7 854 4.9 3 0.4

Subtotal 13,171 72.2 12,301 70.5 870 7.1

Shf, banks and No Credit 1,607 8.8 1,647 9.4 -40 -2.5

fovissste 3,466 19.0 3,519 20.1 -53 -1.5

Subtotal 5,073 27.8 5,166 29.5 -93 -1.8

total titled homes 18,244 100 17,467 100 777 4.4

income by housing type 2010 2009 variation

units income % units income % units %

Progressive 6,180 1,581.2 21.4 6,466 1,616.2 22.7 -35.0 -2.2

affordable Entry Level 6,214 2,224.4 30.2 5,754 2,032.0 28.6 192.4 9.5

Middle-Income 3,320 1,838.9 24.9 3,605 2,034.3 28.6 -195.4 -9.6

residential 610 1,014.3 13.8 737 1,132.1 15.9 -117.8 -10.4

as Contractor 1,920 472.0 6.4 905 216.7 3.0 255.3 117.8

total as home builder 18,244 7,130.8 96.7 17,467 7,031.3 98.8 99.5 1.4

Other real Estate Projects 240.2 3.3 82.4 1.2 157.8 191.5

total 18,244 7,371.0 100 17,467 7,113.7 100 257.3 3.6

Potentially ara : 9

Figures in millions of pesos

dividends

2005 2006 2007 2008 2010 total

Dividend amount (1) 156.1 1,338.9 207.0 204.5 108.5 2,015.0

Dividends per share (2) (3) 0.1189 1.0198 0.1576 0.1558 0.0832 1.5353

yield 1.42% 9.06% 0.86% 1.30% 0.91%

(1) Millions of pesos(2) Pesos(3) Total shares issued: 1,312,847,496

innovAtionAnd BAlAnCed work


TerrariuM, acapulco, Guerreo

the housinG development industry in mexiCo hAs Been A strAteGiC element for the desiGn And implementAtion of soCiAl And eConomiC poliCies in the Country.

47%of the populAtion lives in Communities of more thAn 100,000 inhABitAnts

64.4%of the populAtion is Between 15 And 64 yeArs of AGe

the environment

OutlOOK Of the hOusing sectOr in MeXicO

Potentially ara : 11

Constant growth in the housing sector has positioned it as the driving motor for economic recovery while improving the quality of life of Mexicans and favoring social integration and community development.

housing in Mexico represents an enormous business opportunity because of the convergence of the demographic bonus, the strong housing demand, great mortgage supply and the decided support of the Mexican State.

demoGraPhiC bonusaccording to the 2010 Demographic and housing Census, Mexico’s total population is 112.3 million, of which 47% lives in communities of more than 100,000 inhabitants. In 2010, the population under 15 years of age represented 29.3% of the total, while 64.4% corresponded to the population between 15 and 64 years of age, with senior citizens representing 6.3% of total inhabitants.

In contrast, in 2000 these groups’ participation was 34.1, 60.9 and 5% respectively. Mexico is currently undergoing a stage in which the volume of the working age population has reached its greatest relative weight in relation to the population in age of economic dependence.

29.3%34.1%

64.4%60.9%

6.3% 5.0%

POPulatiOn structure 2010

POPulatiOn structure 2010

0-14 Age 0-14 Age

MediAn26 Age

15-64 Age 15-64 Age65 Age oR MoRe

65 Age oR MoRe

MediAn22 Age

housinG demandaccording to data supplied by the CONaVI (Comisión Nacional de Vivienda), due only to the demographic growth of the Mexican population, an estimated demand of more than 11 million new homes is expected in the next 20 years without considering retrofitting of the existing housing stock or the accumulated housing deficit.

Existing housing stock in Mexico is 28.6 million homes, which relative to the year 2000, represents a growth of 6.7 million, a 2.6% compound annual growth rate, greater than the population growth in the 2000-2010 period, which was 1.4%. according to the Shf (Sociedad hipotecaria federal), the accumulated housing deficit yet to be satisfied is 8.9 million homes, of which 1.7 million are new required homes and 7.2 million are homes in very precarious conditions. It is estimated there will be 603,000 new homes only in 2011.

mortGaGe availabityMexico has a strong, world-class mortgage industry which implements the best practices for credit risk management. Institutions such as the INfONaVIT (Instituto del fondo Nacional de la Vivienda para los Trabajadores), fOVISSSTE (fondo de la Vivienda del ISSSTE) and the Shf, coordinated by the CONaVI, along with commercial banks, the Sofoles and Sofomes, have made possible access to mortgage credits for the acquisition of homes for many families.

Moreover since 2007 the annual amount of securities issued with mortgage support from T-fovis from fOVISSSTE, Cedevis from INfONaVIT and bonhitos from hipotecaria, totals 2,900 million dollars. These issues have high quality standards endorsed by the various rating agencies.

In 2010, the INfONaVIT granted 475,072 mortgage loans representing an economic turnover of 156,867 million pesos, including the investment of banks and sofoles in co-financing programs. because of the need to satisfy the growth of housing demand, INfONaVIT offers financing options for different needs by diversifying its mortgage products so that a greater number of workers affiliated or not, may acquire a quality home.

It is estimated that by 2011, 765,000 mortgages and 265,000 subsidies will be granted nationally, representing an investment of between 21,000 to 23,000 MD; together, the INfONaVIT and fOVISSSTE will grant seven out of every ten mortgage credits.

It should be noted that a current trend in the sector is the construction of sustainable housing that will contribute to the preservation of the environment, by which Integral Sustainable urban Developments (DuIS) have sprung up representing communities with economic, social and environmental benefits. The main benefit of these developments is that they are established on adequate soil with the equipment and infrastructure capable of providing its inhabitants with a top quality of life.

12 : ConsorCio ara 2010 aNNuaL rEPOrT Potentially ara : 13

it is expeCted thAt the delivery of mortGAGe Credits oBserved in 2010 will mAintAin its rAte in 2011.

issuance Of MOrtgage bacKed securities

20102009200820072006

$2,960 $2,936$2,857$2,959

$1,498

ACCumulAted defiCit of

8.9million homes

475,072loAns GrAnted ByinfonAvit in 2010

figures in millions of dollars

Source: CONaVI with information by INfONaVIT, fOVISSSTE, Shf, hITO

BrAnd

seGment

14 : ConsorCio ara INfOrME aNuaL 2010

Transforma tu esfuerzoen una Casa




affordable Entry Level and Middle-Income Level housing

Middle Income and residential segment

Making your effort into a home

Transform your success into a home

shoppinG mAll


DENTRO NADA TE HACE FALTAAFUERA TODO QUEDA CERCA Un estilo de vida jamás visto

ENTORNOs REsiDENCiALEs QUE DAN sENTiDO A TU viDA

Concentration and urban Sustanability Projects Crystal Lagoons Projects

inside you do not need anything outside everything is near A life style never seen before

REsiDENTiAL ENviRONMENTs THAT givE MEANiNg TO yOUR LiFE

based on this premise, the Mexico National Development Plan 2007-2012 establishes as one of its leading public policy axis, “Environmental Sustainability”, through efficient and rational management of natural resources that allows the improvement the welfare of families. Similarly, the National housing Programme 2007-2012 considers the adoption of criteria for the rational use of water and energy, as a guiding objective to “promote sustainable housing development” with the strategy of “encouraging the construction of housing developments with sustainable features”.

aligned to these objectives and as part of the Sixteenth united Nations Climate Change Conference (COP16), Consorcio ara submitted its proposal for sustainable developments: houses equipped with sustainability elements in order to reduce CO

2 emissions.

sinCe its foundinG ConsorCio ArA hAs witnessed mAny ChAnGes in the industry And its AdAptAtion to those ChAnGes hAs AlwAys kept the CompAny relevAnt. todAy, the ConCept of housinG hAs Been redefined, not only As A spACe to Cover the BAsiC needs of its inhABitAnts, But As An element to improve QuAlity of life And preserve the environment.

sustAinABilityAnd housinG: A new ConCept of life

vista real sustentable is a project that is technically

replicable in future developments and which

introduces a new housing offering in Mexico. Among

the economic benefits of the Vista Real Sustentable

development is the reduction in maintenance costs from the efficiency in the use of electricity, gas and water.

16 : ConsorCio ara 2010 aNNuaL rEPOrT Potentially ara : 17

vistA reAl sustentABleConsiders a new approach to sustainable housing in Mexico.• 48 homes altogether • Medium density housing organized as a district • Mixed residential area with commercial and sport areas • Traditional housing with one or two rooms

three housinG PrototyPesNET ZErO- Covers nearly 100% of the demand with solar energy• housing without power network needs• 1kWp photovoltaic cell• bidirectional Meter • Sustainable type equipmentVENT-type -Ventilation without energy wasting• Photovoltaic cell in order to power the ventilation and extraction system• Ceiling ventilator activated through solar energy• Mechanical air exhaust, activated trhough solar energy• Sustainable type equipmentPLuS- Special housing with eco- technologies • Design based on international specifications for disabled housing• access ramps• 1.10m doors• Special equipment in bathrooms• Toilet and sink with special height• Sustainable type equipment

sustainable tyPe eQuiPment• Ceiling insulation• Sealed windows and doors• LowE crystals (sunscreen)• air vents in facade for air inlet• Low energy bulbs• high efficiency water heater• kitchen water filter• Low-power shower• Ecological level WC• Water saving faucets• Waste separation containers

eQuiPment For the Whole develoPment• Photovoltaic lighting• Waste Management• Transition of the local setting to urban road transport network• access to primary roads• bicycle path

we Are A soCiAlly responsiBle CompAny whiCh meAns we pArtiCipAte in ACtions to reduCe emissions thAt CAuse ClimAte ChAnGe.

this new world trend emphasizes the importance of a global vision where development planning includes elements that will favor an integral development of the community, always taking in consideration the preservation of the environment and the optimization of resources. This new concept for community development is our idea for sustainability.





ara’s promise to Mexicans is consistent with its philosophy of transforming their efforts into a home, so our slogan is “you work like no one else; you deserve a home”.

Our philosophy is to recognize Mexican workers and tell them that ara will reward their efforts.

how do we turn people’s efforts into a home?There are currently great barriers inside the minds of Mexicans regarding housing. In spite of their daily efforts, millions of Mexicans ignore that they are entitled to a loan which together with our advice, excellent service and quality products would enable them to buy a house.

