Grupo Argos S.A. (GRUPOARGOS) Earnings Call Transcript & Summary

Good morning to you all. I'm Maria Aristizabal, Manager of the Urban Development Business. And for me and all the team, it's a pleasure having you all. In order to share the main aspects of our business, we've taken many of the comments that have been made through Natalia and the Investor Relations unit to want to offer more information about this business. So we want to make this presentation highly interactive. Chat window is active for you to ask questions. Just feel free, if you have any doubts, questions or queries in the measure that we [ advance ]. Today's presentation will have 3 chapters. We will start looking at the portfolio initially. First, we'll look at it at national scale, everything that we have. And afterwards, we will go into the most important lots that represent more than 80% of the value, that would be Barranquilla, Baru and Cartagena. And then we will move on to speak about detailed information about land lot hectares, type of use, urban, suburban, protection, multifamily uni-family units. Also horizons for development times, detailed information that afterwards will be used as an input. For the third chapter, as you could see, is valuation. We will be making this exercise -- it's going to be an interactive exercise. It's going to be with an Excel model that we'll be sending to you all once we finish the presentation, and this is going to be a dynamic model. We will be using all the inputs that we've developed through the presentation, with which you can be -- will be able to model different types of scenarios. We'll be discussing some of this today, too. In the second section, we will be -- we selected 4 representative businesses. As you might see, we chose residential, mix and concessions. This is a very atypical type of use, so we wanted to bring this also to discussion. And we'll be seeing why it's so important to see businesses by -- one by one and analyze those particularities with which we carry out negotiations and probably information that we will be also using for making your own valuations. In the second section, I'll be speaking about a manual. It's a valuation manual that we'll be also probably be -- will be publishing at the end of this meeting. So permanently, I'll be speaking about this because this is a manual where we offer a detail -- a broad detail about each one of these types of negotiations. I'll be going through some of these, but nevertheless, I want to invite you all to study this document that contains from a negotiation standpoint, but also from those different accounting particularities that our business might have and other types of innovations that we have also achieved, and that probably will be of your use when you develop your own models. So let me begin. Giving you a bit of context. You already saw this in the previous video. We went from a legacy of nonstrategic assets for the businesses. And what do I mean by this? Some 50, 60 years ago, these lands were acquired by one of our companies, Cementos Argos, due to its mining energy potential. They had a huge limestone reserves, with which afterwards, we would produce cement. But nevertheless, the measure that time went by and cities grew, this use for limestone for mining, was not consistent according to the urban growth of the city, and it became unviable. Keep betting on this use, while the real estate use was growing in value. So for example, in the operations that we had in Barranquilla, for example, and we will be also be emphasizing during this meeting. We decided to abandon that operation back in 2009. And it was afterwards, in 2012, when Grupo Argos decided to absorb the different assets that came from that -- from Cementos Argos. And there was when the urban development business was created and which mandate is to maximize the portfolio we have around its real estate assets. So as I mentioned before, the first chapter, we'll be going over these 3 specific topics, so let's drill to detail. At your right side, you can see how the urban development business comes with more than 4,600 hectares that are distributed all around the Colombian territory. As I mentioned earlier, I'll be emphasizing in each one of the circles that I'm pointing now for Barranquilla, Puerto Colombia and Cartagena, where more than 80% of the value is concentrated. Now if you look at composition, by use, that's what's truly relevant because during our valuation chapter, we'll see that land doesn't have an intrinsical value, but it's value depends on its better best use and will be determined by supply, as we can see on our left. And we also have demand that affects all this. This demand has to do with the current market situation and the capacity that you have as asset owner to capture the market share from different niches at the same time. This is going to be clear when we look at the Excel spreadsheet when we play with that dynamic optimization model. So coming back to this graph that we see on the left side, we could see how urban land, or urban soil in terms of area, represents 11%. But nevertheless, in value, it's worth more than 44.4%. And if you add to this a suburban land in the city's periphery surrounding Cartagena, Santa Marta and Barranquilla, we have suburban land there. We're speaking about less than half the area, representing 98% of the value. While super [indiscernible] territories such as we have in protection and reserve areas or rural areas, this represent 2%. This is very important because in different occasions, we've been asked what's the average price of our land -- what's the average price of land? And we want to express here -- is to show that this is an indicator that's not as telling because the average portfolio, you could see, half of that portfolio represents a 2% in value. So it's not the same to disinvest 20 hectares in urban soil that are extremely valued than investing 20 hectares of the average portfolio where half of it represents 2%. Let me place this in a more extreme way. 1,000 hectares of protection land might cost less than a square of not urbanized -- a land in Pajonal for social interest housing. So I'll be repetitive in this presentation of the importance of not speaking about average prices, and in the meanwhile, we will advance and we'll make -- we'll specify more deeply these types of differences. We're using about growth land or useful land or urbanized land or non-urbanized land, obviously, this will change the price of the land, and many times, transactions cannot be comparable. That's why we've chosen 4 businesses in the next chapter that illustrate these differences that we're speaking of, and this portfolio is valued in COP 2.32 trillion. As we mentioned before, more than 20% -- more than 80% of that value is in Cartagena, Baru and Barranquilla, with close to 1,000 hectares in Cartagena and around 2,000 hectares in Barranquilla and its metropolitan area. Our role disclosed, as you might see here, is to act as master planners. And what does this mean? We establish the roads and public areas. We allocate areas for urban areas, the environmental areas that we should not touch. And we plan uses and phases and making guidelines for the development of these buildings. It's not written in stone, though. It's completely flexible, and we actually modified it. We modified in time as we find different answers in the market, but we do have a clear note of how the city should look in the mix of uses and the mix of social income statuses for the cities to be inclusive, diverse, sustainable. So let me begin by Baru, tell a little bit about where we're at right now. And in the presentation, we'll be discussing more about Barranquilla and the main 4 circles of the metropolitan area. So for Baru, we have 1,180 hectares. From this, around 550 are useful. This means that the rest of the area correspond to protection areas, where we deliberately have chosen, and we have also studied and understood the importance of this territory and the ecosystems that we need to preserve. So in that kind of thoughts, this globe that I'm pointing out here at my left side, you can see 234 hectares of tropical and dry forest. It's actually one of the scarcest ecosystems in the world, and we've decided to protect it. And the same thing happens in 144 hectares of mangroves that we've detected around the globe that will be connected with this green corridor that will come from these beaches -- these southern beaches going through this marshland, reaching this dry topical forest, reaching the mangroves up north. So we have around 1,000 hectares from a total of 7,000 -- 6,000 that the island has, but our land lot is -- that has access via the Cartagena Bay. As you can see, this is a historic site. And by boat, we're 20 minutes away. Accessing this area through the bay means that it's salable 24 hours a day, different from the rest of Baru, that you need to come through open sea, you obviously have certain limitations. So you could not sail after 3, 4 p.m., and obviously, this takes away competitiveness. So this is a unique territory, not even speaking about the environmental asset I just mentioned that we will be protecting. Here, we've licensed all this phase. This first phase that belongs to this southern part of the globe that we call Porto Nao. This 341 hectares, from which 172 of them are useful. For this zone, the last 3 years, we've attracted investments for around COP 1 trillion. I don't like rule of thumbs really, but it's worth mentioning this one. If you