Lead a team of 4 to develop an actionable recommendation for a Chilean real estate company, Socovesa

1. KEVIN CHEN | RIO HODGES | JENNY RYOO |
JULIA SHI | TAMMY TAN | WEILIN TU YE

2. Infilling in Chile
Mass urbanization is
transforming the typical
residence
Steady relocation to
cities in 5 years
7.8%
Increase in average
apartment price
More demand for city
center living
200k
6x

3. Pain Points of Modern Living
How can Socovesa address the growing
issues associated with urban living?
Shrinking
Spaces
Rising
Prices
Limited
Functions
Identical
Apartments
Compression of Choices
Choke point in housing
Central
Access
Limited
Choices
+

4. Urbanization limits the choices home
owners can make today
The ultimateliving spaces empower
through flexibility and personalization.
⏣
Typically,weforego what we want,to be
where we are
⏣
City density is innevitable, but do we
have to sacrifice?
Pick two
COST
LOCATIONPersonalization

5. A progressive firm in a traditional industry,
Socovesa is well positioned to lead the trend
SOCOVESA’S TRANSITION TO A CONSUMER
AND DESIGN ORIENTEDCompany
Backward integration to increase
architectural skillset
Forward-facing managers seeking
better customer insights
History of leveraging hugecash pile to
invest in strategic acquisitions

6. An innovative,sustainableconstruction delivery
method that balances affordability,durability,
and flexibility
THE ASSEMBLY LINE
MODULES
MANUFACTURED
OFF-SITE
TO BE
ASSEMBLED
ON-SITE
UNDERSTANDING PREFABRICATED
modularHOUSING
+ -
Skeletal Panelized
Combined
Versatile external structures
+
Flexible internal panels

7. Movablepanels :
compartmentalization +
Customization

8. Prefabricated modularconstruction creates cost, time, and waste
savings,whilst integrating flexibility and customization.
Prefabricated modular:Acompelling alternative
PrefabricatedModular
Site-built
Construction Types
0
1
Construction Timeline
Resource Efficiency
Functionality andAesthetics
Adaptability toChilean
Environment
EnvironmentalImpact
Streamlined and
predictable construction
timeline, leading to cost
savings
Less site damage,
material exposure, and
waste
Earthquakeresistant; durable
Built with factory
precision; less laborand
fewer materials used
Incremental improvements at lower
cost and shorter time period

9. Compared to traditional site-built construction,prefabricated
modularsaves time, optimizes construction productivity, and
results in faster returns
UNDERSTANDING PREFABRICATED modularHOUSING
Time saved,
quickeroccupancy,
fasterreturns
Design Eng.
Permits and
Approval
Site Development &
Foundation
Install & Site
Restoration
Time Savings
Building Construction
at Plant
Design Eng.
Permits and
Approval
Site Development &
Foundation
Building Construction Site Restoration
Modular Construction Schedule
Site Built Construction Schedule
Source: Modular Building Institute, 2014

10. INFINISKI:
Combing design principles with
prefabricated modular
construction techniques
Modular | Sustainable | Affordable

11. Limited scalability:housing distribution limited by
market access
Infiniski: ProductPortfolio
Main focus on residentialhousing
market, with a fewcommercial
estates
Tailoredaccording to individual
specifications; caters tohigh
income bracket (ABC1)
Problems of accessing the market
and distributing its modular
design

12. Aligning stakeholder interests
Innovativedesigns
Great reputation
in the industry
Expertise in
sustainable,
modularhousing
Infiniski
International
status
Large capital
Scalableaccess to
the market
Socovesa
Current market share
and brand namein
Chilean market
Large capital on hand
Familiarity with the
locals and Chilean
systems
No experience in
modularhousing
No existing prefab
construction sites
or factories
Strengths Weakness
Socovesa and Infiniski’s strengths and
weaknesses are complementary

