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(HXM)

Q2 2013 Earnings Call

July 26, 2013 10:00 am ET

Executives

Vania Fueyo Zarain - Head of Investor Relations and Chairman of Disclosure Committee

Gerardo De Nicolás Gutiérrez - Chief Executive Officer, President, Director, Chairman of Executive Committee, Member of Disclosure Committee, Member of Ethics Committee and Member of Risk Management Committee

Carlos J. Moctezuma Velasco - Chief Financial Officer and Member of Disclosure Committee

Presentation

Operator

Good morning, and welcome to the Desarrolladora Homex Second Quarter 2013 Earnings Conference Call. The company will not conduct a Q&A session, as the company continues to work on the evaluation of its financial alternatives and strategies in conjunction with its financial advisor, JPMorgan. [Operator Instructions] I will now turn the call over to Vania Fueyo, Investor Relations officer.

Vania Fueyo Zarain

As a reminder, certain statements made during the course of this conference call about future events and financial results constitute forward-looking statements made pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are subject to risks and uncertainties. Discussion of factors that may affect future results are contained in our filings with the Securities and Exchange Commission. We undertake no obligation to correct or update any forward-looking statements provided as a result of new information, future events or even changes in our expectations.

I will now turn the call over to Gerardo De Nicolás, our Chief Executive Officer.

Gerardo De Nicolás Gutiérrez

Thank you, Vania. Good morning, everyone, and thank you for joining us on today's call.

The second quarter of the year continues to be very challenging for Homex, as reflected in our results. We continue to feel confident about Homex's future despite the turbulent times that we are facing. We're crossing our experience as a home builder in our product offerings, where we continue to be well positioned to produce vertical homes and better planned communities, as promoted by housing authorities in Mexico.

[Audio Gap]

an important asset that we also have to continue to be competitive in an attractive housing industry, where there is a real demand for new homes [indiscernible] construction technology, which allow us to build faster and with quality. At the same time, our existing projects will continue to be a key asset as a we can leverage on past investments as these projects are reactivated.

We also trust in the federal government and housing agency's commitment towards housing [ph] as an economic [indiscernible] for the country and social welfare for Mexico.

During the quarter, we continued to work in different alternatives to improve our financial position and rightsize our company, principally focused on the reactivation of our housing projects, as the strategy to reduce our liabilities while improving our financial position.

Nonetheless, during the quarter, we faced a number of constraints that limited the company's ability to effectively use approved bridge loans and reactivate housing projects. Therefore, as reflected in our results, our second quarter 2013 operations were affected.

Also, with respect to rightsizing our company, during the quarter, we made the decision to close 2 cities [ph] located in the northeast of Mexico, Juarez and Laredo. During the following months, we will continue to individually evaluate our projects' viability according to the new conditions and rules in the industry and economy.

As of today, some of the constraints that were in the second quarter of the year limited our ability to reactivate our housing projects have been positively resolved. We are confident that progressively for the following months, our housing projects will be reactivated and we will continue to transform and adapt Homex to the new conditions that we are facing.

I would also like to take a moment to thank Commercial Bank, who helped us in our capacity to reactivate our projects and thus has supported us through these challenging times. Their support has been, and will continue to be, instrumental for Homex and we will continue to work in partnership with them.

As we expected [ph], during the latter part of the quarter, we effectively closed the transactions with IDEAL to sell Homex's interest in the penitentiaries projects. Carlos will give you more details about the closing of this important transaction for approximately MXN 4.5 billion.

Also, I would like to take a moment to comment on the announcement made by SEDATU in regard to the applicable rules for the subsidy program for 2014. First, we welcome the additional resources approved for the 2013 exercise, not only because the approximately MXN 1 billion in additional resources that the industry will have, but for the government's acknowledgment of the needs of additional funds to serve more Mexican families, while at the same time bringing partial relief for the liquidity constraints that the industry is facing.

With respect to the applicable rules for the scoring of lands and projects, the essence of the previous scoring was maintained, which leads to continuity and should not necessarily translate in additional operational changes to comply with the new rules.

As we all know, since it's in the rules and it has happened in the past, have importantly affected the company's operations. In this respect, according to an initial assessment performed by Homex that is subject to the revision and validation of local, state and federal housing authorities, approximately 67% of our land will be applicable for subsidies. The remaining 33% that to date does not qualify is mainly related to future stages of our housing projects which, potentially, through the evolution and growth of our projects in cities where the land is located will eventually qualify.

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