say that the price of land varies between 10% and 20% of the value of the project, this means that a $1 billion asset requires investments for COP 5 trillion up to COP 10 trillion are challenges attracting those investors for them to come, build their hotels, their housing condominiums. And there, we have 2 examples that you might know. We have mentioned this in our results. First of this was hotel Sofitel Casablanca. This is a milestone, not just from an architectural point of view or real estate point of view, but because the way we approach the negotiation. In this case, we were able to attract an institutional investor, such as [indiscernible] that you might know. He's -- it's largest real estate fund in Colombia with around COP 6 trillion assets under management. And we also linked a very well-known construction in the country and an operator, world-known operators, such as [ Core ], the French operator. The innovative thing about this negotiation was that in order to attract the investors, we're able for each one of the actors, obviously, us as landowners, the constructor, the operator and the investor, each one of these parts will assume the risks that they could administrate the best. So meaning by this, us as landowners, the normative, this is saved already because we have a license over that territory. We also have a construction risk. In this case, this risk assumed by Arquitectura y Concreto firm. We also have a commercialization risk. This has also been assumed in great part by the operator. This doesn't happen always, but it's an exception, truly because the operator typically doesn't have the incentive of making these types of forecasts, making very attractive forecast in order to attract the investor. But if the forecasts don't match reality, they'll still make their share. We've achieved a subordination of their honoraries subject to the compliance of the projections with which we invite the rest of the stakeholders to participate. So then, the investor perceived a lower risk that would allow them to value those cash flows in a way that they would match the value of the investment we required, it's something like COP 200 billion. Us, in year 5, we have a put option. We can sell our participation in a way that we have actually calculated by now. Later on, we will see the accounting and what happens with the inventory of the investment. We'll look at this in more detail. But let me say that in this case, this land lot corresponds to the hotel. In ledgers, we've valued at COP 13 billion. And why? Because each square meter captures the value of the complete circle, the complete globe. And as we'll see later on, this cannot be compared, they're not comparable. We'll be having more detail about this. If we value our participation in this business that we've structured, this could be close to COP 40 trillion, and this is something that we'll only see when the hotel starts operating, and this will be third quarter 2021. So I just wanted to fast forward this. But later on, we'll see each one of the -- how this applies in our accounting and how should we read our ledgers. This milestone from this hotel was the catalyzer in order for us to close a second business that we shared in the fourth quarter 2018, and that was Decameron hotel. This hotel is located around here, and Casablanca is around here, and we were able to negotiate this land lot. Well, the first opportunity we build this whole package, understanding that we had to drag investment, and that the investment probably would prefer the support of Grupo Argos. But now, this negotiation is actually this one and the other ones that we have in our pipeline that are still going despite the prices and despite how tourism has been affected by the pandemic, future negotiations, we pretend as it happens in the second one, for them to be pure cash-outs. This happened with Decameron And in 2019, they've already paid for the totality of that business that actually exceeded COP 40 billion, as I was mentioning before. It will bring in investments that will be close to COP 0.5 trillion. Now in terms of positive externalities, when this master plan has been constructed, we'll be able to generate employments during the operation, close to [ 800 ], and employments during the construction that will be over 6,000, and a contribution to Cartagena's annual GDP of $260 million. This is a perpetuity of 10 billion -- COP 10 trillion. So this is significant, not just for Cartagena, but for the country, what will mean development of all this master plan in Cartagena. Now let's move on to Barranquilla, its metropolitan area. Possibly, this is the first time that we see on our graph the amount of land lots we have, and we have actually concentrated these historically. This is [ a Spava's ]. Here for you to understand where we are. This is the [indiscernible] Avenue coming from the airport. We have the Magdalena River. We have the Caribbean Ocean. We have [ Mario Aqui ] Hacienda. It's obviously a privileged location. And up here, just let me move this camera. Yes, here is where we had the previous cement plant that I was mentioning before. We started operating in 2009, and we focused to develop these lines. The colors represent different types of use according to the territory ordering plans, or according to the instruments and the applicable rules for each site, and more specifically, what the appraisers or callers are contemplated -- are contemplating. So everything that's on red is urban. Well yes, connected with the previous slide, this represents 11% of the area, but nevertheless, 44% of the value. And why? This is a zone that has high densities, can be constructed on. We're speaking about 400 households per useful hectare. This is more than 240 -- this is 240 per net -- or per net hectare, and there's obviously privilege height. So you could build high buildings. So for you to have an idea of those terms of development that this portfolio will have, I'll be giving you some round figures that we'll be looking at more in detail with the valuation model. But we would say that in Barranquilla and in its metropolitan area, in the next 50 years, in the no biz market, meaning by the social income statuses 4, 5, and 6, 3,000 housing solutions. And with the data we've covered in the last month, we're participating with 37.2% of that market. This means that annually, we're at the capacity of selling the land that's equal with the construction or sale of 1,000 housing units per year. So in this plan, where we have a strong territory plan that has been approved since 2017 that allows the construction of 40,000 housing units, if you divide those 40,000 housing units over the total demand that we can capture of 1,000 of social income statuses, 1, 2 -- 4, 5 and 6, sorry, this would take 40 years. What does this mean for the rest of the portfolio? This is -- my guess is we need to maximize. Our main objective function is to maximize the portfolio with the sum of parts of a portfolio that's fed from a same demand that's also finite. So you have 2 paths here, or you actually have 3 paths or 3 roads. First, you could say, for this neighboring lot, as you can see, has also urban and suburban land, being suburban 62% of this plan. You could, and this is what callers do, is this lot, despite the norm allowing us to develop it with the same density I was mentioning before, we would be competing and cannibalizing ourselves. If we're going for that same development in high-density and high-social income statuses. So what the caller supposes, because they vary [ mildly ] total portfolio, this globe developing houses. So the low density does not compete with the market that we're capturing in this globe over here. Second path -- okay, so this is valuation, this is appraisal. Now let's say the upside that we have over that, and that we've been actually monetizing based on that decision we took and that we will be speaking on later on. Second path, we'd be trying to make a mirror, what we're doing in front. It means that we would have to share the market between both globes, or wait for year 41 in order to sell buildings for social income statuses 4, 5 and 6. And you can imagine the value, net person value of those types of decisions. With land, this happens during the appraisal. Given that the time horizons are so long, year after year, you value the land, you could do it through IBC or IPU, that's the index price for a new housing unit. But each year you discount it to a capital cost that typically is higher than that price index number, and we will be able to play with these figures in our model for you to see the impact that this has. So in a certain way, each year that goes by and the land is not being productive, there's a negative carrying that the valuation price is less than the capital cost. So bearing in mind this negative carry, and let's say that we want to start in year 40, making a mirror with it, we reach a conclusion that we'll also be looking at in further detail, we prefer to attack a market niche that we hadn't attacked yet, or at least as strongly as we're going to do now with this new project. And that's also attending social interest housing. For you to understand the market opportunity we have here, the last data that we have from our real estate business, real social interest housing has a demand that exist by 5 or 6x the higher social income status housing. So having those revenues today in more material and not suffering the composite effect of the negative carrying, it's a huge value