Debt to Grow at a Slower Pace Lowering Target Price but Reiterating Buy

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1 Latin American Equity Research Mexico City, May 1, 2008 URBI Company Update Mexico Cement & Construction BUY Debt to Grow at a Slower Pace Lowering Target Price but Reiterating Buy Gonzalo Fernández* Vivian Salomón* Mexico: Banco Santander S.A. Mexico: Banco Santander S.A. (5255) (5255) gofernandez@santander.com.mx vsalomon@santander.com.mx (04/29/08) CURRENT PRICE: US$3.45/M$3.27 TARGET PRICE: US$3.80/M$41.50 What s Changed Rating: Maintaining at Buy Price Target (US$): 2008YE From 4.85 to 3.80 EBITDA Estimates (US$): 08 From 368 to 378 Mn 09 From 427 to 447 Mn 10 Introducing 532 Mn Company Statistics Bloomberg URBI*.MM 52-Week Range (US$) E P/E Rel to the IPC Index (x) E P/E Rel to Housing Sector (x) 1.02 IPC (US$) 2, Yr EBITDA CAGR (06-09E) 18.6% Market Capitalization (US$ Mn) 3,193.0 Float (%) 46 3-Mth Avg Daily Vol (US$000) 6.17 Shares Outst Mn 976 Net Debt/Equity (x) 0.22 Book Value per Share (US$) 1.29 Estimates and Valuation Ratios E 2009E 2010E Net Earn (M$ Mn) 1,833 2,378 2,987 3,758 Current EPS Net Earn (US$ Mn) Current EPS P/E (x) P/Sales (x) P/CE (x) FV/EBITDA (x) FV/Sales (x) FCF Yield (%) Div per Share (US$) Div Yield (%) Sources: Bloomberg, Company reports, and Santander estimates. Investment Thesis: After incorporating 1Q08 results, a faster-thanexpected increase in debt, and the additional shares issued in the October 2007 follow-on equity offer into our valuation model, we are lowering our year-end 2008 target price for Urbi from M$55.00 (US$4.85) to M$41.50 (US$3.80) per share. Nevertheless, we are maintaining our Buy rating based on a potential upside of 16% in U.S. dollars from current levels compared with our 6.25% expected Mexican benchmark return. Reasons for Change to Price Target/Estimates: Through April 29, Urbi stock significantly underperformed, having posted a negative 8.3% return compared to a positive 20.1% by Geo and 18.9% by Homex. This performance, in our opinion, is explained by the stock overhang caused by the follow-on equity offer in October 2007, the use of off-balance-sheet debt, and the rapid increase in net debt due to consistently negative free cash flow. These factors created concerns that were not offset by Urbi s being one of the fastest growing and most profitable companies in the housing sector in Mexico. Nevertheless, in the 1Q08 press release and conference call, management stated that they intend to stop the growth of offbalance-sheet debt (factoring), reduce negative free cash flow by improving working capital management, and to increase net debt at a more moderate pace. These intentions, together with the high expected EBITDA growth, are all positives in our opinion and, if achieved, would ease the current concern that Urbi is a cash-burning machine, and would thus, in our view, be positive catalysts for the stock. Valuation and Risks to Investment Thesis: As a result of the significant underperformance of the stock price, Urbi is trading at an estimated FV/EBITDA of 9.2 times for The FV/EBITDA premium to the sector average has narrowed from 48% in December to 18% currently and in terms of P/E 2008E the premium has reduced to 3%. Our 2008YE target price is based on a DCF valuation using a 9.2% discount rate and a 2.5% terminal growth rate, and implies a target FV/EBITDA multiple of 10.6 times for Risks to our investment thesis include: changes in the lending activity of mortgage agencies and commercial banks, delays in collections, increases in the cost of building materials, higher-than-expected increases in debt, and changes in fiscal regulations. * Employed by a non-us affiliate of Santander Investment Securities Inc. and is not registered/qualified as a research analyst under NASD rules.