Our housing offering is focused on the affordable Entry Level and Middle-Income segment in 19 cities in the country where we provide economic welfare for every region in which our developments are present.

for more thAn 30 yeArs, At ArA we hAve Been Committed with the improvement of the QuAlity of life of mexiCAns; we Are AwAre of their lonG workinG dAys, thAt they hold more thAn one joB And thAt they strive for their fAmily’s welfAre every dAy.


CiTara, Huehuetoca, State of Mexico

Transform your effort into a home

inteGrArA is the reAl estAte ConCept thAt offers QuAlity of life improvement By providinG mAin serviCes And shoppinG AreAs in one plACe within the reACh of its residents, in A City like mexiCo City, where time And distAnCe Are relevAnt issues for A QuAlity life.

in 2010 inteGrArA ConsolidAted its seCond development in the AzCApotzAlCo AreA, A vertiCAl housinG offer thAt promises swift displACement from one plACe to Another By inteGrAtinG every residents’ potentiAl need.

Potentially ara: 19

DENTRO NADA TE HACE FALTAAFUERA TODO QUEDA CERCA

inside you do not need anything outside everything is near

in oCtoBer 2010, ArA estABlished A strAteGiC AlliAnCe with CrystAl lAGoons CorporAtion, A ChileAn CompAny thAt develops lArGe-sCAle CrystAlline lAGoons surrounded By BeAChes, veGetAtion And doCks, By meAns of A teChnoloGy reGistered in 150 Countries.


This unique and innovative concept will offer high-value homes situated at the edge of artificial lagoons of natural appearance which will provide their residents with life quality, the possibility of becoming part of a sustainable community, as well as access to unconventional amenities.

Extending over 20,000-60,000 square meters, the lagoons will be surrounded by landscapes specifically designed to create natural environments, benefiting their residents by generating common living spaces and creating a community around an element that adds value to the real estate project. The possibility of accessing an environment where open-air activities may be carried out year-round makes the ara Crystal Lagoons house offering a uNIQuE one in Mexico.

A life style never seen before


home costs will be according to the real estate offer of each project, offering very competitive prices for added-value projects surrounded by landscapes of great beauty.

With sustainable vision, the lagoons’ maintenance cost will be kept affordable through fees that will be paid through a program for the management of the complex and which will guarantee its perfect maintenance. under this concept, the ara Crystal Lagoons projects foster preservation of natural resources:

a. Capacity to store, treat and preserveb. Capture and reuse of rain waterc. Comply with the strictest quality and health standards for the users, since they are provided

with an efficient system of disinfection by pulsesd. use of 100 times less chemicals than conventional poolse. requiere only 2% of the energy used by traditional water treatment systems

there Are six projeCts of this type Currently under development in different stAtes in the Country with A totAl of 12,000 homes thAt will Be ABle to enjoy their Benefits. our oBjeCtive for 2011 is to Build the first ArA CrystAl lAGoons to BrinG nAturAl environments to the Cities.


the developments Are desiGned to sAtisfy middle And residentiAl inCome seGments And seek to provide A QuAlity of life thAt will differentiAte them And thAt will represent A siGnifiCAnt AChievement in the life of its residents.

We have ara residencial developments in cities such as acapulco, Veracruz, Cancun, Mexico, recognized as main tourist destinations and which represent a second or summer home option.

ara residencial developments guarantee their owners the realization of a great achievement and success, as a result of their effort.

Transform your success into a home

riAltA reAl estAte developments offer sophistiCAtion, hArmony And sAfety in the Best spACes And loCAtions thAt GuArAntee lifestyle And the exClusivity thAt this seGment deserves.


four years from its creation, rialta offers residential alternatives in the best destinations with unique characteristics that provide our clients with great added value.• Paraíso residencial and Country Club, Cuernavaca, Morelos, Mexico• foresta residencial, Metepec, State of Mexico• Pearl Tower, Nuevo Mazatlán, Sinaloa, Mexico• Vista azul, Cancún, Quintana roo, Mexico

ENTORNOs REsiDENCiALEs QUE DAN sENTiDO A TU viDA

REsiDENTiAL ENviRONMENTs THAT givE MEANiNg TO yOUR LiFE


shoppinGmAlls

Fashion Mall Power Center

City or muniCiPality CuAuTiTlAn izCAlli ixTApAluCA huehueToCA eCATepeC eCATepeC TijuAnA VeRACRuz

state STATe of MexiCo STATe of MexiCo STATe of MexiCo STATe of MexiCo STATe of MexiCo BAjA CAlifoRniA VeRACRuz

tyPe CoMMuniTy CenTeR CoMMuniTy CenTeR CoMMuniTy CenTeR RegionAl CenTeRfAShion MAll

RegionAl CenTeRpoweR CenTeR CoMMuniTy CenTeR CoMMuniTy CenTeR

anChors MegA CoMeRCiAl MexiCAnA BodegA AuRReRá wAlMART liVeRpool, SeARS wAlMART, SAM’S MegA CoMeRCiAl MexiCAnA MegA CoMeRCiAl MexiCAnA

sub-anChors C &A, Coppel n /A Coppel SAnBoRnS, SuBuRBiA, C&A offiCe MAx, MARTi,SpoRT CiTy, fAMSA

fAMSA ,Solo un pReCio,peTeR pipeR pizzA n /A

Cinema(no. sCreens) CinépoliS (10) n /A CinépoliS (5) CinépoliS (14) n /A CineMex (9) n /A

Gross leasable area (Gla) all the ComPlex (m2) 26,661 10,290 20,814 75,277 43,742 26,345 18,992

Gross leasable area (Gla) ara ProPerty / Partners (m2)/

26,661 10,290 20,814 46,161 14,066 26,345 18,992

year oF ConstruCtion 2001 2006 2010 2005 2005 2007 2008

% ara 50% 50% 50% 50% 50% 50% 100%

% onaPP* 50% 50% — 50% 50% 50% —

%mrP** — — 50% — — — — * ONaPP: O´Connor North america Property Partners ** MrP: Mexico retail Properties

ConsorCio ArA hAs Continued to Add vAlue for its shAreholders throuGh its Business division for the development, operAtion And mArketinG of shoppinG mAlls. eACh one of these projeCts hAs proved AdeQuAte finAnCiAl And operAtionAl mAnAGement, AlwAys seArChinG for Cost effiCienCy And pursuinG more effiCient CApitAl struCtures AllowinG us to oBtAin GreAter returns thAn oriGinAlly plAnned. ContinuAl leAsinG ContrACts hAve Allowed us to mAintAin A ConstAnt CAsh flow in our revenues As well As sustAinABle Growth in this Business division.


adiditionally, ara has a total of 7,378 m2 of commercial areas under the unicentro and Minicentro formats located in or near ours housing developments.

a co-investment agreement took place in 2009 with Mexico retail Properties (MrP), another of the main shopping mall developers in the country, reasserting our position as one of the developers and operators with the best understanding of the current shopping mall market and industry conditions.

2009 also saw the start of the initial stage of the first project with our new business partner and Consorcio ara’s sixth operational shopping mall: Plaza Cañada huehuetoca. The relevance of this project is its location in one of the greatest growth areas in the State of Mexico, where Consorcio ara has one of its most important housing developments: CITara. Plaza Cañada huehuetoca adds 21,000 square meters of net leasable area (GLa) to the assets developed and operated by Consorcio ara between the area already under operation and the one under development, and is planned to be finished in the third quarter of 2011.

The acquisition of a plot in Cuatitlán in the State of Mexico for the development of a new shopping mall project jointly with Comercial Mexicana and Cinépolis was finalized and will be open to the public by the end of 2011. The acquired 42,000 square meters lot has an exceptional commercial location and will


mArket visionan increase in sales of 9.3% driven by department stores was observed in 2010. regarding supermarkets, the increase was 8.1%, reflecting a recovery of consumer levels for the large chains.

Moreover, the banking sector has started to grant loans again for this type of projects, although with stricter rules. according to data provided by the Mexican bank association (abM) the current business credit portfolio increased 8.9% relative to the previous year, showing greater confidence on the private sector; the decrease of interest rates should also be mentioned.

a moderate recovery in the demand for commercial space derived from an improvement in the economy of the country is expected in 2011.

regarding commercial space, the main department stores and supermarkets have presented their plans for growth showing a significant one with respect to the previous year.

division strateGyThe main focus of ara DCD has been on the development of integral shopping malls in locations with high potential for demographic growth through a strategy of long-term investment. This is based on solid vertical integration allowing adequate coordination of the links in the value chain creating synergies between the housing and commercial markets.

The market focus provides a commercial platform for housing developments in high-grow th areas, contributing with added value not only to shareholders but also to final clients and owners of an ara home. We carried out the development of shopping malls incorporating Mexico’s main stores into them and coordinating marketing and advertising efforts.

The market objective is to be found in Mexico, traditionally inside or adjoining the residential communities developed by ara providing a safe base of users for this type of real estate developments.

contribute with an increase of almost 16,000 square meters of net leasable area (GLa) to the assets developed and operated by Consorcio ara, becoming one of the most attractive projects of the division.

In December 2010 we agreed on the entry of Cinemex as the new operator of the movie theater complex at Plaza Oasis in Tijuana, which has great potential in the movie theater business and represents a renewed source of visitors to the shopping mall and places it in a more competitive position in the area.

The growth indicators, for leasable area as well as for income, reinforce our conviction to develop more shopping mall ventures. Our effort has been channeled towards growth of business size as well as profitability of the invested capital; this will turn the company into one of the most successful shopping mall developers in Mexico.


10.3%Growth in totAl leAsABle AreA in 2009-2010

mAin indiCAtors

170,000totAl leAsABle AreAof more thAn

in spite of A diffiCult eConomiC ClimAte for Consumers And lessors resultinG from the GloBAl eConomiC Crisis thAt stArted in 2008, oCCupAnCy of our shoppinG mAlls hAs kept At mAximum historiC levels; stAndouts Are Centro lAs AmÉriCAs, Centro sAn miGuel And Centro sAn BuenAventurA, whose oCCupAnCy levels keep ABove 95%.

* Includes commercial areas under unicentro and Minicentro formats.

sQuAre meters*

We consolidated our participation in the market of INfONaVIT beneficiaries by placing 13,171 loans representing 7.77% of the operations financed by the institute in the states in which we are present; additionally we obtained the second place in loan placement through the INfONaVIT Total scheme.

regarding the fOVISSSTE traditional scheme, 3,466 loans were generated representing 3.80% of the participation. ara worked actively in the efforts of the institution to drive the alia2 Plus scheme and managed to become the leader in the segment by placing the majority of this type of loans.