over the valuations that are being thought as an urban development for low-density for housing. Here. We have a better idea, focusing on these 2 globes, [indiscernible]. You could see what's our role as master planners. We could see it better here, where these yellow areas are residential areas, high-density residential areas. Low-density residential area are the orange ones. Blue, we have institutional use, and this is very important. And I want to take this opportunity to mention this. You can now compare the price of a square meter, these types of areas. For example, we have Universidad del Norte and Collegio San Jose here. Given that land is a residual value of the product that's constructed over it, the P/Q will be tuitions per number of students, and we'll never be able to pay what a social income status 6 pays, for example, or another use such as residential use or commercial use. But if you don't have this mix of use -- of land uses, you won't be able to be successful in this city model that you're dreaming of. This works similar to the anchors in a shopping mall, where you charge them a bit less because they're attracting the traffic for the rest of the zones. And obviously, a family here, the first thing that they'll think of when they're going to be purchasing a house is if the education of their kids is solved, if their health is solved. So here, we also have an institutional cluster where there's going to be health. I also mentioned education. And in red, we have all the commercial zones. So you can see that these are equilibrated cities in terms of land use. And I don't have it here right now, but in other opportunities, we've shown the service of quality of life and how citizens perceive our lands and the rest of the city. And most definitely, our lands will always be -- are always better-rated for living, no possible aspect. And that's because we've focused on offering a better quality of life. Parks, I was forgetting, are very important, too. We have close to 60 hectares in green zones, and this allows us to develop more than 6 meters of public space per inhabitant versus 85 centimeters that the city had previously. So obviously, what we have is a superior type of product. And let me repeat, this is not written on stone, but as we move on and as we interpret the market, it becomes more a guide that with that dynamic model that we'll be looking at, and we'll be understanding this better. Okay. So speaking about the use, land use, let's start by urban land, as you might know, is the most valuable one. 44% of the value, which corresponds to 11% of the total area, and the main use, obviously, is multifamily, with 360 hectares focused to this use, followed by a commercial institutional use because of what I previously explained. All this traffic -- all this family traffic, they wouldn't go to these areas if they wouldn't have access to all these types of offerings. And this is a very important information that you can use also for your land valuations. So let's stop for a second in multifamily housing. These 260 hectares are divided in the following way. Going from priority interest housing. These are low social income statuses, then moving on to middle social income statuses and high social income statuses. First of all, this is because of the conviction that we have in our company of having inclusive types of cities, and this is the most important for us. But in addition, it's because it's what is optimal, mathematically speaking. All of these globes of land compete for the same market that's finite. For example, we'll be looking at an example on Section 2, where we sell a globe for social income status 4, 5 for more than 2,000 housing solutions, which represents more than 100% of the market of just 1 year. So that year, we could capture more than 100% of the social income status. What does this mean? Well, then the project will take several years in selling that number of units, and that us, we won't be able to sell land for that use and for that social income status in several years. That's why this mix is so important. And so from a social point of view, it's completely logical. But mathematically speaking, also logical, because we're not cannibalizing our own market, but we're simultaneously attending different types of niches with -- with the comment that I was mentioning earlier, if the measure that those revenues happen closer in time, less will be that composite effect of that charge that we were speaking of -- carrying charge we were mentioning. So here, we also saw this 153 hectares for commercial institutional uses. This will be complementary, and this will make this use, this multifamily use, much more attractive. Now let's move on to suburban land that represented 31% of the area. And suburban land, by definition, is found in the periphery of the city, in this case; would be the periphery of Barranquilla, Cartagena the Baru. Actually, Baru is considered 100% suburban land. And when I speak about the periphery in Barranquilla, I'm speaking about Porto Colombia where we have Pajonal, and 62% of that land is cataloged as suburban land. And we also have a bit of suburban land in Santa Marta, too. So you could see it broken down. So the main one is single family housing. By these houses, then we have multifamily housing. And later on, we're looking at this square meters, but we'll be looking at it in terms of number of units and how those units that the model contemplates -- the appraised amount contemplates is way under to what the norm would allow us to do. So it's actually a very conservative scenario that we have in our ledgers, and that we could also play with it later on, and we could maybe calculate different types of scenarios in our Excel spreadsheet. So as I was mentioning before, a number of housing units. Let's begin with urban land. [indiscernible] allows us -- within those globes I previously showed those red globes, we're allowed to build 100,000 housing units for all those globes, which represent approximately 40,000 in [ Papas ] that I mentioned before, maybe a bit less; 40,000 in Pajonal; 20,000 in Insignares and something like 16,000 in Santa Isabel. So the 4 globes that we'll be valuing in Excel. This that I just mentioned, is more -- is much more than 100,000. But nevertheless, it's the number that we're using in order to round even more the appraisals or the units that are being contemplated within the model are only 60,000. So anything higher than this will be an upside. And here, I want to say, this is an upside that's not a linear type of upside. Does it mean that those last 15,000 over the 100,000 contribute linearly into the value, because those last 15,000 will be consumed in the last years of the cash flow of that model. And of course, the net present value cannot be compared with the first 1,000, 2,000 housing units that are sold. Now on the left side, in the graph that we have on the left side, number of units per suburban land. The main difference that we could see here is explained by the valuation. This valuation is appraised and contemplates houses instead of apartments or dense vertical developments, such as buildings. So to summarize, the first slide that I shared with you, remember I spoke about 11% of urban land and 33% suburban land. Here, you can see, within those categories, how much is commercial, how much is residential, et cetera. So 64% of urban and suburban land is residential, and the rest is basically commercial, institutional in those 2 lands, because remember that the sum of all this added 2%, even though it represented 56% of the area. Let me repeat. This means that when we sell hectares of these types of use, you cannot compare that average price to when we sell areas in these types of uses. Now in terms of development times, the measure that we're speaking about such extents lots of land, naturally, we're speaking about very long absorption periods. So for the urban land, our model will show us that it would take us 31 years, the current absorption levels that we have, in order to absorb that urban land. In 38 years, the suburban oil, this obviously is dynamic in time, because it depends on the speed that different social income statuses are growing. So in that case, we would push more for one product than the other according to what time tells us. In that way, we will be able to capture the most -- the largest amount of market that we can. At your right, you can see the price, square meter price per type of land. It's very important to understand these prices cannot be used to negotiate square meters today. This is the sum of all the square meters that we have for those uses. So this value here, the COP 373,000 per square meters for urban land has discounted that within that land, will take 31 years to build it. So the net present value of some cash flows where if you'd like -- if you would look at this today, remember, within urban land, we have residential, commercial, institutional use. And within residential, we have social income statuses 4, 5 and 6. So none of this is comparable. But let's say that a new one -- new one, the price in the commercial area or residential area could be over COP 1 million, COP 2 million today per square meter. But remember that we have to analyze this under the IPU with the capital cost. And this is what gives us this value, the totality of this area as well as those 150 hectares of urban -- of urban use will have an average COP 373,000 per square meter. This is very important, and I will clarify this later on.

