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

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1 CREDIT OPINION Consorcio ARA, S.A.B. de C.V. Update to Discussion of Key Credit Factors Update Summary Consorcio ARA, S.A.B. de C.V. Domicile Mexico City, Ciudad de Mexico, Mexico Long Term Rating 2 Type LT Issuer Rating - Dom Curr Outlook Stable Please see the ratings section at the end of this report for more information. The ratings and outlook shown reflect information as of the publication date. These positives are offset by the aggressive competitive environment in the homebuilder segment and the increase in raw material prices which have not yet been transferred to the final consumer and which, to some extent have had an impact on the company's margins. Other challenges include the need to invest capital in land, licenses, permits and infrastructure, which can be costly, as well as the risk of funding homebuyers. Exhibit 1 Profitability pressures amidst aggressive competitive environment and reshuffle of product portfolio 9,000 Contacts 8,000 Sandra Beltran AVP-Analyst sandra.beltran@moodys.com MXN Millions 7,000 6,000 Revenue (non-gross margin) 5, % 4,000 Gross Margin 6,206 6,844 7,632 4,074 3,000 4,453 6, % 1,753 1,987 1, ,949 2,163 2,319 Source: Moody s Financial Metrics; Moody s Investors Service (estimates). Americas » Diversified leading operator in the Mexican market Asia Pacific » Sustained growth and improvement in credit metrics Japan EMEA % 26% Credit strengths CLIENT SERVICES 29% 28% 28.3% 27.5% 2,000 31% 5, % 4,527 8,434 30% 4,895 5,000 1,000 Marianna Waltz, CFA MD-Corporate Finance marianna.waltz@moodys.com Gross Profit 30.5% 6,515» Track record of conservative growth strategy and prudent financial policies Credit challenges» Profitability under pressure given steep competition and increased raw material prices» More challenging economic environment in Mexico going forward given upcoming electoral year Gross Margin RATINGS ARA's 2 global scale and A2.mx national scale issuer ratings reflect its leading market position in the Mexican homebuilding sector, as well as its conservative growth strategy and prudent financial policies. Moreover, we consider that the company's strategy of having a diverse and flexible product portfolio also resulted in the resilience of its operations during the recent sector's crisis in Mexico. Strong credit metrics and liquidity also support the ratings.

2 Rating outlook The stable rating outlook reflects Moody's expectation that ARA will maintain its conservative capital strategy with a diversified revenue stream and solid credit metrics. Factors that could lead to an upgrade» Upward rating movements would be predicated upon a consistent revenue growth in the housing business, while maintaining its leading market position and strong credit metrics on a sustained basis. Factors that could lead to a downgrade» Downward rating movements will take place should Debt/Total Assets rise above 20%, Debt/EBITDA remains above 3.5x and interest coverage consistently falls below 3.0x, including capitalized interest. Additionally, weaker market share such that ARA falls out of the top five homebuilders in terms of units sold and/or an adverse shift in the government's housing policy that negatively affects earnings and liquidity will pressure the ratings downwards. Key indicators Exhibit 2 ARA Key Financial Metrics LTM as of September 2017 Revenue (USD Billion) Cost Structure (Pre-Impairment Gross Margin) EBIT Coverage of Interest 9/30/2017(L) 12/31/ 12/31/ 12/31/ $0.5 12/31/ % 28.3% 28.5% 28.2% 29.0% 5.4x 6.5x 6.5x 5.5x 4.0x Revenue to Debt 310.4% 281.0% 281.5% 278.7% 226.2% HB and PD Debt to Total Capitalization 15.3% 16.3% 15.6% 15.0% 17.4% Financial metrics including Moody's standard adjustments where applicable. Source: Moody s Financial Metrics Profile sed in Mexico City, Mexico, Consorcio ARA S.A.B. de C.V. (ARA) is the largest public homebuilder in the country. The company operates in 16 states through 48 developments. Since 1996, the company is listed on the Mexican Stock Exchange and has an ADR program listed in the NYSE. Around 52.5% of the company's stake is floating, whereas the remainder is controlled by the Ahumada family. For the last twelve months ended on September 30, 2017, ARA reported revenues of around MXN 8.2 billion with an EBITDA margin as adjusted by Moody's of 14.4%. For this same period the company sold 11,360 units. Detailed credit considerations STRONG MARKET POSITION IN MEXICO S HOMEBUILDING SECTOR Historically, ARA has shown a leading market position in the homebuilder segment in Mexico in terms of revenues. Going forward, we expect the company to maintain its strong presence in the Mexican homebuilding industry. For the LTM ended in September 30, 2017, ARA's revenues were at USD 452 million, with 11,360 units titled. In terms of scale, ARA is the largest Mexican homebuilder rated by Moody's. From Moody's perspective, scale is a relevant factor as it provides clout with suppliers, helping companies to sustain longer term profitability. Often, scale also results in better access to capital markets and provides some cushion under ratings assigned to absorb negative shocks. This publication does not announce a credit rating action. For any credit ratings referenced in this publication, please see the ratings tab on the issuer/entity page on for the most updated credit rating action information and rating history. 2