Standing out in the period is the consolidation of the ahorrara program, which is designed to provide the 6.6 million of independent workers who are not INfONaVIT or fOVISSSTE beneficiaries and who have purchasing power, with a versatile and simple way of showing their credit capacity through savings.

In 2010, ara consolidated a customer-focused commercial strategy whose platform is based on specialized sales force training, competitive commissions and strict control of the sale process.

the philosophy of ConsorCio ArA is to trAnsform the everydAy endeAvors of mexiCAns who throuGh their work seek A Better QuAlity of life for their fAmilies. this philosophy trAnslAtes into A seGment CommuniCAtion strAteGy, reGArdless their trAde or proof of inCome.

you who work like one else; deserve A home


In ara we acknowledge our commercial team as one of our main strengths, therefore we have focused internal resources on maintaining a highly-trained and informed work team through asesorara, a web-based platform exclusively for our sales force.

We have established within sales teams a clear specialization that is differentiated by the financial product they move: INfONaVIT Sales force with all its products, and fOVISSSTE force, banks and Savings Schemes, which yielded better customer service and established the base for sustained growth.

We have spread our communication strategy through a mix of media (offline, online, mass and personal media) that supports closeness with the prospect and understanding of the product offering. The application of digital technology contributed to targeted marketing activities, increasing proximity and interactivity with the prospects.

Since 2010 ara has had a base of collaborators who have strongly focused their results on full customer satisfaction, maintaining an ongoing internal campaign to reinforce this in all areas.

With the purpose of improving service indicators, a technological platform was implemented in 2010 to directly report service indicators to our clients. The technology establishes measurement parameters to facilitate the task of monitoring the quality of home delivery, warranties, compliance with internal and external service management, performance of involved areas and satisfaction surveys which in turn will allow us to improve the results of external assesments carried out by credit agencies (ISa-JD POWEr).

an online platform for owners of the Comunidad ara project is currently under development. The platform is a market differentiator through which our clients will be able to find information regarding the environment of their development, obtain maintenance status of their home, request warranty attention and generate referrals, to mention only a few benefits.

The sum of strategic actions aimed at internal and external clients will consolidate the growth of ara in the next period.

people And the vAlue they GenerAte Are the vitAl element, the soul of our orGAnizAtion.

huMan caPital


at Consorcio ara we continuously development our corporate culture to drive our collaborators towards one objective: the creation of value. We have worked on a refreshing and modern approach to our talent management, connecting value, strategy and people.

Our collaborators are equipped with methods and tools that can be systematically applied, with a common language, and gear our mentality and behavior towards the business goals.

We keep working to ensure that there is enough talent to compete in the market.

We have a structured process of tools that allow team leaders to evaluate current and potential talent and identify the resources that will close the leadership gaps that may exist.

In ara we are working to consolidate a culture of accountability, high performance, organizational values and conduct that will govern us in our every day work.

The development of our leaders and of the new generation of leaders has been a priority of the company. We keep our commitment to development by aligning conducts with business objectives through a sustained process, transforming and speeding up our work culture and the skills of our collaborators.

One of the main objectives we pursue is to ensure that our managers and supervisors –who work directly with the rest of the work teams– are able to organize and motivate others, while being motivated to do it.

the 2010 human Capital initiatives are the following:

• Central implementation of our SiCh (human Capital information System): improve efficiency and

management of human Capital of all the organization through one

centralized data base.• Professionalization of the

sales force: integral program for Training and Certification of Real

estate Consultants.• Recognition for outstanding

results of our sales force, product quality of our construction team,

and of all our collaborators who stand out for making a

difference by demonstrating key business competences in their

performance results.

This Direction integrates elements of vital importance to the organization: information technology implementation and innovation, improvement of business processes, execution of strategic projects and planning optimization of our project cycle.

inFormation teChnoloGiesThis area has played a significant role in recent years in the development of applications for work and construction control which are generating savings and greater control of productive operations of our company through our niche ErP, Enkontrol. In parallel, we have managed to optimize our telecommunications costs through our new national communications strategy and innovative infrastructure tools.

ProCesses and ProJeCtsara’s Way, the company’s initiative for standardization and best practices has borne its first fruits by becoming the unified information and documentation platform. Our organization’s culture has thus generated useful knowledge to efficiently and productively operate the principal processes of our business; it is a commonly used tool in our organizational culture.

PlanninGas part of the continuous improvement of our business, some of our strategic and tactic planning processes and tools have been redefined to ensure financial sustainability in the middle and long term of our projects and business units. These improvements are supported by Operations research technological tools that are intended to maximize the company’s resources. Our business planning focus in 2010 and the immediate future is on generating short-term improvements in our planning process to ensure sustained business growth and perfect our business model.

business develOPMent


ara fOundatiOn

ArA foundAtion hAs provided more thAn 10,000 houses

since 2005, ara Foundation has provided more than

10,000 pro bono houses ranging from 34 to 45

square meters.

In 2010 the ara foundation celebrates its 5th anniversary and has also been distinguished for the fifth time by the CEMEfI as a Socially responsible Company.

our missionTo provide Mexicans with development oportunities to raise their quality of life

our vision To get Consorcio ara recognized as the company in the construction industry with greater social work through its foundation.

our obJeCtives• TobeaFoundationofAllianceswithouremployeesandoursociety.• TobeaFoundationwithclearandtransparentfinancialoperation.• Supportunderprivilegedfamiliestoobtainadecenthouse.• Providesupportforfamiliesaffectedbynaturaldisasters.

Throughout these five years we have focused most of our efforts on supporting underprivileged families to obtain a decent house. This has enabled us to provide more than 10,000 houses in benefit of more than 40,000 Mexicans.

aware of needs in Mexico and with the purpose of fulfilling our mission, starting in 2011 we will concentrate part of our resources on education, health and disaster relief programs.


ConsorCio ArA hAs A soCiAl responsiBility proGrAm thAt defines its relAtionship with the different stAkeholders.

The company’s performance is based on the best corporate social responsibility practices, always considering the expectations of shareholders, business partners, collaborators, authorities and the community, always within the law and promoting the preservation of natural resources.

In 2010 the company received the distinction as a Socially responsible Company from the Mexican Philanthropy Center (CEMEfI) for the fifth consecutive year.

The mission of the ara foundation is to provide decent housing for Mexican underprivileged families. These families, whose earnings are between 2 and 3 minimum wages, improve socially and economically when receiving a home that provides them with a decent dwelling. five years from its creation, the ara foundation has operated in 14 states in the country in partnership with local, state and federal authorities as well as with housing institutions and civil organizations, contributing with economic and in-kind donations.


Consorcio ara’s board of Directors consists of 11 directors, 8 of which are independent directors and include the President and Vicepresident; its members are elected annually at the Shareholders Meeting. The board is governed by the current social statutes which were adopted by the Shareholders Meeting in 2006 and which establish the guidelines for social capital, repurchase of shares, the appointment of committee members and the corporate rights of the shareholders.

The board is supported by three intermediate committees:1. audit Committee2. Corporate Practices Committee3. finance and Planning Committee

cOrPOrate gOvernance

sOcial resPOnsibility

ConsorCio ArA Adheres to the Code of Best CorporAte prACtiCes puBlished By the Business CoordinAtinG CounCil And the nAtionAl BAnkinG And seCurities Commission. the Code estABlishes the Guidelines for CorporAte GovernAnCe to Be oBserved By puBliCly-trAded mexiCAn CompAnies And is Also enCourAGed And promoted By the mexiCAn stoCk exChAnGe.