And so there's a question here in the chat. What is the rate you use to discount the flows? Just let me -- I think it's 12.6%, just out of my memory, but I'll check that. That's what the callers used to discount these flows as I was mentioning before. To the moment, I've shared with you the lots that we have in our balance. From those COP 1.32 trillion, we also have a category called inventories. So as you can see, we have COP 108 billion. These are urbanism assets that we've done in the past, where in its moment, we reached a point of equilibrium, but we were still with some assets that we could see one by one here, and this will also be useful for you to have a complete picture of that total sum of COP 2.32 trillion. So speaking about Baru, I was mentioning how an asset such as the hotels lot, given that it was an inventory, moves on to inventory with a price -- with the average price of the square meter, as if it had gone to the -- to this price that we have here. And once it's in inventory, you don't evaluate anymore or price it anymore if these inventories are only increased by the additional urbanism works that might happen. So that value is frozen in time. But nevertheless, and I was mentioning before, specifically for the case of Baru, we're speaking about COP 13 billion with which the assets found in our ledgers right now. But nevertheless, contractually speaking, in the measure that we can value the obligation that this third-party has with us to buy that asset in year 5, once it has stabilized, we could value it because we exchange square meters for a financial instrument that would be worth today COP 40 billion. But in ledgers, due to different accounting variabilities, cannot be taken into account today, but until the asset is finished, and this will happen in September 2021.