3 MEXICAN HOMEBUILDING SECTOR IS BETTER POSITIONED NOW THAN SIX YEARS AGO TO FACE POLITICAL RISK RELATED WITH UPCOMING ELECTIONS Presidential elections in July 2018 will bring in a new government in December, with unknown implications today for federal housing policy. The current government s housing policy has focused on containing urban sprawl and developing compact cities since 2012, a strategy that includes the budget for subsidies, house location, the timing of the subsidies and mortgage supply. Since 2013, the government has restructured housing policies and amended its implementation mechanisms, including the allocation of funds for homebuying subsidies. Still, Mexican homebuilers are now less exposed to shifts in public policies. Mexico s federal housing subsidies program which takes the form of transfers for low-income homebuyers decreased to a record low in 2017 as a result of fiscal tightness (see Exhibit 3). On the other hand, the growing number of private-bank mortgages and recently increased amounts in Infonavit loans are boosting demand for high-priced homes, allowing homebuilders to shift from lower priced subsidized dwellings towards more expensive middleincome and residential homes, which will ultimately transfer into higher margins. Exhibit marks record low in Mexico for federal homebuying subsidies Annual subsidies for low income borrowers New Used Others MXN 14,000 MXN 11,494 MXN 12,000 MXN 10,996 MXN 8,908 Millions MXN 10,000 MXN 7,374 MXN 8,000 MXN 6,000 MXN 7,812 MXN 6,525 MXN 5,170 Approved/ pending MXN 4,000 MXN 2,000 MXN Source: Source: SNIIV, Conavi ARA'S FLEXIBLE PORTFOLIO ALLOWS IT TO QUICKLY ADAPT TO A RESILIENT OPERATION ARA operates under a balanced product portfolio that allows it to serve customers with different income profiles. As of September 30, 2017, around 34% of total revenues were related to low income products, 28.5% to middle income and the balance mainly coming from the residential segment. Product diversification has provided ARA the flexibility to adapt to a changing operating environment reducing the volatility and cyclicality inherent to the homebuilding industry. This flexibility allowed the company to quickly shift its product offerings to offset the negative impacts of the low availability of subsidies during the sector's crisis. More recently, ARA has been able to reshuffle its portfolio after the drop in housing subsidies. Homes sold with federal government subsidies accounted for 7.0% of total revenues in the first nine months of the 2017, compared to 30.5% reported in the same period of (see Exhibit 4). 3

4 Exhibit 4 ARA has significantly reduced reliance on federal subsidies in the last twelve months Subsidy Non-susbidy 120% 100% 80% 69% 60% 74% 82% 92% 40% 20% 31% 27% 18% 8% 0% Note: Revenue breakdown provided by ARA. Source: Company financial reports and Moody's Investors Service for 2017 forecast Exhibit 5 Mexican homebuilders increasingly emphasize middle-income and residential sales Affordable entry level 100% 2.2% 2.8% 90% 18.3% 18.7% Middle Income Residential Other 2.6% 4.7% 15.0% 27.4% 80% 2.6% 3.4% 20.7% 27.9% 35.1% 4.4% 4.4% 7.1% 12% 95.6% 95.6% 92.9% 88% 27.0% 70% 60% 43.5% 41.0% 47.6% 28.3% 50% 55.8% 28.6% 54.4% 40% 63.0% 30% 20% 35.8% 39.6% 37.5% 33.6% 34.8% 10% 20.1% 15.1% 0% ARA JAVER 10.0% CADU The above classifications are determined by each company. Source: Company financial reports and presentations; Moody s Investors Service (estimates) OPERATING PERFORMANCE HAS BEEN STRONG SUPPORTED BY SUSTAINED REVENUE GROWTH AND STABLE PROFITABILITY ARA has grown revenues on a sustained basis since 2013, with a CAGR of around 9% during the four year period ended in ARA is a top performer in the Mexican housing industry, considering that during the same period, the three largest companies had credit defaults, resuming operations with much lower scale. Although ARA has not been able to recover profitability to pre-crisis levels, mainly due to structural changes in the industry since then, it has been able to maintain gross margins, including Moody's standard adjustments, at around 28.5% for the same period, still being strong for the 2 rating category. Going forward, we expect the company - and the overall industry - to be able to sustain margins. Infonavit higher mortgage loan caps should continue to strengthen Mexico s homebuying demand enough for homebuilders to raise prices without affecting volume, passing some of the higher costs to customers and protecting profitability. 4