13. Able to
distribute to a
larger market
Design
collaboration
Possible foreign
investment
inflow
Government
subsidies
Progressive
brand image
Acquisition Synergies
Leveraging
assets to
aid efforts
to scaleup
Access to
European
investor base
(specific to
prefab)
Marrying
complementary
skillsets to
deliver a better
product
Cement its
position as a
progressive
market leader
in the real
estate market
Capitalizing on the
government’s 2050
energy efficiency
plan for the housing
and construction
sector
Synergies lead to new competitive advantages

14. Pursuing Synergiesin Stages
Socovesa is experienced in acquiring companies
and successfully helping them develop
Short-term partnership
phase
Promoting the “creative
brain” andestablishculture
Establishing a fully
autonomous prefabbranch:
Infiniski

15. Integrating Infiniski into Socovesa’s structure
How can Socovesa managethe transition seamlessly?
Establish a new culture
within Infiniski post-
acquisition by using teams
from both companies to
collaborateon the initial
project
Short-term partnership
phase
As Infiniski pursues more
projects, its identity needs to
be preserved so that it can
assert its creative
advantages—especially in
prefab
Promote “creative brain”
and establishculture
Ultimately transition Infiniski
into the architectural and
prefab arm of Socovesa.
Commissioning customized
houses and spearheading
larger projects.
Establishing a separate
branch: Infiniski

16. Acquisition Financials - keyfinancial statistics
The enterprise valuefor Infiniski is USD$ 23.2 million,which is
estimated based on comparablepublic companies & a
sensitivity analysis
Housing type Revenue
Residential $ 3.645 m
Commercial $ 18.225 m
Total $ 21.870 m
EBIT margin 7.97%
Multiple 13.3x
EBIT $ 1.742 m
Enterprise
Value $ 23.231 m
Key FinancialStatistics (million)
Terminal Value (UF) 2.399
NPV (UF) 0.201
Value of Investment (UF) 2.601
Gross Profit (UF) 0.578
Terminal Value (USD) 94.045
NPV (USD) 7.907
Value of Investment (USD) 101.951
Gross Profit (USD) 22.665
Gross Profit Margin 37.8%
Unleveraged IRR 16.1%
Leveraged IRR 28.3%
Payback Period (years) 6.80
Currency Conversions
1 UF 25,889.57 CLP
1 UF 39.2 USD
1 USD 660.45 CLP

17. Estacion Central: A prime
location
Close to the City Center
⏣
Size of apartments not heavily
regulated
⏣
On the rise but not overpriced
(west side)
Modularhousing saves time and resources
while yielding more sustainableprojects
Location: Northof EstaciónCentral
Population: 144,982
Nearest SubwayStop: Line 1– San AlbertoHurtado
Time toCityCenter: 15 minutes
ConstructionSite
DowntownSantiago

18. Sky Garden
1400 feet2
24’ x58’
Communal garden
Individual plotsfor residents
Lounge &Courtyard
345 feet2
20’ x17’
Bioclimatic Architecture
Basement
1700 feet2
30’ x57’
Thermal StorageConditioned
Storageand laundry room
Creativeworking spaces
Foyer
Mail room
Storage/bikeaccess
Loungeseating arrangement
Project protoype:los bloques

19. Kitchen
36 feet2
6’ x6’
Efficientfactory builtspace
folding counter and full fridge
Storage Loft
72 cubic feet
12’ x2’ x3’
Juliette Balcony
63 feet2
7’ x9’
EnergyStar® rated sliding
glass panels
Bathroom
60 feet2
10’ x6’
Fully outfitted with bathroom
with separate closet
compartment
Living/Bedroom
140 feet2
14’ x10’
Multipurpose convertible
living space
Project Prototype:Los Bloques