I don't know if you might have any other of those questions or queries for the moment because I'll be moving on to the second chapter, and this is representative businesses by use. As there's no questions, let me move on with Slide 4, and we'll see in each case why we did so. And these, actually, are good examples for the particularities of our businesses. And we'll give you clear ideas for you to understand those things that we'll be discussing in Chapter 3, those assumptions we'll be discussing in Chapter 3. Let me begin with the simplest one. This is a business from 2007, typical type of business, where we sell a land lot that has been urbanized by now, those ones that we had in the inventory. What means urbanized? All the [rows] are ready, as you might see, all the surrounding roads already. It has access to water, sewage, energy. So what I mean by this -- sorry, and parks have been solved, and all the obligations have been solved. So the constructor comes in, and the only thing they have to do is they perform their vertical development. They build the building. The rest was built by us. And we'll be looking at this later on. I think it's a third case. We'll be showing -- when we're selling gross, and the obligations such as our urbanism sessions. And this is built by the buyer so these are prices that cannot be compared. And you'll see this around for exercises, including this price per sold square meter. This is the one that moves us much more, more than the price of the square meter per lot. I was mentioning, at the end of the day, the value of things are what you could build over the land. So this gave us the opportunity to start applying some bylaws, a new and innovative for the country, where we've designed mechanisms to charge for air rights. So I mean by this, these prices, as you might imagine, are negotiated one by one to make a call. We invite -- we make an open call. We invite 30, 40, 50 builders. They make their offers. But they're not just economic offers, but they also make architectural offers. Because given that we are owners of the neighboring land lots, we want for the construction to be aligned with the rest of the idea that we have. We don't want to have a building that fails and that will affect the sale of the rest of the neighboring lands. So in those open calls, we sit down with the proposers trying to understand what the business they're proposing, or the part they're proposing and how many housing units, what social income status, what's the size of the housing, what's the price of the housing. And that's the first input that we get for the valuation. As I mentioned before, the land value, it's a residual value that starts with -- that's P by Q. The constructor will do price per amount. If that builder decides to make more business with more housing units or decides to change the social income status, this means that this first line will be higher and because of this, he should have paid me more. So when we sign our contracts, it's over an agreement of what will be done over that lot. If tomorrow, the builder or the market would start to absorb the products faster, the prices would increase. You have all the incentive to increase the scope of this project and us -- and we'll be looking at this and third -- exercise where we implement this cost. We would participate of that additional upside over the project that we initially agreed upon. Here, I want to invite you that -- when we finish and you go into our web page and download the manual, you could go into the sections. And each one of these examples we chose because they clearly illustrate each one of the sections of our price or valuation manual. Let me move on now, a business that we have in Baru now. This is a render of how the project would look. We're speaking about 7,000 housing units that would be constructed in the first phase, and that would have -- that has shown that central part of more than 8 hectares of green area. And you could see that these are not very different standards from the ones that we're using in Pavas for higher social income statuses. So this is going to be an aspirational product. But we want to have the same success that we had in 2016 with Alameda del Río. In Alameda del Río, for the first time in our history, we did something that is very atypical and came out to be very successful. Usually, builders have to build 20% of social interest housing in the peripheries, where the land lots are less expensive. But nevertheless, in this Alameda project, we decided to do this social income statuses within the same project. This was launched in 2016. First year, the builders, or in this case, the buyers, which were Amarillo and Constructora Bolívar , they're estimating that they would have sales close to 100 units per month. That means to 1,200 in 1 year. First month, they sold more than 5,000, so this proves what I was mentioning before. This niche, this housing has demanded 9x more than the others. And you get to see the numbers are there to see, it's not the demand, it's truly the supply. The market absorbs what builders inject in the market because there's an invisible unsatisfied demand that you wouldn't have imagined. That was proven in 2016, where we sold 5x what we were expecting. And something similar happened here, where we have made this open call for 9 hectares, and we got proposals for 15. This will be to cover 2x, almost. It was highly accepted with the most -- with the 5 largest builders of the country. And this was supposed a substantial upside because, as I mentioned before, are appraisals supposed that, that land lot was going to be used for houses versus apartment buildings. And coming back to the P per Q concept, the price of social income status, it's around -- it's COP 360 million of the land lot of social contract 6 per unit. So obviously, it's a much lower price. But you access it today instead of waiting for year 41 until we absorb all that demand in Pavas, and then we could develop those apartment buildings in the territory.