5 Also credit positive is the higher profitability related to the residential segment. Middle-income and residential housing developments tend to have significantly fewer dwellings, reducing urbanization costs. Additionally, the better pricing leads to higher profitability. We estimate that on average, low priced homes in Mexico cost MXN400,000 (USD22,650) or less, middle-income homes sell for MXN400,000-MXN1,000,000, and residential homes sell for MXN1,000,000 or more. Exhibit 6 Construction companies have not passed raw material costs on to buyers INPP Construction Total INPC - Housing Sep % 12% 10% 9.2% 8% 6% 4% 2.7% 2% 0% -2% Oct 2017 (LTM) INPP: Índice Nacional de Precios al Productor (National Producer Price Index); INPC: Índice Nacional del Precios al Consumidor (National Consumer Price Index). Source: INEGI GOING FORWARD WE EXPECT ARA TO CONTINUE TO HAVE A PRUDENT GROWTH STRATEGY THAT REDUCES EXECUTION RISK Going forward, we expect ARA to continue to have a prudent strategy, with a balanced portfolio with geographic and product diversification. Currently the company has a 139,276 units master plan for the upcoming years, supported by a 35.5 million m2 landbank in 18 states. In terms of products, more than 74% of current landbank is related with affordable entry level products, which could increase ARA's exposure to risks related with reduction in subsidies and changes to housing policies. From a geographic standpoint, ARA's landbank has a low exposure to the economic deceleration related with potential shifts in US trade policies. Over 58% of the company's landbank is concentrated in the State of Mexico and Quintana Roo. Both states benefit from high economic growth rates. In the State of Mexico, there is a high portion of public sector's workers, which increases mortgage diversification through Fovissste loans. As per Quintana Roo, we believe that economic growth will likely continue given positive prospects in Mexican tourism sector due to the depreciation of the peso and increased competition in US and Mexican airlines. STRONG CREDIT METRICS FOR THE RATING CATEGORY The strong operating performance has allowed ARA to sustain credit metrics. Leverage measured by Debt to EBITDA as adjusted by Moody's was 2.2 times for the LTM ended in September Since the end of 2013, when leverage peaked at 3.7 times (figure adjusted by Moody's), ARA has consistently reduced leverage. Likewise, interest coverage (measured by Moody's as Homebuilding EBIT to interest expense plus capitalized interest including standard adjustments) at 5.4 times in the LTM ended in September of 2017 is also strong for the rating category. Liquidity analysis ARA has an adequate liquidity position. As of September 30, 2017, cash in hand of around MXN 2.2 billion was enough to cover MXN 1.1 billion debt maturing in the short term. Total outstanding debt for the period was MXN 2.6 billion, out of which MXN 1.77 billion are related with a syndicated loan secured by real-estate collateral and MXN 338 million are outstanding under bridge loans. The balance are financial leases and a 15-year MXN 100 million simple mortgage-backed loan used to acquire, in June, a 50% stake in two shopping centers. ARA generates strong cash from its operations. For the LTM ended in September 2017, funds from operations, including interest expenses, were MXN 1.2 billion. After a MXN 240 million use in working capital and a MXN 111 million dividend pay out, free cash flow for the period was MXN 720 million. 5

6 Alternate sources of liquidity include a construction line signed with Sociedad Hipotecaria Federal (SHF) amounting to MXN 1 billion. Furthermore, the company has four fully owned shopping centers and one more under a joint venture that could be sold to raise additional funds. Also positive is the fact that ARA utilizes very little secured debt, which provides it with financing flexibility in case of need. Rating methodology and scorecard factors Exhibit 7 Consorcio ARA Rating Methodology Grid Current LTM 9/30/2017 Homebuilding And Property Development Industry Grid [1][2] Factor 1 : Scale (15%) a) Revenue (USD Billion) Moody's Month Forward View As of 11/29/2017 [3] Measure Score Measure Score Caa $0.5 Caa 28.4% a 28.5% a 5.4x 5.5x Factor 2 : Business Profile (25%) a) Business Profile Factor 3 : Profitability and Efficiency (10%) a) Cost Structure (Pre-Impairment Gross Margin) Factor 4 : Leverage and Coverage (30%) a) EBIT Coverage of Interest b) Revenue to Debt na b) HB and PD Debt to Total Capitalization 15.3% Aaa 15.5% Aaa Factor 5 : Financial Policy (20%) a) Financial Policy Rating: a) Indicated Rating from Grid 1 b) Actual Rating Assigned 1 2 [1] All ratios are based on 'Adjusted' financial data and incorporate Moody's Global Standard Adjustments for Non-Financial Corporations. [ Source: Moody s Financial Metrics Ratings Exhibit 8 Category CONSORCIO ARA, S.A.B. DE C.V. Outlook Issuer Rating -Dom Curr NSR Issuer Rating Moody's Rating Stable 2 A2.mx Source: Moody's Investors Service 6

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8 Contacts Sandra Beltran AVP-Analyst CLIENT SERVICES Marianna Waltz, CFA MD-Corporate Finance 8 Mura Mihailescu Associate Analyst Americas Asia Pacific Japan EMEA