20. 50 apartmentsin thebuilding, each around 300ft2
45.2UF/m2
1259UF for a300ft2 apartment
Outfitted with some of thelatestsustainable
technology
Eco-friendly,cheapand modern
Foldablebed
to save space
Foldabletable
and counter
Storage compartmentsand shelves
10feet
30 feet
Ultra-efficient insulated walls and windows
EnergyStar
®
appliances
Project Prototype:Los Bloques
Santiago
Communes Priceper m2 (UF)
ApartmentPrices
(UF)
Estación Central 45.20 1,259.76
Santiago 50.60 1,410.27
Nuñoa 65.60 1,828.33
Providencia 75.80 2,112.61

21. PROTOTYPEFinancials -key financial
statistics
Key Financial Statistics
Interest Rate 3.50%
Discount Rate 7.42%
Gross Margin 36.53%
Net Profit Margin 17.61%
EBITDA $0.902 m
Unleveraged NPV $0.215 m
Leveraged NPV $0.942 m
Unleveraged IRR 16.23%
Leveraged IRR 46.02%
Paybackperiod (Years) 2.54
Net Profits $0.435 m

22. LONG TERMimplications:
an open road
Revitalize spaces in the city: convert
unused industrial spaces into new low
cost housing in the city/on the periphery
Expand to other segments:
commercial;/office buildings
Reach scaleeconomy and efficiency to
satisfy unmet demand
Explore opportunities to integrate
renewable energy generation systems
into development projects
1
2
3
4

23. Strategy
Introducing new technology in Chile
Infiniski acquisition plan
Competition against international
companies and new market entrants
Prototype
Potential migration of city center in the
future
Risks and Considerations

24. 3 m
11 m
6 m
8 m
1
m
10 m
Complete acquisition of
Infiniski
Legal / restructuring
Acquire project site, capital, and
permit
Acquire buyers / potential residents
Assemble modules on project site
Manufacture modules for
project 2
Long
Term
Revitalized unused space
Office/commercial projects
Government “city planning” opportunities
Partnership with renewable energy
companies
10 m8 m
Acquire project site, capital,
permit, buyers/residents for
project 2
3 m Design
6 m Site development / foundation
Manufacture modules for project 1
’16 ’17 ’18 ’19 ‘20 à
Proposed timeline
Focus on prefabricated modularconstruction leads to higher project turnover and faster returns

25. Q&A

26. NumberofPeople
0
75000
150000
225000
300000
Inside Vespucio Outside Vespucio Suburban
1992-2002 2002-2011
Santiago City Center Demand Rising
Source: Atisba, INE
Metric Number as of 2015
Population 17,508,260
Median Age 33.7 years
Population Growth
Rate
0.82%
Urban Population 89.5% of total
Urbanization rate 1.09% annual
Source: CIA Factbook,
2015
Appendix a1:infilling phenomenon - Shifting Demographics

27. Appendix A2:infilling phenomenon - Housing Prices in Santiago
Region of Santiago % Price Increase
Central 10.8%
Western 7.9%
Eastern 10.7%
Southern 11.7%
Santiago Apartment Price 2011-2012
Source: COCC
Housing Prices in Santiago 2013-Present
Source: Central Bank of Chile

28. Source: http://www.cchc.cl//centro-de-informacion/indicadores
(Thousands of units)
(Sales of Large homes in Santiago)
(Houses) (Apartments)
Appendix a3:infilling phenomenon
- Shifting Demographics
Dwelling density at the census district
level(2011)

29. Apartments
Almagro
ABC1 C2 C3 D E
Pilares
Houses
Socovesa Santiago
Socovesa South
Socio-economic Status
Appendix B:socovesa Product
diversification strategy
ABC1:
Upper class (2.5%) to upper-middle class (7.5%)
(10% of the population,collectively)
Monthly income: $3.5 million pesos (about USD$7,000)
C2:
Middle Class (<20% of the population)
Monthly Income:$1 million pesos a month (~US$2,000)
C3:
Lower Middle class
Monthly Income: $600 thousand pesos (about US$1,200)
D:
Lower Income Class
$300 thousand pesos (about US$600)
E:
Lowest Income Class (10% of population)
$90 thousand pesos (about US$180)