félix Gavito Marco* ChaIrMaN

andrés Massieu berlanga* fuLL MEMbEr

antonio franck Cabrera* fuLL MEMbEr

roberto Danel Díaz* fuLL MEMbEr

auditing committee

corporate Practices committeeroberto Danel Díaz* ChaIrMaN


Luis ramón Carazo Preciado* fuLL MEMbEr

Pedro alonso angulo* fuLL MEMbEr

andrés Massieu berlanga* fuLL MEMbEr

finance and Planning committeeMarcos ramírez Miguel* ChaIrMaN

Germán ahumada russek**$ fuLL MEMbEr

Luis felipe ahumada russek** $ fuLL MEMbEr

Germán ahumada alduncin** $ fuLL MEMbEr

Pedro alonso angulo* fuLL MEMbEr

Luis ramón Carazo Preciado* fuLL MEMbEr

francisco Javier Lomelín anaya* fuLL MEMbEr


roberto Danel Díaz* fuLL MEMbEr


board of directorsGermán ahumada russek**$

PrESIDENT

Luis felipe ahumada russek**$

VICEPrESIDENT

Germán ahumada alduncin**$

VICEPrESIDENT

Pedro alonso angulo*VOTING bOarD MEMbEr

Luis ramón Carazo Preciado*VOTING bOarD MEMbEr

roberto Danel Díaz*VOTING bOarD MEMbEr

félix Gavito Marco*VOTING bOarD MEMbEr

andrés Massieu berlanga*VOTING bOarD MEMbEr

Marcos ramírez Miguel*VOTING bOarD MEMbEr

antonio hugo franck Cabrera*VOTING bOarD MEMbEr

francisco Javier Lomelín anaya*VOTING bOarD MEMbEr

Vicente Naves ramos**aLTErNaTE bOarD MEMbEr

Luis E. ayestarán Escudero**aLTErNaTE bOarD MEMbEr

J. Sacramento Soto Solís**aLTErNaTE bOarD MEMbEr

María Cristina hernández Trejo*aLTErNaTE bOarD MEMbEr

Eugenio riveroll Picazo*aLTErNaTE bOarD MEMbEr

Manuel Gutiérrez García*aLTErNaTE bOarD MEMbEr

Lorenzo Lucas Sánchez*aLTErNaTE bOarD MEMbEr

Manuel Campos Spoor*aLTErNaTE bOarD MEMbEr

raúl robledo Tovi*aLTErNaTE bOarD MEMbEr

Luis federico Moreno Treviño*aLTErNaTE bOarD MEMbEr

Carlos hernández Magallanes*aLTErNaTE bOarD MEMbEr

ricardo Maldonado yáñezSECrETary

Lorenza k. Langarica O’heaPrOSECrETary

* independent Directors** related Board Member$ Owner Board Member


Gabriel altamirano hernándezDIrECTOr Of GOVErNMENTrELaTIONS aND ara fOuNDaTION

Edgar Martínez ChavollaTEChNICaL arEa DIrECTOr

housing division

corporate directors

Germán ahumada russekCEO hOuSING DIVISION

Luis felipe ahumada russekCEO CONSTruCTION aND DEVELOPMENT DIVISION

Sacramento Soto SolísaDMINISTraTIVE aND fINaNCIaL DIrECTOr

Jaime del río CastilloINVESTOr rELaTIONS DIrECTOr

Miguel Lozano Pardinas CONTruCTION DIrECTOr

Marcela Echeverría ramírezhuMaN CaPITaL DIrECTOr

Martín Guevara hernándezbuSINESS DEVELOPMENT DIrECTOr

bernardo Casas de la TorreLEGaL DIrECTOr

Cristina Porras Pérez GuerreroCOMMErCIaL DIrECTOr

Jaime Santa ana Telloara-CrySTaL LaGOONSPrOJECT DIrECTOr

héctor Vallin PérezOPEraTIONS DIrECTOrSOuTh-CENTEr DIVISION

Jorge alduncin beardsleyCOrPOraTE OPEraTIONS DIrECTOrrESIDENTIaL DIVISION

Sergio Zazueta riveraOPEraTIONS DIrECTOrNOrTh DIVISION

Vicente Naves ramosCO-ChIEf ExECuTIVE OffICEr

Luis ayestarán EscuderofINaNCIaL aND NEW buSINESSDIrECTOr

construction and develoPment division alejandro Mota Piña

DEVELOPMENT aND OPEraTIONS DIrECTOr

Potentially ara : 3736 : ConsorCio ara 2010 aNNuaL rEPOrT

Deborah reyes barbaNOrThEaSTNuevo León and Tamaulipas

fernando Calderón NavaDISTrITO fEDEraL

alfonso roji alarcónCENTErGuerrero and Morelos

Isaías rivera DíazWESTJalisco and Nayarit

alejandro Vazquez OsorioNOrThEaSTCiudad Juárez and Tijuana

regional directors

Dahir Martínez TrejoMETrOPOLITaNState of Mexico and hidalgo

ricardo González aldamaEaSTPuebla and Veracruz

Jorge Carnaya LeissaPLaTEauGuanajuato and Querétaro

Carlos Ávila ViverosTOLuCa VaLLEyState of Mexico and Michoacán

Jorge hammeken aranaSOuThQuintana roo


TO THE BOARD OF DIRECTORS AND STOCKHOLDERS OF CONSORCIO ARA, S. A. B. DE C. V.

We have audited the accompanying consolidated balance sheets of Consorcio ARA, S. A. B. de C. V. and subsidiaries (the Company) as of December 31, 2010 and 2009, and the related consolidated statements of income, changes in stockholders’ equity and cash flows for the years then ended. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted in Mexico. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement and that they are prepared in accordance with Mexican Financial Reporting Standards. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the financial reporting standards used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Consorcio ARA, S. A. B. de C. V. and subsidiaries as of December 31, 2010 and 2009, and the results of their operations, changes in their stockholders’ equity, and their cash flows for the years then ended, in conformity with Mexican Financial Reporting Standards.

The accompanying consolidated financial statements have been translated into English for the convenience of readers.

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

C. P. C. Miguel Angel Andrade Leven

April 8, 2011

INDEPENDENT AUDITORS’ REPORT

POTENTIALLY ARA : 37

CONSORCIO ARA, S. A. B. DE C. V. AND SUBSIDIARIESConsolidated balance sheetsAs of December 31, 2010 and 2009(In thousands of Mexican pesos)

CONSORCIO ARA, S. A. B. DE C. V. AND SUBSIDIARIESConsolidated statements of incomeFor the years ended December 31, 2010 and 2009(In thousands of Mexican pesos, except common share and earnings per share amounts)

2010 2009

Assets Current assets: Cash and cash equivalents $ 1,167,525 $ 1,453,600 Trade accounts receivable – Net 999,444 629,894 Due from equity method investees 7,011 1,128 Inventories 10,281,718 9,805,359 Shopping mall available for sale 290,090 302,361 Golf club memberships available for sale 209,718 209,718 Other current assets 394,767 371,835 Total current assets 13,350,273 12,773,895 Restricted cash 43,369 43,369Long–term land held for development 1,818,965 1,351,825Investments in equity method investees 91,028 13,619Property, machinery and equipment – Net 595,075 653,441 Total $ 15,898,710 $ 14,836,149 Liabilities and stockholders’ equity Current liabilities: Notes payable to financial institutions $ – $ 283,923 Current portion of long–term debt 914,762 542,429 Current portion of capital lease obligations 31,089 54,155 Trade accounts payable 696,652 396,058 Accounts receivable financing 284,813 – Accrued expenses and taxes, other than income taxes 951,345 1,056,034 Advances from customers 112,879 198,208 Income tax payable – 114,319 Total current liabilities 2,991,540 2,645,126 Long–term debt 1,361,597 1,339,405Capital lease obligations 18,493 24,350Employee benefits 34,560 23,771Other long–term liabilities 42,628 26,608Deferred income tax 2,007,457 1,968,961 Total liabilities 6,456,275 6,028,221 Commitments (Notes 21) Stockholders’ equity: Common stock 1,061,535 1,062,652 Additional paid–in capital 567,810 567,810 Reserve for acquisition of own stock 18,587 35,524 Premium on sale of repurchased stock 23,631 32,827 Retained earnings 7,725,712 7,068,080 Controlling interest 9,397,275 8,766,893 Noncontrolling interest 45,160 41,035 Total stockholders’ equity 9,442,435 8,807,928 Total $ 15,898,710 $ 14,836,149

See accompanying notes to consolidated financial statements.

2010 2009

Revenues $ 7,371,001 $ 7,113,687 Costs 5,554,625 5,347,233 Gross profit 1,816,376 1,766,454 General and administrative expenses 645,650 635,964 Income from operations 1,170,726 1,130,490 Other expense – Net 53,995 61,645 Net comprehensive financing result: Interest expense 67,078 78,362 Interest income (60,719) (48,582) Exchange loss – Net 4,862 4,465 11,221 34,245 Equity in earnings of equity method investees 28,529 14,369 Income before income taxes 1,134,039 1,048,969 Income taxes 365,006 325,619 Consolidated net income $ 769,033 $ 723,350 Controlling interest $ 765,967 $ 720,291Noncontrolling interest 3,066 3,059 Consolidated net income $ 769,033 $ 723,350 Basic earnings per common share $ 0.59 $ 0.55 Weighted average number of shares outstanding 1,302,320,854 1,309,493,571


POTENTIALLY ARA : 3938 : CONSORCIO ARA 2010 ANNUAL REPORT

CONSORCIO ARA, S. A. B. DE C. V. AND SUBSIDIARIESConsolidated statements of changes in stockholders’ equityFor the years ended December 31, 2010 and 2009(In thousands of Mexican pesos)

Reserve Premium on Additional for acquisition sale of Total Common paid–in of own repurchased Retained Non–controlling stockholders’ stock capital stock stock earnings interest equity

Balances as of January 1, 2009 $ 1,064,572 $ 567,810 $ 85,806 $ 31,052 $ 6,347,789 $ 34,105 $ 8,131,134 Net repurchase of own stock (1,920) – (50,282) 1,775 – – (50,427) Net comprehensive income – – – – 720,291 6,930 727,221 Balances as of December 31, 2009 1,062,652 567,810 35,524 32,827 7,068,080 41,035 8,807,928 Dividends – $0.083 pesos per share – – – – (108,335) – (108,335) Net repurchase of own stock (1,117) – (16,937) (9,196) – – (27,250) Net comprehensive income – – – – 765,967 4,125 770,092 Balances as of December 31, 2010 $ 1,061,535 $ 567,810 $ 18,587 $ 23,631 $ 7,725,712 $ 45,160 $ 9,442,435



CONSORCIO ARA, S. A. B. DE C. V. AND SUBSIDIARIESConsolidated statements of cash flowsFor the years ended December 31, 2010 and 2009Indirect method (In thousands of Mexican pesos)

2010 2009

Operating activities: Income before income taxes $ 1,134,039 $ 1,048,969 Items related to investing activities: Depreciation 112,993 116,602 Interest income (60,719) (48,582) Equity in earnings of equity method investees (28,529) (14,369) Items related to financing activities: Interest expense 218,361 240,661 1,376,145 1,343,281

(Increase) decrease in: Trade accounts receivable – Net (369,550) (318,692) Due from equity method investees (5,883) 1,247 Shopping mall available for sale 12,271 (71,729) Inventories and long–term land held for development (943,499) (167,275) Other current assets (22,932) 157,403 Golf club memberships available for sale – 122 Increase (decrease) in: Trade accounts payable 300,594 119,843 Accrued expenses and taxes, other than income taxes (105,923) 530,544 Advances from customers (85,329) (161,329) Income taxes paid (439,770) (278,429) Employee benefits 10,789 8,590 Other long–term liabilities 14,452 11,666

Net cash (used in) provided by operating activities (258,635) 1,175,242

Investing activities: Purchasing of machinery and equipment (58,092) (35,309) Collection of interest 60,719 48,582 Investments in equity method investees (82,312) – Dividends received from equity method investees 35,000 21,917 Accounts receivable financing 284,813 (360,180)

Net cash provided by (used in) investing activities 240,128 (324,990) Cash to be (obtained from) applied to financing activities (18,507) 850,252

2010 2009

Financing activities: Proceeds from notes payable to financial institutions 1,221,594 2,773,924 Proceeds from long–term notes 1,000,000 561,000 Payments of notes payable to financial institutions (1,485,230) (3,085,000) Payments of long–term notes (625,762) (381,429) Payments of capital lease obligations (25,458) (79,172) Dividends paid (108,335) – Interest paid (217,127) (254,486) Reserve and premium for acquisition of own stock (26,133) (48,507) Decrease in common stock (1,117) (1,920)

Net cash used in financing activities (267,568) (515,590)

Net (decrease) increase in cash and cash equivalents (286,075) 334,662

Cash and cash equivalents at beginning of year 1,496,969 1,162,307

Cash and cash equivalents at end of year (including restricted cash of $43,396) $ 1,210,894 $ 1,496,969

During 2010 and 2009 the Company acquired machinery, furniture and equipment for $25,561 and $12,917 respectively, through capital leases.