2 Urbi: Debt to Grow at a Slower Pace Lowering Target Price but Reiterating Our Buy Urbi was founded in 1981 and is the second-largest housing developer in the affordable and middle-income segments in Mexico in terms of units sold. The company sold 37,231 units in full-year 2007 and generated revenues and EBITDA of US$1,171 million and US$319 million, respectively. Urbi is the leading housing developer in the northern region of Mexico, particularly in the States of Baja California, Sonora, Chihuahua, and Sinaloa. In addition, the company has recently expanded into the metropolitan areas of Mexico City, Guadalajara, and Monterrey. WHAT HAS CHANGED? Through April 29, Urbi s stock has significantly underperformed, posting a negative 8.3% return compared to a positive 20.1% by Geo and 18.9% by Homex. This underperformance is consistent with our concerns regarding the rapid growth of off-balance-sheet debt created by factoring of receivables and financing mortgages for customers through the Alternativa Urbi program, which resulted in the accumulation of off-balance-sheet liabilities of M$2.0 billion as of March The Alternativa Urbi program provides financing to clients who do not have the required credit capacity or cannot afford a down payment, such as workers in the informal sector. This program has contributed to Urbi s revenue growth but has also created concerns about the rapid increase in debt, and about the company accepting the credit risk associated with these customers, which is not a risk for other homebuilders. Furthermore, despite persistent efforts, the company has not been able to reach an agreement with a financial institution to share this risk. Finally, in our opinion, the significant negative free cash flow and fast-growing net debt since 2007 has contributed to Urbi s recent underperformance. In the 1Q08 press release, Urbi management stated that its investment in the Alternativa Urbi program has reached the M$2.0 billion level targeted by the company, and that it intends to maintain this level for the remainder of Furthermore, in its 1Q08 conference call, management said that it intends to increase revenues in the affordable-income segment, which has a shorter working capital cycle, from 55% in 2007 to 75% in 2008, consistent with the higher availability of financing in this segment. This should contribute to improving collection, reducing working capital requirements, and to maintaining debt stable at the current level of M$5.5 billion. In our opinion, this could reduce concerns about the pace of Urbi s rising debt. Finally, the company maintains its estimated EBITDA growth guidance unchanged at 16%-18% in 2008 and 2009, and 18%-20% for 2010 and 2011, with the aim of multiplying 2007 net earnings by 2.5 times over the next five years. In our opinion, a turnaround in operating cash flow and the stabilization of debt would both be positive in terms of stock prices. Figure 1. Urbi Operating Cash Flow and Net Debt (Million Pesos), 1Q07-4Q08E Oper Cash Flow Net Debt 1,500 1, ,000-1,500-2,000 1Q07 2Q07 3Q07 4Q07 1Q08 2Q08E 3Q083 4Q08E 3,500 3,000 2,500 2,000 1,500 1,000 1Q07 2Q07 3Q07 4Q07 1Q08 2Q08E 3Q083 4Q08E Sources: Company reports and Santander estimates. Net debt includes factoring. 2