30. APPENDIX C1: Acquisition -Quick comparables Analysis
The enterprise valuefor Infiniski is $ 23.2 million,which is estimated based on comparablepublic companies
Company Name LTM Revenues TEV/EBIT LTM - Latest EBIT Margin %
Cavco Industries, Inc.
(NasdaqGS:CVCO)
619.7 18.5x 6.00%
Deer Valley Corporation
(OTCPK:DVLY)
35.66 1.2x 5.80%
Nobility Homes Inc.
(OTCPK:NOBH)
29.63 12.4x 10.60%
Thor Industries Inc.
(NYSE:THO)
4,237.83 9.1x 7.30%
Liberty Homes, Inc.
(OTCPK:LIBH.A)
87.21 -
Cavalier Homes, Inc. 108.09
Champion Home Builders, Inc.
Champion Enterprises
Holdings,LLC

31. APPENDIX C2: Acquisition -Sensitivity Analysis forAcquisition
Multiple
11.3 12.3 13.3 14.3 15.3
EBIT
Margin
5.97% 19.72 21.46 23.2 24.94 26.68
6.97% 23.02 25.05 27.09 29.12 31.15
7.97% 26.33 28.65 30.97 33.3 35.62
8.97% 29.63 32.25 34.86 37.48 40.09
9.97% 32.94 35.84 38.75 41.66 44.56
The enterprise valuefor Infiniski is $ 31 million, which is estimated based on comparablepublic companies

32. Appendix C3: Acquisition Financials
The enterprise valuefor Infiniski is USD23.2 million,which is estimated based on comparablepublic companies & a
sensitivity analysis
Acquisition Discounted Cash Flows (in UF)
Year 0 1 2 3 4 5 6 7 8 9 10
Year Over Year Revenue Growth - - 50% 33% 25% 25% 20% 17% 14% 13% 11%
Total Revenues - $25,195.29 $37,792.94 $50,390.59 $62,988.23 $78,735.29 $94,482.35 $110,229.41 $125,976.47 $141,723.53 $157,470.59
Total Interest -
(349.79) (743.32) (1,136.86) (1,530.40) (11,917.86) (11,568.07) (11,174.54) (10,781.00) (10,387.46) (9,233.30)
Total Cost
(435,046.26) (40,675.26) (41,462.34) (42,249.41) (43,036.49) (50,209.24) (57,381.98) (64,554.73) (71,727.48) (78,900.23) (86,072.98)
Current INFINISKI Operating
Income 58,628.47 58,628.47 58,628.47 58,628.47 58,628.47 58,628.47 58,628.47 58,628.47 58,628.47 58,628.47 58,628.47
Cashflows from Operations
(376,417.79) 43,148.50 54,959.07 66,769.64 78,580.22 87,154.53 95,728.84 104,303.15 112,877.46 121,451.77 130,026.08
Discounted Unleveraged
Cashflows (376,417.79) 40,168.03 47,628.74 53,867.10 59,016.39 60,934.63 62,306.29 63,197.71 63,668.71 63,773.10 63,559.28
Discounted Leveraged Cashflows
(267,656.23) 49,878.66 57,094.92 63,076.27 67,958.89 75,960.00 77,290.15 78,054.24 78,343.99 78,221.29 77,462.88
Key Financials
Terminal Value (UF) 2,399,005.14
NPV (UF) 201,702.20
Value of Investment (UF) 2,600,707.33
Gross Profit (UF) 578,163.74
Terminal Value (USD) $94,044,776.44
NPV (USD) $7,906,947.61
Value of Investment (USD) $101,950,581.65
Gross Profit (USD) $22,664,928.34
Gross Profit Margin 37.8%
Unleveraged IRR 16.1%
Leveraged IRR 28.3%
Payback Period (years) 6.80
Currency Conversions
1 UF 25889.57 CLP
1 UF 39.2 USD
1 USD 660.45 CLP
Assumptions
• Model assumes no fluctuations in the US and Chilean
Currency
• Current Infiniski operations will continue to ensure
optimal usage of their factory and expertise
• Chile will eventually develop into a stable economy
(like the US)
• New product technology will create barriers to entry
that will slowly erode over the period of the
investment
• Total costs include land, labor, capital, and other
operating expenses