(Continue)

(Concluded)


1. NATUREOFBUSINESS

Consorcio ARA, S. A. B. de C. V. and subsidiaries (collectively, the Company) 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 Company rents mini–supermarkets under operating leases in México.

The Company hires the services of subcontractors in order to construct its housing developments. The terms of such arrangements include the subcontractors’ obligations to fulfill, using their own resources or with the assistance of third parties, the construction commitments in accordance with technical requirements set by the Company.

2. BASISOFPRESENTATION

Explanation for translation into English – The accompanying consolidated financial statements have been translated from Spanish into English for use outside of Mexico. These consolidated financial statements are presented on the basis of Mexican Financial Reporting Standards (MFRS, individually referred to as Normas de Información Financiera or NIFs). Certain accounting practices applied by the Company that conform with MFRS may not conform with accounting principles generally accepted in the country of use.

a. Monetary unit of the financial statements – The financial statements and notes as of December 31, 2010 and 2009 and for the years then ended include balances and transactions denominated in Mexican pesos of different purchasing power.

b. Consolidation of financial statements – 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, 2010 and 2009, is shown below:

SUBSIDARYORSUBSIDIARYGROUP PARTICIPATION

Consorcio 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) (1) 99.9%

Desarrollos Inmobiliarios Turísticos ARA, S. A. de C. V. (DITA) 100.0%

Consorcio ARA, LLC (2) 100.0%

(1) As part of the Company’s overall development plan, the Company created PDCC, which formed 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 Rio Medio, S. de R. L. These entities rent commercial facilities and mini–supermarkets.

(2) The Company 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 Company decided to close such representative offices.

Investments in equity method investees in which the Company has significant influence, but does not have control, are accounted in accordance with Note 3j.

Intercompany balances and transactions have been eliminated in these consolidated financial statements. c. Early adption of the Interpretation to Financial Reporting Standarts INIF 14 – As of January 1, 2008 the Company’s management decided to early adopt the Interpretation to Financial Reporting Standards INIF 14, Construction Contracts, Sale of Real Property and Rendering of Related Services (INIF 14), which adoption is not required until annual periods beginning on or after January 1, 2010. Management belives that the recognition of revenues, cost and expenses in accordance with this guidance is more representative of the underlying economics of the Company’s operations. Accordingly, the financial statements presented as of and for the years ended December 31, 2010 and 2009, include the effects of INIF 14.

d. Income from operations – Income from operations is the result of subtracting costs and general and administrative expenses from revenues. While NIF B–3, Statement of Income, does not require inclusion of this line item in the consolidated statements of income, it has been included in order to provide a better understanding of the Company’s economic and financial performance.

3. SUMMARYOFSIGNIFICANTACCOUNTINGPOLICIES

The accompanying consolidated financial statements have been prepared in conformity with MFRS, which require that management make certain estimates and use certain assumptions that affect the amounts reported in the financial statements and their related disclosures; however, actual results may differ from such estimates. The Company’s management, upon applying professional judgment, considers that estimates made and assumptions used were adequate under the circumstances. The significant accounting policies of the Company are as follows:

a. Accounting change:Beginning January 1, 2010, the Company adopted the following new NIFs and improvement to the NIFs.

NIF C–1, Cash, Cash Equivalents and Restricted Cash – This standard requires presentation of cash and restricted cash equivalents together within the caption cash and cash equivalents, as opposed to Bulletin C–1, which required restricted cash to be presented separately. This standard also replaces the concept of temporary investments payable on demand with readily available investments and permits their classification as cash equivalents only when they have a maturity within three months from the date of acquisition (See b. below).

b. Reclasifications – Certain amounts in the consolidated financial statements as of and for the year ended December 31, 2009 have been reclassified to conform to the presentation of the 2010 consolidated financial statements:

2009 2009 as previously after reported Reclasifications reclassifications Cash and cash equivalents $ 149,258 $ 1,304,342 (1) $ 1,453,600

Investments in securities 1,304,342 (1,304,342) (1) –Inventories 10,207,780 (402,421) (2) 9,805,359 Total current assets 13,176,316 (402,421) 12,773,895 Long–term land held for development 949,404 402,421 (2) 1,351,825

(1) Investment securities were reclassified to cash and cash equivalents, because their maturity is within three months from the date of acquisition.

(2) Certain land assets were reclassified from current inventories to Long-term land held for development as they will be developed over a long-term period.

c. Recognition of the effects of inflation – Since the cumulative inflation for the three fiscal years prior to those ended December 31, 2010 and 2009 was 14.48% and 15.01%, respectively, the economic environment is considered non–inflationary in both years and, consequently, no inflationary effects are recognized in the accompanying consolidated financial statements.Inflation rates for the years ended 2010 and 2009 were 4.40% and 3.57%, respectively.

Beginning on January 1, 2008, the Company discontinued recognition of the effects of inflation in its financial statements. However, assets, liabilities and stockholders’ equity include the restatement effects recognized through December 31, 2007.

d. Cash and cash equivalents – Cash and cash equivalents consist mainly of bank deposits in checking accounts and short–term investments that are highly liquid and easily convertible into cash with maturities within three months from their acquisition date, and which are subject to immaterial value change risks. Cash is stated at nominal value and cash equivalents are valued at fair value; any fluctuations in value are recognized in net comprehensive financing result of the period. Cash equivalents are represented mainly by investments in Treasury Certificates (CETES), investment funds and money market funds.

e. Restricted cash – The Company 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 Company’s suppliers. For these purposes, a reserve for payment was created, which may only be used to fund obligations payable by the fund.

f. Inventories, long–term land held for development:1. Work in process and construction materials are valued at acquisition

cost, which includes all costs inherent to real estate inventories. 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 Company has not transferred ownership to customers (See s.).

2. Land held for future development and real estate developments in progress are valued at acquisition cost, and, through December 31, 2007, were restated for inflation accounting purposes using estimated replacement cost as determined by independent appraisers.

The Company reviewed the book value of inventories and land held for future development with the purpose of verifying that the value of such inventories are stated at the lower of cost or fair market value.

g. Golf club memberships available for sale – Are initially recorded at the lower of acquisition cost or realizable value.

h. Shopping mall available for sale – Is recorded at the lower of acquisition cost less its accumulated depreciation or net realizable value. This asset is represented by the investment in commercial real estate property which, in accordance with its business model with respect to shopping malls, the Company’s management has decided to sell part of the bussines and look for a partner.

i. Property, machinery and equipment – Property, machinery and equipment are initially recorded at acquisition cost. Balances from acquisitions made through December 31, 2007 were restated for the effects of inflation by applying factors derived from the National Consumer Price Index (NCPI) through that date. Depreciation is calculated using the straight–line method based on the remaining useful lives of the related assets, as follows:

NOTES TO CONSOLIDATED FINANCIAL STATEMENTSCONSORCIO ARA, S. A. B. DE C. V. AND SUBSIDIARIESNotes to Consolidated Financial StatementsFor the years ended December 31, 2010 and 2009(In thousands of Mexican pesos, except share amounts)


Average years 2010 2009 Buildings 29 30Leasehold improvements 5 7Machinery and equipment 7 7Vehicles 3 3Office furniture and fixtures 4 4

j. Investments in equity method investees – Permanent investments in entities where significant influence exists, but no control, are recognized through the equity method. Such value is subsequently adjusted for the portion related both to comprehensive income (loss) of the associated company and the distribution of earnings or capital reimbursements thereof. If impairment indicators are present, investment in shares of associated companies is subject to impairment testing.

k. Impairment of long–lived assets in use – The Company reviews the carrying amounts of long–lived assets in use when an impairment indicator suggests that such amounts might not be recoverable, considering the greater of the present value of future net cash flows or the net sales price upon disposal. Impairment is recorded when the carrying amounts exceed the greater of the aforementioned above amounts. Impairment indicators considered for these purposes are, among others, operating losses or negative cash flows in the period if they are combined with a history or projection of losses, depreciation and amortization charged to results, which in percentage terms in relation to revenues are substantially higher than that of previous years, obsolescence, reduction in the demand for the products constructed, competition and other legal and economic factors.

l. Financial risk management policy – The activities carried out by the Company expose it to a number of financial risks, including market risk (which encompasses foreign exchange, interest rate and price risks such as investment in share certificates and commodity prices futures), credit risk and liquidity risks. The Company seeks to minimize the potential negative effects of these risks on its financial performance through an overall risk management program. The Company uses derivative and non–derivative financial instruments to hedge against certain exposures to financial risks embedded in the balance sheet (recognized assets and liabilities) and off–balance sheet risks (firm commitments and highly probable forecasted transactions). Both, financial risk management and the use of derivative and non–derivative financial instruments are governed by Company policies approved by the Board of Directors and the Financial and Planning Committee, and are carried out by the Company’s treasury. The Company identifies, assesses and hedges financial risks in collaboration with its subsidiaries.

The Board of Directors has approved written policies of a general nature with respect to the management of financial risks, as well as policies and limits associated to other specific risks. Compliance by the Company’s management of established policies and exposure limits is reviewed on an ongoing basis by the Financial and Planning Committee, which forms part of the Board of Directors and is responsible for monitoring risks. The Corporate treasury reports on a quarterly basis to the Financial and Planning Committee.

m. Derivative financial instruments – The Company enters into financial instruments to reduce exposure to the risk of rate volatility with respect to financing arrangements. These instruments are negotiated only with institutions of recognized financial strength and the institutions whose provide them with the financing. The Company’s policy is not to carry out transactions with derivative financial instruments for the purpose of speculation. The Company recognizes all assets or liabilities that arise from transactions with derivative financial instruments at fair value in the consolidated balance sheets, regardless of its intent for holding them. Fair value is determined using prices quoted on recognized markets. If such instruments are not traded, fair value is determined by applying recognized valuation techniques.

Changes in the fair value of derivative instruments designated as hedges are recognized as follows: (1) for fair value hedges, changes in both the derivative instrument and the hedged item are stated at fair value and recognized in current earnings; (2) for cash flow hedges, changes in the effective portion are temporarily recognized as a component of other comprehensive income in stockholders’ equity and then reclassified to current earnings when affected by the hedged item. The ineffective portion of the change in fair value is immediately recognized in current earnings.