3 QUARTERLY RESULTS Urbi released positive 1Q08 results on April 23, with sales and EBITDA growth at the high end of the housing sector in Mexico, and in line with our expectations. Revenues increased 21% YoY in nominal peso terms and EBITDA 21.4% YoY. The number of units sold increased by 8.2% YoY, reaching 7,755, of which 72.3% correspond to the affordable entry level, 20.2% in the low-to-middle-income segment, and 7.5% in the high-to-middle-income and residential segments. For full-year 2008, the company estimates that 75% of revenues will come from the affordable entry level and low middle income housing segments. The flat operating income reflects the changes made in accounting practices for the capitalization of the comprehensive cost of finance in COGS. Nevertheless, EBITDA, which excludes this effect, increased a solid 21.4% YoY with an EBITDA margin of 27.0%, at the high end of the sector. Net income grew 11.5% YoY and the net margin decreased from 13.8% to 12.8% in 1Q08 due to higher financial expenses. Net debt, including the liability provision for factoring, increased from M$2.12 billion in 4Q07 to M$2.97 billion in 1Q08, or M$854 million, equivalent to the reduction in cash during the quarter. The company s receivables turnover period remained stable at 188 days, according to our calculations, and the inventory turnover decreased from 522 days in 4Q07 to 503 days in 1Q08. The main use of cash was to reduce accounts payable by M$592 million. According to the company, its operating cash flow was a negative M$862.6 million in 1Q08. Figure 2. Urbi First-Quarter Results U.S. Dollars in Millions a Mexican Pesos in Millions a % vs. %Ch % vs. %Ch 1Q08 S. Est S. Est 1Q07 Y/Y 1Q08 S. Est S. Est 1Q07 Y/Y Sales % % Sales 2,620 2, % 2, % Op Profit % % Op Profit % % EBITDA % % EBITDA % % EBITDA Mgn 27.0% 26.8% 0.2% 26.8% 0.1% EBITDA Mgn 27.0% 26.8% 0.2% 26.8% 0.1% Net Inc % % Net Inc % % EPS % % EPS % % a Except per share amounts. Sources: Company reports and Santander estimates. REVISED EARNINGS ESTIMATES After incorporating 1Q08 results in our model, we are slightly increasing our EBITDA estimates for 2008 and 2009, which are in line with the growth estimated by the company. Nevertheless, after incorporating a faster-than-expected increase in debt and the additional shares issued in the October 2007 follow on equity offer into our valuation model, we are lowering our year-end 2008 target price for Urbi from M$55.00 (US$4.85) to M$41.50 (US$3.80) per share. Figure 3. Urbi Estimates Revisions, 2008E-2010E (U.S. Dollars in Millions*) 2008E 2009E 2010E Previous Current Change Previous Current Change Previous Current Change Revenue 1,367 1, % 1,596 1, % NA 1,971 NA Op. Profit % % NA 480 NA Op. Margin 24.4% 23.6% -3.2% 24.2% 24.4% 0.6% NA 24.4% NA EBITDA % % NA 532 NA Net Income % % NA 328 NA EPS % % NA 0.34 NA *Except per share data. NA not available. Sources: Company reports and Santander estimates. U.S. investors inquiries should be directed to Santander Investment Securities Inc. at (212) /(212)

4 Urbi: Debt to Grow at a Slower Pace Lowering Target Price but Reiterating Our Buy VALUATION Our 2008YE target price is based on a DCF valuation using a 9.2% discount rate and a 2.5% terminal growth rate, and implies a target FV/EBITDA multiple of 10.6 times for 2008, similar to Urbi s trailing 12-month multiple. Despite the downward revision in our target price, the stock still offers a potential upside of 16% in U.S. dollars from current levels, and we are thus maintaining our Buy recommendation. As a result of the significant underperformance of the stock price, Urbi is trading at an estimated FV/EBITDA of 9.2 times for The FV/EBITDA premium to the sector average has narrowed from 48% in December to 18% currently and in terms of P/E 2008E the premium has been reduced to 3%. Figure 4. Urbi Free Cash Flow, 2009E-2018E (U.S. Dollars in Millions) 2009E 2010E 2011E 2012E 2013E 2014E 2015E 2016E 2017E 2018E Residual Sales 1,652 1,971 2,306 2,652 2,878 3,124 3,392 3,681 4,002 4,344 EBITDA ,080 1,173 Cash Taxes Depreciation Capex Ch Wk Cap FCF ,768 Source: Santander estimates. Figure 5. Urbi Discounted FCF, 2009E-2018E (U.S. Dollars in Millions) 2009E 2010E 2011E 2012E 2013E 2014E 2015E 2016E 2017E 2018E Res Present Value ,801 Firm Value 4,004 Net Debt 2008E 289 Equity Value 3,715 Current MKt Cap 3,193 Discount -14% # of Shares 976 Tar. Price US$/Sh 3.80 Target Price M$ Upside US$ 16% Source: Santander estimates. 4