Looking at the slides here, Rodrigo Sanchez is asking, and if a project of a lower social income status is done than the initially stated, do you also participate in the downside?

I'm not fully sure if I get your question Rodrigo. Actually, what we have here, it's a pure upside. Because, as I was mentioning before, effectively what you say, this lower social income status makes that -- the difference price -- the price difference is COP 16 million versus COP 60 million. But in the cash flow, that money will come in year 0 instead of year 40. So the exercise that we'll be doing with Erick, the Excel spreadsheet, and so on, we will find the year where there's a breakeven. Where it wouldn't be optimal, keep on selling this social interest housing for the first years because that negative carrying wouldn't compensate renouncing or leaving that higher price per square meter for lower social income status. But...

Yes. Let me interrupt here for a second. What I think what Rodrigo is asking, you spoke about that structures that you had in your contracts that you developed, where, if the builder wanted to build a type of house, I think, or something different from what we initially agreed upon, they had to pay for those excesses. So those differences. I think what he's asking if it's a lower social income status built or if we participate in that downside?

Well, clearly, the answer is no. We only participate in the upside. The price that we receive is what corresponds to what we initially be agreed upon. If he decides building more units or selling them more expensive because he increased in the social income status, we capture that upside. In the contrary, there was that minimum price that they would have participated in the downside.

And Francisco asks -- thanks for this. I'd say thank you all for being with us. Which are the risks? Well, first, possible changes in the values, changes in densification.