While certain derivative financial instruments are contracted for hedging from an economic standpoint, they are not designated as hedges because they do not meet all of the requirements and are instead classified as held–for–trading for accounting purposes. Changes in fair value are recognized in current earnings as a component of net comprehensive financing results (CFR).

n. Accounts receivable financing – As of December 31, 2010, the Company entered into sales contract financing programs with a financial institution (factoring program), which are tied to sales of housing. Under this program, the risks and rewards associated with the accounts receivable that will be obtained from these contracts are effectively transferred, and the liability represents the obligation assumed by the Company for the factoring of the sale agreements executed with the customers. This obligation will be covered once the housing units related to such contracts are legalized and collected. The factoring contract executed stipulates a discount rate of Balanced Interbank Interest Rate (TIIE) plus 2.25% percentage points and matured on March 16, 2011.

o. Provisions – Provisions are recognized for current obligations that result from a past event, are probable to result in the future use of economic resources, and can be reasonably estimated.

p. Direct employee benefits – Direct employee benefits are calculated based on the services rendered by employees, considering their most recent salaries. The liability is recognized as it accrues. These benefits include mainly Statutory Profit Shaing (PTU) payable, compensated absences, such as vacation and vacation premiums, and incentives.

q. Employee benefits from termination, retirement and others – Liabilities from seniority premiums, pension plans and severance payments at the end of the work relationship are recognized as they accrue and are calculated by independent actuaries using in the projected unit credit method using nominal interest rates.

r. Statutory employee profit sharing (PTU) – PTU is recorded in the results of the year in which it is incurred and presented under other income and expenses in the accompanying consolidated statements of income. Deferred PTU is derived from temporary differences that result from comparing the accounting and tax bases of assets and liabilities and is recognized only when it can be reasonably assumed that such difference will generate a liability or benefit, and there is no indication that circumstances will change in such a way that the liabilities will not be paid or benefits will not be realized.

s. Recognition of revenues and costs, advances from customers – Revenues are recognized when the Company 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) or delivered. Furthermore, current liabilities shown in the balance of advances from customers represent cash received from the customers for the down payment and expenses and payments received during the presale stage before the properties are legalized.

In the construction and construction services agreements, the Company uses the percentage–of–completion method as established in Bulletin D–7, Contracts of Construction and Manufacture of Certain Capital Goods, in which revenues are recognized based on the stage of completion, which is determined by the proportion of costs incurred or through the approval of the progress achieved by the customers.

Construction costs, provision for construction services and sale of real property of real estate developments, include the land, materials, subcontracts and all the indirect costs related to such developments, such as indirect labor, purchases, repairs and depreciation. General and administrative expenses are charged to results when they are incurred.

Operating lease revenue is recognized on a straight–line basis over the life of the lease agreement. Costs are recognized as incurred. (See Note 20).

t. Income taxes – Income tax (ISR) and the Business Flat Tax (IETU) are recorded in the results of the year they are incurred. To recognize deferred income taxes, based on its financial projections, the Company determines whether it expects to incur ISR or IETU and recognizes deferred taxes based on the tax it expects to pay. Deferred taxes are calculated by applying the corresponding tax rate to temporary differences resulting from comparing the accounting and tax bases of assets and liabilities and including, if any, future benefits from tax loss carryforwards and certain tax credits. Deferred tax assets are recorded only when there is a high probability of recovery.

The tax on assets (IMPAC) that is expected to be recovered is recorded as a tax credit and is presented in the balance sheet under deferred taxes.

u. Foreign currency transactions and balances – Foreign currency transactions are recorded at the applicable exchange rate in effect at the transaction date. Monetary assets and liabilities denominated in foreign currency are translated into Mexican pesos at the applicable exchange rate in effect at the balance sheet date. Exchange fluctuations are recorded as a component of net comprehensive financing results in the consolidated statements of income.

v. Earnings per share – Basic earnings per common share is calculated by dividing majority net income by the weighted average number of shares outstanding during the year.

4. CASHANDCASHEQUIVALENTS

2010 2009 Cash and cash equivalents $ 170,309 $ 149,258Readily available investments 997,216 1,304,342 $ 1,167,525 $ 1,453,600

5. TRADEACCOUNTSRECEIVABLE

2010 2009

As developer: Billed revenues $ 558,158 $ 407,433Construction costumers 479,282 243,209Receivables from lessees 3,043 2,801

1,040,483 653,443 Allowance for doubtful accounts (41,039) (23,549) $ 999,444 $ 629,894

Billed revenues according to type of mortgage lenders are as follows:

2010 2009 INFONAVIT (Including cofinancing) $ 290,342 $ 228,819SHF, FOVISSSTE and commercial banks 267,816 178,614 $ 558,158 $ 407,433

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


10. INVESTMENTSINEQUITYMETHODINVESTEES

The Company’s investments accounted for by the equity method are summarized as follows:

Equity in Equity in earnings of % net assets equity method investeesRelated party ownership 2010 2009 2010 2009 Centro San Miguel, S. de R. L. (1) (2) (CSM) 50.00 $ 1,747 $ – $ 3,144 $ 260Centro Regional las Américas, S. de R. L. (1) (2) (CRAS) 50.00 8,476 13,619 39,227 29,062Centro San Francisco, S. de R. L. (1) (2) 50.00 – – (11,343) (14,920)Exhibidora Cinematográfica San Francisco, S. de R. L. (3) 50.00 – – (3,174) (33)Trust – 738 (4) 50.00 80,805 – 675 – $ 91,028 $ 13,619 $ 28,529 $ 14,369

(1) The main purpose of this investment is the construction, renting, and administration of all projects including shopping malls.

(2) As of December 31, 2010 and 2009, land sales, capitalized interest and administrative services of $66,981, and $66,223 respectively, were eliminated. (3) The main purpose of this investment is the purchase, sale and operation of movie theatres.

(4) 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 50% equity. The purpose of this trust is to plan, design, build, and operate a shopping center. The investment in this project will be approximately $283,000.


6. INVENTORIES

a. Inventories are as follows:

2010 2009 Work in process (1) $ 5,825,354 $ 5,636,913Land in process of development 2,613,595 2,567,731Land held for development short–term 1,067,647 878,925Construction materials 288,803 248,104Advances to suppliers 297,748 307,257CFR capitalized 188,571 166,429 $ 10,281,718 $ 9,805,359

(1) As of December 31, 2010 and 2009, the balance of work in process inventory includes 2,797 and 4,093 completed housing units, respectively.

b. The Company’s policy is to locate and acquire land each year, classifying land currently being developed or land planned to be developed within the Company’s operational cycle as current assets, and as long–term all remaining land for which the Company has no current plans to develop.

As of December 31, 2010, assets pledged as collateral for long–term debt include long–term land held for development includes with a carrying amount of $561,000, and work in process with a carrying amount of $135,993 (See Note 13).

c. Capitalized CFR is based on the average annual balance of work in process and land in process that are qualifying assets pending completion. In 2010 and 2009, the annualized average base was $2,302,302 and $2,163,987, respectively.

For the years ended December 31, 2010 and 2009, accumulated capitalized CFR included in inventories was $151,283 and $162,299, respectively, and capitalized CFR of $129,141 and $137,892, respectively, was transferred to cost as a part of the sale of such inventory.

The annualized average capitalization rate in 2010 and 2009 was 6.37% and 7.50%, respectively.

7. DERIVATIVEFINANCIALINSTRUMENTS

The Company contracted two loans for $500,000, which matured on 2013 and was presented as a part of the balance of long–term debt. The loans

bear interest at TIIE plus 2.25 percentage points. Related to these loans, the Company entered into a derivative financial instrument which caps the TIIE at 7.0% and 7.50%.

The Company paid a premium of $3,150 at the beginning of the contract. The decrease in the fair value of the instrument was recognized in CFR. Given the characteristics of the derivative contract, the Company does not require sources of liquidity. Initial premium paid protects for TIIE changes over 7% and 7.50% there were no important chages in its financial position affecting cash flows, or its liquidity.

8. SHOPPINGMALLAVAILABLEFORSALE

2010 2009 Buildings held for lease $ 101,534 $ 104,286Commisions paid for leasingcontracts 620 620

102,154 104,906 Accumulated depreciation (10,206) (4,683) 91,984 100,223 Land 192,344 189,193Construction in progress 5,798 12,945 $ 290,090 $ 302,361

The balance of shopping mall available for sale includes Plaza Carey, which is located in Veracruz, and which achieved 60% occupancy as of December 31, 2010.

9. OTHERCURRENTASSETS

2010 2009 Other accounts receivable $ 62,521 $ 87,326Recoverable taxes, principally ISR income tax 232,776 79,385

Advance payments 15,482 31,593Security deposits 83,988 173,531 $ 394,767 $ 371,835

11. PROPERTY,MACHINERYANDEQUIPMENT

2010 2009

Buildings $ 68,029 $ 68,029Leasehold improvements 60,231 59,863Commercial facilities and mini–supermarkets for rent 30,083 34,656

Machinery and equipment 551,383 583,047Vehicles 22,161 21,585Office furniture and fixtures 48,057 49,604 779,944 816,784 Accumulated depreciation (410,718) (427,255) 369,226 389,529 Land 37,999 32,915Improvements and adaptationsin progress 7,692 7,957

414,917 430,401

2010 2009

Equipment acquired under capital lease:Machinery and equipment 452,646 449,607Vehicles 124,104 124,562Office furniture and fixtures 32,689 31,908Accumulated depreciation (429,281) (383,037)

180,158 223,040 $ 595,075 $ 653,441

12. ACCRUEDEXPENSESANDTAXES,OTHERTHANINCOMETAXES

2010 2009 Taxes, other than IETU and ISR $ 168,717 $ 80,795Accrued expenses 158,428 207,213BBVA Bancomer – factoring with no resources 326,974 537,791

Accrued interest 3,868 2,640Deposits from suppliers 282,449 214,686Direct employee benefits 10,909 12,909 $ 951,345 $ 1,056,034