5 Figure 6. Comparative Valuation Mexican Homebuilders (in U.S. Dollars) Price Target Upside/ P/E FV/EBITDA Mkt. Company Ticker Rec. Apr 29 Price Down 2007E 2008E 2009E 2007E 2008E 2009E Cap Ara ARA* Hold % ,387 Geo GEOB Buy % ,909 Buy Homex HXM % ,409 Buy Sare SARE % Buy Urbi URBI* % ,193 Average Average w/ Urbi Urbi/Avg 28% 3% 1% 21% 18% 21% Source: Santander estimates. Figure 7. Relative Price Urbi vs. Homex Jan-06 Feb-06 Mar-06 Apr-06 May-06 Jun-06 Jul-06 Aug-06 Sep-06 Oct-06 Nov-06 Dec-06 Jan-07 Feb-07 Mar-07 Apr-07 May-07 Jun-07 Jul-07 Aug-07 Sep-07 Oct-07 Nov-07 Dec-07 Jan-08 Feb-08 Mar-08 Apr-08 HOMEX URBI Source: Santander. U.S. investors inquiries should be directed to Santander Investment Securities Inc. at (212) /(212)

6 Urbi: Debt to Grow at a Slower Pace Lowering Target Price but Reiterating Our Buy Figure 8. Urbi-Forward FV/EBITDA Multiple Urbi vs Homex Jan-06 Apr-06 Jul-06 Oct-06 Jan-07 Apr-07 Jul-07 Oct-07 Jan-08 Apr-08 Homex Urbi Source: Santander estimates. Figure 9. Urbi- Forward P/E Urbi vs Homex Jan-06 Mar-06 May-06 Jul-06 Sep-06 Nov-06 Jan-07 Mar-07 May-07 Jul-07 Sep-07 Nov-07 Jan-08 Mar-08 Homex Urbi Source: Santander estimates. RISKS In our opinion, the alternative Urbi schemes have contributed to revenue growth, but have also resulted in a fast-growing off-balance-sheet debt, which has raised some concerns among investors. Furthermore, when delivering the home before payment under the rent-to-own-program, Urbi incurred credit risks that other homebuilders do not, even though the risk is shared with the financial institution providing the mortgage. 6 Like other companies in the sector, Urbi is highly dependent on mortgages from government-related agencies for low-income housing, such as Infonavit and Sociedad Hipotecaria Federal. Changes in the lending policies by these agencies or changes in the payment period to homebuilders could affect Urbi. In the case of loans to the middle-income and residential segments, changes in interest rates or lending policies by commercial banks could also affect demand in this segment.

7 Because Urbi s main markets are located in the northern region of Mexico, the company also is more sensitive to changes in the U.S. economy and the export-oriented industry than its peers. Changes in U.S. economic activity could have a more significant impact on Urbi, but the company s geographical expansion should reduce this risk in the future, in our view. Strong growth in the sector could put pressure on the price of land in Mexico, and it is uncertain whether developers would be able to pass this increase through to their selling prices. However, companies with large land banks, such as Urbi, are less sensitive to this risk. Nevertheless, there is no certainty that the entire land bank will get the necessary permits from authorities or that the developments will be sold at the expected prices. In addition, permits and the need to build infrastructure sometimes result in delays and additional costs for developers. U.S. investors inquiries should be directed to Santander Investment Securities Inc. at (212) /(212)