So let me answer that. Which are the risks? Typically, the city norms, every 8 years, they have a territory ordering plan. And afterwards, one, as land donor, we can present an instrument. Let me speak because of Pavas. When we developed this, soon ordering plan, it's basically a copy-paste for every territory ordering plan. And what does that plan say? Which types of buildings are allowed in exchange of what types of -- for example, when we did Carrera's SMPC and called the Street, the cost is -- those 200 hectares for the city, that was key -- that road was key for the city. So that, obviously, decides a bunch of obligations that, ideally, what we got to do is to match incomes or revenues versus the costs. So once you have that instrument, once that instrument has been approved, you're clear on the density. So let's say that the territory ordering plan changes tomorrow, given that we have this instrument that gave us rights but also gave us obligations, the types of buildings that were approved for that plan cannot be stopped. They cannot change that. Now if the territory ordering plan says -- or they are not going to be reducing the density but they'll be increasing the density, then we can have the option for working on a new instrument and that way we can access those new types of housing. But let's say, in that case, we would have to do a careful analysis, but I believe that, what we have today, it's not. Because we understand that those units, further than those 40,000 that we have, will be absorbed in year 41, well, probably the net present value won't be as high. So those exercises are carefully done, trying to understand if mathematically this makes sense, accessing a higher construction density, given the absorption time. It might be that, in that case, it's the way the market is behaving very dynamically. And we are being -- as for not 3,000, 9,000 housing units, but for 15,000 housing units in total. So then the times shortened from 30 to 20 years. In that case, it's worth changing the instrument. I hope I answered your question. And the same thing applies for everyone. So for example, in Barú, though we have highlighted it, the same thing happens. We have an instrument, that sets in stone, the applicability of this construction. So once you are certain on this, you only have an upside because if this is improved, you could go for a higher-density buildings. And if it's -- and if this doesn't happen, well, we stay with we have and don't participate in the downside. Number two, possibility of stranded assets exists in the measure that the sea level rises. Okay. In Barú, according to what I understand is that, with global warming, instead of it's being submerged because this would be the asset where this would happen, or maybe you're thinking a different type of assets from Barú. Our land is actually growing. It's a physical phenomenon that I cannot fully explain but makes it much more resilient to climate change. This is not part of your question, but we're in the last point of where there's no hurricanes. Last -- it's the last place that you could fly directly from Canada. So that asset, from a climate change point of view, has conditions that make it attractive and commercial for this type of tourism. Third, it's -- this is implicit in the brokers' discount rates. And most importantly, do you use different discount rates? And we do. We do. Each business by itself is a complete world. So the credit quality of our counterparty is very important. We'll see in the way that we negotiate. Is that the same signing a business for COP 40 billion? And where that investor should place, say, COP 200 billion, COP 300 billion, COP 400 billion for it to be a success? If it's with a small builder than when it's institutional investor, when it's large builder with the trajectory, so all this, we will value, of course, within our risk. And I suppose you're speaking about our internal negotiations. And I mean, clearly, for example, Sofitel CalaBlanca, perfect example. You cannot use the same discount rate. What was given the builder -- the construction risk? The operator part of the commercialization risk and land owner run the risk in terms of the flood norms. So the return that the investors should expect is not the same than the return of a typical traditional greenfield project. So we start getting further away from that equity territory and make it a much safer asset in the measure that different players have assumed different types of risks. So clearly, depending on the way that we've structured the business, we internally allocate different rates. I hope, Francisco, I have answered your question, and if not, just let me now.

Because here, time is running short. Just let me wrap up here with the last 2 examples, and we give the word to Erick, who will be showing us how the simulations work in different types of scenarios in order for us to evaluate the different forms -- the different types of clubs that we have in Barranquilla in its metropolitan area. I just wanted to remind you all, please check that manual where this is much higher detail in these examples, as I mentioned. Here, I can tell you what chapter. They're big enough for you to study them. Third example. This is a case, not a useful land. But this is a gross land that has not been urbanized yet, but it's located in urban areas. This was in 2008. This was the social income status 4, where there's a mix of land use. It's a particular business that's why what we chose it. In that business, we specified those bylaws that we were mentioning before, where, if the builder decides to change the social income status going from 5 to 6, so more expensive, we've formulated a bylaw that's automatically activated. Actually, in first quarter this year, you saw the activation of 2 of these bylaws, not for this business, but in some businesses we have a bit higher up north, we have with Amarillo between others. And in those classes, there's a particular that also happens, given that what we agreed upon is a minimum price. In that moment, that price goes into the revenues, the price of the [ usual ] costs. And when additional revenues from these classes come, they don't have the associated costs. They don't have the costs associated to it anymore. And when you look at line of how many square meters we've sold, we would say 0 because we have already removed those square meters used before when we did this transaction. I mentioned this because these are typical questions, but sometimes they are obvious. Where are these revenues coming from if we didn't sell land? And it's not that, it's because those clauses started to have been activated. And finally, this is a business, is not one of the most common ones, but can distort a little bit that average that sometimes you try to build. And that means is -- I hope you -- it's not better not to do because it's confusing. Look at this case, for example. We're speaking a land that, in our models, with a [ protection ] land, and a very low price, this is part of that 2% of the value we're speaking of, that first slide. So this land is purchased by Concesión Costera to build the road that communicates the airport with the northern part of the city. And they pay us in function if the land is catalogued as protection of suburban, COP 94,000 and COP 370,000 per square meter, that's compared, for example, this COP 94,000 with protection land. It's compared with COP 425 that we have in our ledgers. So here, the profit is full on, and it has a positive effect that this is a land that's been sold. And given that's not being constructed on or it's not being for residential use, it's not capturing the demand that could be captured afterwards by the neighboring lots. So it's a very good business. And I repeat, it's not building areas that will cannibalize our other markets. And besides, that is offering road infrastructure to the neighboring lots that will make them more attractive and -- both bid to and the price. Okay. This is all for me because it is key for us to look at this Excel spreadsheet. You could see history in sales for invoicing. Invoicing happens when we sign an agreement, and we are transferring the previous area, right? So when the real estate goes from one, say, going to another, so we need to differentiate between cash flow and P&L. When we look at the P&L, and we see information reflected, probably we have already been paid according to what we agreed upon, a great part of that money has been paid. And according to the credit risk that we perceive in that counterparty, we decided when we transfer the real estate or not, bid property or not. Let me give you an example here. It's a bit of a distortion due to the different accounting particularities. Well, we have a land lot, we mentioned property when we have it in inventory. In the P&L, what you'll see is the net of that revenue minus the cost. Cost is the value that we have in our ledgers. So -- and this is a real case -- an investment property that we sold for more than COP 100 billion. But in ledgers, it was COP 90 billion. You only see something like COP 10 billion and in other revenues under EBITDA. So besides that, a land lot that we get paid for COP 100 billion, we'll be selling between COP 0.5 billion or COP 1 billion. It's a very important business. It's a difficult business, too. In terms of restructuring, and at the end of the day, for private sales, COP 1 billion. So you'll see -- or depending on what the residual value is, you'll only see COP 10 billion in the P&L. So sometimes, it's complicated to understand these numbers, given its size. And obviously, when it's an inventory due to the accounting norms, given that the regular exercise of the business, you get to see the complete revenue, the complete cost, and then you'll see the net value in the EBITDA. That's perfectly explained in the value. All right. And we invite you all to take a look at it and find more details. Same thing happened with the Cameroon business of Miramar V. We're speaking about COP 200 billion in these 2 businesses, where the P&L, you would only see the differential of the revenue minus the cost. And because of that, the figures are not showing in the size that we would expect. So that's what we say that the cash flow is much better indicator than the P&L to those particularities that we just explained. I believe I have discussed the different accounting considerations, inventory versus investment property and P&L revenues versus cash revenue, EBITDA versus value creation. We haven't discussed this yet. But nevertheless, due to time, in fact, at the end, we can come back to this. But if not, you could see how the segments are highlighted, where this is perfectly explained within the manual. And I want to give the floor to Erick for him to go over this Excel valuation model. And we're going to have some time to interact and for you to tell us to simulate certain scenarios live. Many of these have to do the questions you've already asked, and we're here to whenever you want to answer the questions that you might have. Erick, if you want, the floor is yours.