13. LONG–TERMDEBT

2010 2009 Loan with mortgage security for a plot of land for real estate development with BBVA Bancomer, S. A. in the amount of $561,000, earning monthly interest at the TIIE rate plus 2.75 percentage points, in which TIIE can not exceed 8.50%. Principal is payable every six months and interest every month, maturing on December 17, 2012 (effective interest rate of 7.62% and 7.67% as of December 31, 2010 and 2009 respectively). (See Note 6 b.) $ 400,000 $ 561,000 Note payable of $500,000, to BBVA Bancomer, S.A. bearing TIIE interest rate plus 0.50% in which TIIE must not be greater than 9.00%; the maturity of the note is on June 9, 2013. The effective annual interest rates as of December 31, 2010 and 2009 are 5.37% and 5.43%, respectively. Payments of principal aremade in quarterly installments and interest payment on this note are made in monthly installments. 250,000 350,000 Note payable of $500,000, to BBVA Bancomer, S.A. bearing TIIE interest rate plus 1% in which TIIE must not be greater than 9.00%; the maturity of the note is on May 26, 2016. The effective annual interest rates as of December 31, 2010 and 2009 are 5.87% and 5.93%, respectively. Payments of principal and interest on this note are made in monthly installments. 270,833 320,834 Note payable of $500,000, to Santander Serfin, S. A., bearing TIIE interest rate plus 0.97% in which TIIE must not be greater than 9.00%; the maturity of the note is on May 30, 2013. The effective annual interest rates as of December 31, 2010 and 2009 were 5.87% and 5.92%, respectively.Payments of principal and interest on this note are made in semiannual installments. 178,572 250,000

Note payable of $500,000, to BBVA Bancomer, S.A. bearing TIIE interest rate plus 0.50% in which TIIE must not be greater than 8.00%; the maturity of the note is on June 14, 2012. The effective annual interest rates as of December 31, 2010 and 2009 are 5.38% and 5.43%, respectively. Payments ofprincipal are made in quarterly installments, interest payments are made in monthly installments. 150,000 250,000

Note payable of $500,000, to Santander Serfin, S. A. bearing TIIE interest rate plus 2.25% in which TIIE must not be greater than 7.00%; the maturity of the note is on July 7, 2013. The effective annual interest rate as of December 31, 2010 is 7.11%. Payments of principal are made in quarterlyinstallments and interest payments on this note are made in monthly installments. 458,333 –

Note payable of $500,000, to to Banco Nacional de México S.A. bearing TIIE interest rate plus 2.25% in which TIIE must not be greater than 7.50%; the maturity of the note is on September 20, 2013. The effective annual interest rate as of December 31, 2010 is 7.11%. Payments of principal are madein quarterly installments and interest payments on this note are made in monthly installments. 458,333 –

Note payable of $300,000, to Banco Nacional de México S.A. bearing TIIE interest rate plus 0.50% in which TIIE must not be greater than 8.00%; the maturity of the note is on June 26, 2012. The effective annual interest rates as of December 31, 2010 and 2009 are 5.40% and 5.43%, respectively. Payments ofprincipal are made in quarterly installments, interest payments are made in monthly installments. 90,000 150,000

Bridge loan security for a work in process inventory of $135,993 with Santander Serfin, S. A. bearing TIIE interest rate plus 4.00%; the maturity of the note is on Febraury 2, 2013. The effective annual interest rate as of December 31, 2010 is 8.89%. Interest payments are made on this note in monthly installments. (See Note 6 b.) 20,288 –

2,276,359 1,881,834

Less – Current portion (914,762) (542,429)

Long–term debt $ 1,361,597 $ 1,339,405

As of December 31, 2010, long–term debt matures as follows:

2012 $ 844,906 2013 395,858 Thereafter 120,833 $ 1,361,597

The loan agreements contain restrictive covenants, which require that the Company maintain certain minimum financial ratios and fulfill the contractual obligations during the period of the agreement. Management believes the Company is in compliance with such covenants as of December 31, 2010.

During 2010 and 2009, the Company drew $2,221,594 and $3,334,924, from available lines of credit and repaid $2,110,992 and $3,466,429 of these credits, respectively.

Additionally, the Company maintains available credit lines with financial institutions of $2,238,059.

14. CAPITALLEASEOBLIGATIONS

a. Capital lease obligations for equipment bear annual compound average interest rate of 7.40% at December 31, 2010.

b. At December 31, 2010 and 2009, minimum rental commitments under capital leases are comprised of the following:

2010 2009 Total minimum lease obligations $ 49,582 $ 78,505Current portion of obligations (31,089) (54,155) Long–term portion of capital lease obligations $ 18,493 $ 24,350

Capital lease obligations, which have a purchase option at the end of the lease term matures as follows:

Year ending December 31 2011 $ 12,587 2012 5,906 $ 18,493

15. EMPLOYEERETIREMENTOBLIGATIONS

Net period cost for obligations resulting from the pension plan and seniority premiums was $11,318 and $18,846 in 2010 and 2009, respectively. The labor obligation balance at December 31, 2010 and 2009 was $34,560 and $23,771, respectively. Other disclosures required under MFRS are not considered material.

16. 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. Pursuant to a resolution of the general ordinary stockholders’ meeting on April 22, 2010, the Company paid a dividend of $108,335, equivalent to $0.083 pesos per share.

c. On October 1, 2009, a resolution was authorized to create and implement a share base payment plan for the Company’s executives and employees. As of December 31, 2010, such plan has not been implemented.

d. In 2010 and 2009, the Company purchased and sold its own stock resulting in a subscription premium (deficit) of $(9,196) and $1,775, respectively.

At December 31, 2010, the Company held 10,974,100 repurchased shares, which market value of the Company’s shares, as reported on the Mexican Stock Exchange, was Ps. $7.64 per share.

e. 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, 2010 and 2009, the legal reserve was $212,937.

f. Stockholders’ equity, except restated paid–in capital and tax retained earnings will be subject to income tax payable by the Company 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:

2010 2009 Contributed capital account $ 1,628,150 $ 1,559,531Net tax income account 3,498,947 2,872,924 Total $ 5,127,097 $ 4,432,455



17. FOREIGNCURRENCYBALANCESANDTRANSACTIONS

a. At December 31, the foreign currency monetary position is as follows:

2010 2009 Thousands of U.S. dollars:

Monetary assets 4,141 4,647Monetary liabilities (209) (43)

Net monetary asset position 3,932 4,604

Equivalent in Mexican pesos $ 48,560 $ 60,174

b. Transactions denominated in U.S. dollars were as follows:

(In thousands

of U.S. dollars)

2010 2009 Equipment acquisitions 668 90 Offices leases 2,000 2,295

c. 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, April 8, 2010 2009 2011 U.S. dollar $ 12.35 $ 13.07 $ 11.79

18. RELATEDPARTYTRANSACTIONS

a. Transactions with investments in equity method investees and other realted parties, carried out in the ordinary course of business, were as follows:

2010 2009 Revenue:

Shopping mall management fees $ 6,362 $ 3,776

Administrative services income $ 6,613 $ 6,754

Commissions $ 66 $ 1,326

b. The Company carried out transactions with other related parties as follows:

2010 2009 Revenue:

Housing sale to employees $ 13,783 $ 17,165 Costs: Management and directors:

Direct benefits $ 116,537 $ 102,823

Members of the board of directors: Fees $ 2,391 $ 2,478

Emoluments $ 2,102 $ 1,780

Offices leasing $ 358 $ 339

Telephone infrastructure leasing $ 221 $ 268

Publicity $ 626 $ 621

19. INCOMETAXES

The Company is subject to ISR and determined its tax results on an entity by entity basis; therefore, the Company and its subsidiaries do not file a consolidated tax return.

The ISR rate for 2010 was 30% and for 2009 was 28%, and will be 30% for 2011 and 2012, 29% for 2013, and 28% for 2014 and thereafter.

IETU – Revenues, as well as deductions and certain tax credits, are determined based on cash flows of each fiscal year. Beginning in 2010, the IETU rate is 17.5% and it was 17.0%, in 2009. The Asset Tax Law was repealed upon enactment of the IETU Law; however, under certain circumstances, IMPAC paid in the ten years prior to the year in which ISR is paid, may be recovered, according to the terms of the law.

Income tax incurred will be the higher of ISR and IETU.

For ISR purposes, effective in 2005, cost of sales is deducted instead of inventory purchases. Taxpayers had the option, 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, 2010 and 2009 was $2,185,893 and $2,704,057 respectively. PTU paid is fully deductible.

Based on the analysis of current and prior year’s results, and according to INIF 8, Effects of the Business Flat Tax, the Company determined that it will basically pay only ISR. Therefore, the enactment of IETU did not have any effects on its financial information, since it only recognizes deferred ISR.

a. ISR consist of the following:

2010 2009 ISR:

Current $ 324,124 $ 311,629Deferred 12,745 (132,381)Tax effect due to tax rate changes – 131,264Change in valuation allowance for recoverable tax on asset paid 28,137 15,107

$ 365,006 $ 325,619

The effective ISR rate for fiscal 2010 and 2009 differs from the statutory rate, mainly due to permanent difference, such as nondeductible expenses and the effects of inflation and tax effect due to enacted changes in the rate.

b. The main items comprising the liability balance of deferred income tax are as follows:

2010 2009 Deferred income tax assets (liabilities):

Inventories and long–term land for development $ (1,954,311) $ (1,924,627)

Property, machinery and equipment (80,558) (92,800)Advances from customers 21,103 35,093Allowance for doubtful accounts 3,203 3,738Others – Net 3,106 9,462Net deferred ISR liability from temporary differences (2,007,457) (1,969,134)

Effect of tax loss carryforwards 68,982 38,993Recoverable tax on assets paid 18,990 21,015 87,972 60,008

Valuation allowance for thedeferred ISR (1) (89,972) (59,835)

Net long–term deferred ISR liability $ (2,007,457) $ (1,968,961)

(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 December 31, 2010 and expiration dates are:

Year of Tax loss Recoverable Expiration carryforwards IMPAC 2011 $ – $ 1,481 2012 – 8,092 2013 – 1,293 2014 27,329 828 2015 16,591 2,332 2016 29,025 2,391 2017 12,775 2,573 2018 16,167 – 2019 33,908 – 2020 94,146 – $ 229,941 $ 18,990

20. INFORMATIONBYBUSINESSACTIVITY

The Company 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:

2010 2009 Revenues:

As developer $ 6,658,827 $ 6,814,556As constructor (Note 21. g.) 472,007 216,701As service provider 51,769 36,471Land sales 176,093 33,941As lessor (1) 12,305 12,018

$ 7,371,001 $ 7,113,687 Costs:

As developer $ 5,015,307 $ 5,120,380As constructor (Note 21. g.) 357,780 165,403As service provider 37,697 27,174Land sales 133,071 24,718As lessor 10,770 9,558

$ 5,554,625 $ 5,347,233

(1) The rental revenue is derived from operating leases of commercial facilities and mini–supermarkets, which have one–year terms. The contracts include the option of being renewed annually at monthly rentals that are increased by an inflation factor. As of December 31, 2010 and 2009, the Company has leasing contracts with annual lease payments of $7,525 and $7,312, respectively.