8 Urbi: Debt to Grow at a Slower Pace Lowering Target Price but Reiterating Our Buy FINANCIAL STATEMENTS Figure 10. Urbi Income Statement, Balance Sheet, and CF Statement, E (U.S. Dollars in Millions) Income Statement E 2009E 2010E % Sales 1, % 1, % 1, % 1, % Cost of Sales % % 1,102 67% 1,305 66% Gross Profit % % % % Oper. and Adm. Expenses % % 153 9% % Operating Profit % % % % Depreciation 13 1% 17 1% 17 1% 17 1% EBITDA % % % % Financing Costs 22 2% 27 2% 28 2% 31 2% Interest Paid 27 2% 39 3% 41 2% 45 2% Interest Earned (10) -1% (13) -1% (14) -1% (14) -1% Monetary Gain/Loss 5 0% - 0% - 0% - 0% FX Gain/Loss 1 0% 1 0% 1 0% 1 0% Other Financial Operations 2 0% 6 0% 6 0% 5 0% Profit before Taxes % % % % Tax Provision 73 6% 89 6% 108 7% 122 6% Profit after Taxes % % % % Subsidiaries - 0% - 0% - 0% - 0% Extraordinary Items - 0% - 0% - 0% - 0% Minority Interest - 0% - 0% - 0% - 0% Net Profit % % % % Balance Sheet E 2009E 2010E Assets 2, % 2, % 3, % 3, % Short-Term Assets 2,278 97% 2,339 87% 2,708 89% 3,152 90% Cash and Equivalents % 245 9% 256 8% 242 7% Accounts Receivable % % % 1,015 29% Inventories 1,117 48% 1,358 51% 1,601 52% 1,894 54% Other Short-Term Assets % % 280 9% 283 8% Long-Term Assets 63 3% 63 2% 65 2% 66 2% Fixed Assets 39 2% 37 1% 38 1% 39 1% Deferred Assets 24 1% 26 1% 27 1% 27 1% Other Assets - 0% - 0% - 0% - 0% Liabilities 1,117 48% 1,544 58% 1,710 56% 1,966 56% Short-T. Liabilities % % % % Suppliers % % % % Short-Term Loans 58 2% (60) -2% (45) -1% (70) -2% Other ST Liabilities 18 1% % % % Long-Term Loans % 246 9% 243 8% 241 7% Deferred Liabilities % % % % Other Liabilities - 0% - 0% - 0% - 0% Majority Net Worth 1,224 52% 1,135 42% 1,342 44% 1,533 44% Net Worth 1,224 52% 1,135 42% 1,342 44% 1,533 44% Minority Interest - 0% - 0% - 0% - 0% Cash Flow E 2009E 2010E Net Majority Earnings Non-Cash Items Changes in Working Capital (456) (325) (354) (437) Capital Increases/Dividends Capital Expenditures 3 (13) (18) (17) Net Cash Flow 85 (65) 17 (8) Beginning Treasury Ending Treasury Sources: Company reports and Santander estimates. 8