Well, thank you, Mario. I don't know if this is speaking about modeling first. We want to answer some of these questions that we've received in the last 5 minutes. We have 4 questions, and I don't know, maybe it's worth if we -- worth answering them right away. Okay. Let me open them. And so Daniel Guardiola is asking, what's the annual cost of the land taxes? And for that -- by the way, what's your breakeven measured in annual hectares sold? What's the total annual cost of Grupo Argos that maximizes the value of these plans?

Just to give you a round number that I have -- that I know by heart, annual cost of land tax is COP 24 billion. This was this year. And we also see the exercise that Erick will show to us from those 4 main globes here in Barranquilla. We have COP 10 billion that, for these types of expenses, there's -- it's linear because these land taxes are in a function of the value. So if these prices have a value close to COP 1 trillion from those COP 2.32 trillion, those COP 10 billion are comparable with this COP 24 billion for the totality of the notes. This would be the first thing. What will we see in the model, and Erick will show to us how he allocates the OpEx to these 4 globes, and these are a bit more than COP 10 billion. So you'll see this graphically, and I prefer to show this in Excel spreadsheet, and we have the precise information. Every time that you disinvest, for every year that you disinvest, for every square meter that you disinvest, you will reduce your OpEx in COP 100,000 -- COP 101,000. I think that's the result of those -- those COP 10 billion. Yes, how those 4 land lots, you can build those 100 housing units that I showed. So each unit has an OpEx associated to COP 100,000. But every time I disinvest, I reduce this in the model until the model can register the serial. In what year? That will be near 31 for urban land and the year 38 for suburban land. But nevertheless, and we can play with this a little bit, Daniel, you can tell us which are the scenarios that you want us to include, depending on what we are able to capture from the market inflation, discount rate. That number changes because that's your second question.

How much time you are counting to and your land inventory?

But let me say something, 31 and 38 years that we're speaking of, Erick, this has to do with the totality of the lands. Yes. And this is -- this number, this 31 and 38 years are for the appraisals for the valuation. So this is the average value of all the serials in the portfolio based on the cash flow models from the colors. And it's not a modeling exercise that I'll be showing later on. The total time will look longer, but it's just because we're looking at 3 possible products. It's just an illustrative type of exercise. It's not the exercise that considers all those different types of sources of different types of products, and that will require this, for example. We could look at this example to answer this question. But yes, in general speaking, the colors is planting around 38 years, 40 years. It's very consistent to what we have in our internal models for each land lot. And this is obviously something that we could reduce while we find new demand sources and new niches, everything that you have mentioned during this presentation. This is our strategy.

Perfect. Daniel. I was also being asked what's the annual expense of the Argos team that maximizes the value of plants?

It's $2 million.

And thinking on the status of the portfolio, you include -- you placed this figure in perspective with other real estate funds or with other companies that at half quarter closer to COP 2.3 billion. I don't know if there's any other fund that has a more efficient payroll in terms of payroll or in terms of people per asset?