Revenues and costs by mortgage lender are as follows:

2010 2009

Revenues: INFONAVIT (Including cofinancing) $ 3,699,157 $ 3,511,790SHF, FOVISSSTE and commercial banks 2,959,670 3,302,766

$ 6,658,827 $ 6,814,556 Costs:

INFONAVIT (Including cofinancing) $ 2,807,470 $ 2,668,847SHF, FOVISSSTE and commercial banks 2,207,837 2,451,533

$ 5,015,307 $ 5,120,380

There are no material intersegment transactions.

Revenues as developer, service provider and lessor, are obtained solely within Mexico.

21. COMMITMENTS

a. Guarantee and management trust – In October 2003, the Company executed a guarantee and management trust contract to develop and market a housing complex of 2,308 units for Michoacán government’s employees and retail stores in Capula, Morelia. The development is divided into the ARA project and SARE project, a commercial area and free land. The principal characteristics of the trust are:

Participants – The participants are Instituto de Vivienda del Estado de Michoacán de Ocampo (Trustor and Beneficiary A) “IVEMO”; Consorcio de Ingeniería Integral, S. A. de C. V. (Trustor and Beneficiary B) “CIISA”; FISARE, S. A. de C. V. (Trustor and Beneficiary C and a Company subsidiary) “FISARE” and Banco Azteca, S. A. (Trustee) “Banco Azteca”.

Contributions – The contributions to the trust of each participant are: IVEMO to contribute with Capula, Morelia land and the water rights concession, CIISA and SARE each contribute 50% of the development and internal works of the ARA and SARE projects, respectively.

Benefits – For the sale or transfer of each housing unit in the ARA and SARE projects, IVEMO receives 8% of the selling price while CIISA and SARE will receive the remaining 92% of in the sales proceeds of the ARA and SARE projects, respectively.

The commercial area and free land will be returned to IVEMO.

Effective duration of contract – The contract term is based upon the length of time to completion. IVEMO will be able to retain partially or totally the contributed land if it is not under contract of sale to buyers and will pay the cost of infrastructure expenses to CIISA and SARE. As of December 31, 2010, the title to 1,846 houses had been transferred at a price of $278 per unit.

b. The Company leases offices under an operating lease that is renewable annually. The rental expense was $46,290 and $47,838 for the years ended December 31, 2010 and 2009, respectively. During 2010, the Company signed a leasing contract in U.S. dollars for 5 years for which the annual rent will be 2,000,000 U.S. dollars.

c. On August 18, 2004, CIISA executed a trust administration contract with a shopping mall and Banco J.P. Morgan, 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 or CRAS, anassociate, are obligated to a) construct the shopping mall (except shop stockroom), including a parking lot according to the executive project and b) manage the operations of the shopping mall.

d. 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.

e. Guarantee and management trust – In July 2006, the Company celebrated an agreement with Fomento Metropolitano of Monterrey (“Fomerrey”). Fomerrey maintains documentation of consents evidencing its rights for the substantiation and settle for the expropriation of the land.

The Company gave to Fomerrey $5,000 at the signing of this agreement. Fomerrey will receive $25,749 if the following conditions occur:

a) Fomerrey becomes the legitimate owner of the land located in Nuevo León.

b) The Company 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 Company 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 Company 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 Company initiated a laws suit in order to force Fomerrey to comply with their commitment under the agreement.

f. The Company is party to various legal actions in the normal course of its business. According to the Company’s legal advisors, it is not involved in or threatened by proceedings for which the Company 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.

g. In 2008, the Company entered into lump–sum or unitary price construction contracts with Banco Monex, S.A, Institución de Banca Múltiple, Monex Grupo Financiero División Fiduciaria (Monex), to enable the Company to carry out all

the construction work of the projects named Los Arcos, Rancho San Pedro and Hacienda Paraíso. It also entered into management and marketing contracts for the aforementioned developments. These projects began operations in 2009 and are expected to conclude during 2012. h. 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 development and construction of lagoons. Consequently, CIISA has an urgent need for the technological support of a company highly specialized in this field.

Participants – Crystal Lagoons Corporation, LLC. (CL) and Consorcio de Ingeniería Integral, S. A. de C. V. (CIISA)

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, conditions, 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 termination 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 development 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.

22. NEWACCOUNTINGPRINCIPLES

As part of its efforts to make Mexican standards converge with international standards, in 2009, the Mexican Board for Research and Development of Financial Information Standards (“CINIF”) issued the following NIFs, INIFs and improvements to NIFs applicable to profitable entities, which become effective as follows:

B–5, Financial Segment InformationB–9, Interim Financial Information C–4, InventoriesC–5, Advance Payments and Other AssetsImprovements to Mexican Financial Reporting Standards 2011

Some of the most important changes established by these standards are:

NIF B–5, Financial Segment Information – This standard establishes a management approach to identifying and disclosing segment information, as opposed to Bulletin B–5, which considered a management approach but also required segment disclosures to be classified by economic segments, geographical areas or homogeneous groups of customers. This standard also differs from the previous bulletin in that it does not require that business areas be subject to different risks in order to separate them into different segments. Additionally, a component in the development or pre–operational stage may be classified as a segment. This standard also requires the separate disclosure of interest income, interest expense and liabilities, as well as disclosure of entity–wide information, including products, services, geographical areas, and major customers and suppliers. Similar to Bulletin B–5, this standard is only mandatory for public companies or entities in process of becoming public.

NIF B–9, Interim Financial Information – Unlike Bulletin B–9, this standard requires the presentation of a condensed statement of changes in stockholders’ equity and statement of cash flows as part of interim financial information. The standard also requires, for comparative purposes, information presented at the close of an interim period be presented together with information of the corresponding period in the previous year, and in the case of the balance sheet, presentation of the closing balance sheet of the immediately preceding year.

NIF C–4, Inventories – This standard eliminates direct costing as a permitted method of costing and eliminates the last–in first–out method as a technique for the measurement of cost. The standard also amended inventory valuation to be the lower of cost or market where market value is represented by net realizable value. This standard also sets rules for valuing inventory of service providers. This standard clarifies that, for inventory acquisitions in installments, the difference between the cost of inventory under normal credit terms and the actual amount paid, be recognized as a financial cost during the financing period. The standard also permits the reversal previous inventory impairment losses against current earnings of the period in which the change in estimate is determined. It also requires disclosure of the amount of inventories recognized in results of the period when cost of sales includes other elements, when a portion of cost of sales is included within discontinued operations, or when the statement of income is classified according to the nature of revenues and expenses, such that a cost of sales line item is not presented. The standard also requires disclosure of the amount of impairment losses on inventories recognized as a cost of the period. It also requires that any change in the cost allocation method be treated as an accounting change. Additionally, it requires that advances to suppliers be recognized as inventories on upon the time when the risks and benefits of ownership are transferred to the Company.

NIF C–5, Advance Payments and Other Assets – This standard establishes that a basic feature of advance payments is the fact that they do not transfer the risks and rewards of the ownership of goods and services to the Company. Therefore, advances for the purchase of inventories or property, plant and equipment, among others, must be presented separately from



inventory or property, plant and equipment if the risks and rewards of ownership of those goods have not transferred to the Company. The standard requires that advance payments be impaired when they lose their ability to generate future economic benefits. This standard also requires classification of advance payments as current or noncurrent, depending on their nature.

Improvements to Mexican Financial Reporting Standards 2011 – The main improvements generating accounting changes that should be recognized in fiscal years beginning January 1, 2011 are as follows:

NIF B–2, Statement of Cash Flows – The improvement to this standard eliminates the requirement to present a total, between investing activities and financing activities, of the excess cash to be applied in or obtained from financing activities. Presentation of this total is now only a recommendation.

Bulletin C–3, Accounts Receivable – The improvement to this Bulletin includes standards for the recognition of interest income on accounts receivable, and clarifies that recognition of accrued interest income on receivables whose collection is doubtful is prohibited.

NIF C–13, Related Parties – The improvement to this standard incorporates a close family member within the definition of a related party.

Bulletin D–5, Leases – The improvement to this Bulletin removes the obligation to determine the incremental interest rate when the implicit rate is too low; consequently, it establishes that the discount rate to be used by the lessor to determine the present value of minimum lease payment should be the implicit interest rate of the lease agreement, if it can be easily determined. If the implicit rate cannot be easily determined, then the incremental interest rate should be used. The improvement also requires more detailed disclosures by both lessors and lessees. As well, the improvement requires that when a gain or loss on the sale in a sale and leaseback transaction is deferred, it should be amortized over the term of the agreement and not in proportion to the depreciation

of the leased asset. The gain or loss on the sale in a sale and leaseback transaction involving an operating lease should be recognized in results at the time of sale, provided that the transaction is established at fair value. If the sale price is below the carrying value of the asset, the result should be recognized immediately in current earnings, unless the loss is offset by future payments that are below the market price of the lease, in which case the loss should be deferred and amortized over the term of the agreement. If the sale price is greater than the carrying value of the asset, the excess should be deferred and amortized over the term of agreement.

At the date of issuance of these consolidated financial statements, the Company has not fully assessed the effects of adopting these new standards on its financial information.

23. INTERNATIONALFINANCIALREPORTINGSTANDARS

In January 2009, the National Banking and Securities Commission published the amendments to its Sole Circular for Issuers, which requires companies to file financial statements prepared according to the International Financial Reporting Standards (IFRS) beginning in 2012, and permits their early adoption. The Company decided to adopt IFRS as of January 1, 2012, and as of the date of issuance of this report it is in the process of assessing the impact this decision will have on the main items of its financial statements.

24. FINANCIALSTATEMENTSISSUANCEAUTHORIZATION

On April 8, 2011, the issuance of the consolidated financial statements was authorized by C. P. J. Sacramento Soto Solís Director of Administration and Finance of the Company. These consolidated financial statements are subject to the approval of the ordinary stockholders’ meeting, who may modify the financial statements, based on provisions set forth by the General Corporate Law.

* * * * * *

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

56 : CONSORCIO ARA 2010 ANNUAL REPORT

cOntactJaime del río CastilloInvestor relations [email protected]

arcos bosques Marco IIPaseo de Tamarindos No. 90, Torre IPiso 24, bosques de las LomasC.P. 05120, México, D.f.(52.55) 5596.8803(52.55) 5246.3100 ext. 4096

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2010 AnnuAl report potentiAlly ArA

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