9 Figure 11. Urbi Income Statement, Balance Sheet, and CF Statement, E (Millions of Mexican Pesos) Income Statement E 2009E 2010E % Sales 12, % 15, % 18, % 22, % Cost of Sales 8,668 68% 10,292 67% 12,347 67% 14,965 66% Gross Profit 4,111 32% 5,105 33% 6,160 33% 7,641 34% Oper. and Adm. Expenses 1,259 10% 1,535 10% 1,711 9% 2,191 10% Operating Profit 2,873 22% 3,629 24% 4,512 24% 5,510 24% Depreciation 146 1% 182 1% 187 1% 196 1% EBITDA 3,483 27% 4,115 27% 5,009 27% 6,104 27% Financing Costs 244 2% 292 2% 312 2% 357 2% Interest Paid 294 2% 429 3% 461 2% 511 2% Interest Earned (108) -1% (144) -1% (159) -1% (165) -1% Monetary Gain/Loss 50 0% - 0% - 0% - 0% FX Gain/Loss 8 0% 7 0% 10 0% 10 0% Other Financial Operations 21 0% 66 0% 63 0% 61 0% Profit before Taxes 2,629 21% 3,344 22% 4,200 23% 5,154 23% Tax Provision 796 6% 966 6% 1,212 7% 1,396 6% Profit after Taxes 1,833 14% 2,378 15% 2,987 16% 3,758 17% Subsidiaries - 0% - 0% - 0% - 0% Extraordinary Items - 0% - 0% - 0% - 0% Minority Interest - 0% - 0% - 0% - 0% Net Profit 1,833 14% 2,378 15% 2,987 16% 3,758 17% Balance Sheet E 2009E 2010E Assets 25, % 29, % 34, % 40, % Short-Term Assets 24,868 97% 25,494 87% 30,326 89% 36,151 90% Cash and Equivalents 3,381 13% 2,675 9% 2,865 8% 2,777 7% Accounts Receivable 6,477 25% 8,015 27% 9,532 28% 11,644 29% Inventories 12,190 48% 14,804 51% 17,929 52% 21,730 54% Other Short-Term Assets 2,820 11% 3,017 10% 3,131 9% 3,241 8% Long-Term Assets 685 3% 689 2% 726 2% 753 2% Fixed Assets 422 2% 400 1% 426 1% 443 1% Deferred Assets 263 1% 289 1% 300 1% 310 1% Other Assets - 0% - 0% - 0% - 0% Liabilities 12,197 48% 16,825 58% 19,157 56% 22,555 56% Short-T. Liabilities 5,826 23% 6,977 24% 8,319 24% 9,877 25% Suppliers 2,762 11% 3,375 12% 4,056 12% 4,955 12% Short-Term Loans 634 2% (652) -2% (501) -1% (802) -2% Other ST Liabilities 193 1% 3,989 14% 4,487 13% 5,438 14% Long-Term Loans 2,925 11% 2,677 9% 2,725 8% 2,769 7% Deferred Liabilities 6,892 27% 7,171 25% 8,113 24% 9,909 25% Other Liabilities - 0% - 0% - 0% - 0% Majority Net Worth 13,356 52% 12,373 42% 15,026 44% 17,590 44% Net Worth 13,356 52% 12,373 42% 15,026 44% 17,590 44% Minority Interest - 0% - 0% - 0% - 0% Cash Flow E 2009E 2010E Net Majority Earnings 1,833 2,378 2,987 3,758 Non-Cash Items Changes in Working Capital (4,982) (3,539) (3,961) (5,014) Capital Increases/Dividends Capital Expenditures 36 (140) (200) (200) Net Cash Flow 931 (706) 190 (88) Beginning Treasury 2,450 3,381 2,675 2,865 Ending Treasury 3,381 2,675 2,865 2,777 Sources: Company reports and Santander estimates. U.S. investors inquiries should be directed to Santander Investment Securities Inc. at (212) /(212)

10 Urbi: Debt to Grow at a Slower Pace Lowering Target Price but Reiterating Our Buy IMPORTANT DISCLOSURES Urbi 12-Month Relative Performance (U.S. Dollars) URBI A-07 M-07 J-07 J-07 A-07 S-07 O-07 N-07 D-07 J-08 F-08 M-08 A-08 Sources: Bloomberg and Santander. IPC Urbi Three-Year Stock Performance (U.S. Dollars) B $1.83 4/28/05 B $2.13 7/27/05 B $ /27/05 B $2.27 9/1/05 B $2.57 2/2/06 B $2.73 4/26/06 H $4.40 3/1/07 B $ /13/06 B $4.10 2/1/07 B $4.85 9/17/07 3,500 3,000 2,500 2,000 1,500 1,000 Analyst Recommendations and Price Objectives SB: Strong Buy B: Buy H: Hold UP: Underperform S: Sell UR: Under Review 0.0 M-05 J-05 S-05 D-05 M-06 J-06 S-06 D-06 M-07 J-07 S-07 D-07 M URBI (L Axis) IPC (R Axis) Source: Santander. 10

11 Consorcio Ara 12-Month Relative Performance (U.S. Dollars) IPC ARA A-07 M-07 J-07 J-07 A-07 S-07 O-07 N-07 D-07 J-08 F-08 M-08 A-08 Sources: Bloomberg and Santander. Consorcio Ara Three-Year Stock Performance (U.S. Dollars) B $3.60 3/16/05 B $ /17/05 B $ /27/05 H $4.65 2/2/06 B $ /20/06 B $7.55 2/01/ B $4.90 B $1.85 H $ /16/06 9/17/07 10/4/ M-05 J-05 S-05 D-05 M-06 J-06 S-06 D-06 M-07 J-07 S-07 D-07 M-08 3,400 2,900 2,400 1,900 1, Analyst Recommendations and Price Objectives SB: Strong Buy B: Buy H: Hold UP: Underperform S: Sell UR: Under Review Ara (L Axis) IPC (R Axis) Source: Santander. U.S. investors inquiries should be directed to Santander Investment Securities Inc. at (212) /(212)

12 Urbi: Debt to Grow at a Slower Pace Lowering Target Price but Reiterating Our Buy GEO 12-Month Relative Performance (U.S. Dollars) IPC GEO A-07 M-07 J-07 J-07 A-07 S-07 O-07 N-07 D-07 J-08 F-08 M-08 A-08 Sources: Bloomberg and Santander. GEO Three-Year Stock Performance (U.S. Dollars) SB $3.00 7/29/05 SB $ /19/05 SB $3.90 2/6/06 Geo (L Axis) SB $ /27/05 H $ /25/06 H $4.30 8/3/06 B $6.00 2/1/07 B $7.00 9/17/07 IPC (R Axis) B $4.00 1/24/ B $5.80 H $5.00 9/27/07 10/26/ M-05 J-05 S-05 D-05 M-06 J-06 S-06 D-06 M-07 J-07 S-07 D-07 M-08 Source: Santander. 3,500 3,000 2,500 2,000 1,500 1, Analyst Recommendations and Price Objectives SB: Strong Buy B: Buy H: Hold UP: Underperform S: Sell UR: Under Review 12

13 Homex 12-Month Relative Performance (U.S. Dollars) IPC HOMEX A-07 M-07 J-07 J-07 A-07 S-07 O-07 N-07 D-07 J-08 F-08 M-08 A-08 Sources: Bloomberg and Santander. Homex Three-Year Stock Performance (U.S. Dollars) *Initiation of Coverage H$ /21/06* B$ /4/06 H$ /2/07 H$ /23/07 H$ /17/07 B$ /24/07 3,500 3,000 2,500 2,000 1,500 1,000 Analyst Recommendations and Price Objectives SB: Strong Buy B: Buy H: Hold UP: Underperform S: Sell UR: Under Review 1.5 M-05 J-05 S-05 D-05 M-06 J-06 S-06 D-06 M-07 J-07 S-07 D-07 M HOMEX (L Axis) IPC (R Axis) Source: Santander. U.S. investors inquiries should be directed to Santander Investment Securities Inc. at (212) /(212)

14 Urbi: Debt to Grow at a Slower Pace Lowering Target Price but Reiterating Our Buy Sare 12-Month Relative Performance (U.S. Dollars) IPC SARE A-07 M-07 J-07 J-07 A-07 S-07 O-07 N-07 D-07 J-08 F-08 M-08 A-08 Sources: Bloomberg and Santander. Sare Three-Year Stock Performance (U.S. Dollars) B $5.50 4/28/05 SB $ /27/05 Sare (L Axis) B $ /1/06 H $ /30/06 B $1.90 4/27/07 B $2.20 *Initiation of Coverage 9/17/ M-05 J-05 S-05 D-05 M-06 J-06 S-06 D-06 M-07 J-07 S-07 D-07 M-08 Source: Santander. IPC (R Axis) B $1.60 3/31/08 3,500 3,000 2,500 2,000 1,500 1, Analyst Recommendations and Price Objectives SB: Strong Buy B: Buy H: Hold UP: Underperform S: Sell UR: Under Review 14

15 Key to Investment Codes IMPORTANT DISCLOSURES (CONTINUED) Rating Definition % of Companies Covered with This Rating % of Companies Provided Investment Banking Services in the Past 12 Months Buy Expected to outperform the local market benchmark by more than 5.0% % 70.59% Hold Expected to perform within a range of 5.0% above or below the local market benchmark % 29.41% Underperform/Sell Expected to underperform the local market benchmark by more than 5.0%. 5.27% The numbers above reflect our Latin American universe as of Monday, April 7, For a discussion, if applicable, of the valuation methods used to determine the price targets included in this report and the risks to achieving these targets, please refer to the latest published research on these stocks. Research is available through your sales representative and other electronic systems. Target prices are 2008 year-end unless otherwise specified. Recommendations are based on a total return basis (expected share price appreciation + prospective dividend yield) unless otherwise specified. Stock price charts and rating histories for companies discussed in this report are also available by written request to Santander Investment Securities Inc., 45 East 53 rd Street, 17 th Floor (Attn: Research Disclosures), New York, NY USA. Ratings are established when the firm sets a target price and/or when maintaining or reiterating the rating. Ratings may not coincide with the above methodology due to price volatility. Management reserves the right to maintain or to modify ratings on any specific stock and will disclose this in the report when it occurs. Valuation methodologies vary from stock to stock, analyst to analyst, and country to country. Any investment in Latin American equities is, by its nature, risky. A full discussion of valuation methodology and risks related to achieving the target price of the subject security is included in the body of this report. The benchmark used for local market performance is the country risk of each country plus the 1-year U.S. Treasury yield plus 5.5% of equity risk premium, unless otherwise specified. The benchmark plus or minus the 5.0% differential used to determine the rating is time adjusted to make it comparable with the total return of the stock over the same period. For additional information about our rating methodology, please call (212) This report has been prepared by Santander Investment Securities Inc. ( SIS ) (a subsidiary of Santander Investment I S.A which is wholly owned by Banco Santander, S.A. ("Santander"), on behalf of itself and its affiliates (collectively, Grupo Santander) and is provided for information purposes only. This document must not be considered as an offer to sell or a solicitation of an offer to buy any relevant securities (i.e., securities mentioned herein or of the same issuer and/or options, warrants, or rights with respect to or interests in any such securities). Any decision by the recipient to buy or to sell should be based on publicly available information on the related security and, where appropriate, should take into account the content of the related prospectus filed with and available from the entity governing the related market and the company issuing the security. This report is issued in Spain by Santander Central Hispano Bolsa, Sociedad de Valores, S.A. (SCH Bolsa), and in the United Kingdom by Banco Santander, S.A., London Branch (Santander London), which is regulated by the Financial Services Authority in the conduct of investment business in the UK. This report is not being issued to private customers. SIS, Santander London, and SCH Bolsa are members of Grupo Santander. The following analysts hereby certify that their views about the companies and their securities discussed in this report are accurately expressed, that their recommendations reflect solely and exclusively their personal opinions, and that such opinions were prepared in an independent and autonomous manner, including as regards the institution to which they are linked, and that they have not received and will not receive direct or indirect compensation in exchange for expressing specific recommendations or views in this report, since their compensation and the compensation system applying to Grupo Santander and any of its affiliates is not pegged to the pricing of any of the securities issued by the companies evaluated in the report, or to the income arising from the businesses and financial transactions carried out by Grupo Santander and any of its affiliates: Gonzalo Fernandez and Vivian Salomon. Grupo Santander receives non-investment banking revenue from the subject company. Within the past 12 months, Grupo Santander has managed or co-managed a public offering of securities of Urbi. Within the past 12 months, Grupo Santander has received compensation for investment banking services from Urbi. The information contained herein has been compiled from sources believed to be reliable, but, although all reasonable care has been taken to ensure that the information contained herein is not untrue or misleading, we make no representation that it is accurate or complete and it should not be relied upon as such. All opinions and estimates included herein constitute our judgment as at the date of this report and are subject to change without notice. Any U.S. recipient of this report (other than a registered broker-dealer or a bank acting in a broker-dealer capacity) that would like to effect any transaction in any security discussed herein should contact and place orders in the United States with SIS, which, without in any way limiting the foregoing, accepts responsibility (solely for purposes of and within the meaning of Rule 15a-6 under the U.S. Securities Exchange Act of 1934) for this report and its dissemination in the United States by Santander Investment Securities Inc. All Rights Reserved. 2008