33. Appendix C4: Sample Acquisition Timeline

34. Source: Baker & McKensey (2011)
Appendix C5: Acquisition -Integration FlowChart

35. Appendix C6: Acquisition –impact on socovesa
Market
analysis and
business
decisions
Project
Development
Construction Commercial Stage
After Sales
Service
Land Bank Strategy
Market Analysis
Land
Identification
Preliminary Project
Development
Land Purchase
Product Definition
Architectural
Design
City Planning
Design
Engineering
Development
Project Approval by
planning
authorities
Socovesa
Construction under
sum-jump scheme
Pilot houses to be
sold in shell form
Quality Control
Launch Strategy
Marketing
Dedicated Sales Force
Coordinator of customer’s financing
Post sales service
Warranties
More time unlocked for
the commercial stage

36. Appendix C7: Acquisition –split of
responsibilities
Design Eng.
Permits and
Approval
Site Development &
Foundation
Install & Site
Restoration
Time Savings
Building Construction
at Plant
Post-acquisition: Modular Construction Schedule
Socovesa
Time Savings
Infiniski
Design Eng.
Permits and
Approval
Site Development &
Foundation
Building Construction Site Restoration
Pre-acquisition: Site Built Construction Schedule
Source: Modular Building Institute, 2014

37. Outsourcing Joint venture Acquisition
Investment
Cost
Lowest, BUT extremely
high transportation costs
Shared Costs Highest, BUT low
transportation costs
Operating
Control
Relinquishment of
Control of Asset(s)
Shared Control Control over the
acquiree
Risk/Reliance
on the other
party
Reliance on supplier
increases supplier
power; Also increases
transportation costs
Shared Risk; Lackof
control over technology
Least risk to technology
leakage, and ableto
reduce exposure to risk
Primary Driver Cost reduction, least risk Co-dependence Quickly acquire new
capabilities; protect
technology and realize
location and experience
economies
Long Term
Potential
Hard to make significant
changes or innovation
A temporary contract Growth in new markets
Appendix C8: Heat Map–Outsourcing vs JVvsacquisition
Key:
Most Ideal
Average
Not Ideal

38. Appendix C9: Heat Map–M&A Options
Merger Stock Purchase Asset Purchase
Restructuring
Efforts
High Medium Medium
TypicalTarget Companies of the
same size
Private
companies/wholly-
owned subsidiaries
Specific divisions of
companies
Asset +
Liability
Changes
All automatically
transferred
All automatically
transferred
Assets retitled and
liabilities assumed
Strengthening
the Target
Company
Restructure and
strengthen the
involved companies
Increase in funds for
target company
Limited to the assets
acquired
Shareholder
Negotiations
High High Disposition of >50% of
corporation’s assets
needs shareholder
approval
Key:
Most Ideal
Average
Not Ideal

39. Discount Rate calculation
Chilean interest rate 0.035
Corporate Tax Rate 0.24
Assumed Cap Rate 9%
Debt to Value Ratio 0.25
Equity to Value Ratio 0.75
WACC 7.42%
Permit Cost Estimates (Pesos)
Assessment from regional sanitary authority 16000
Request/obtain building permit 2200000
Certificate of Urbanization 4200
Certificate of Compliance for roads 8468
Receive Connection to water services 315671
Total 2544339
Converted Total (UF) 98.28
Costs Projections (monetary units in UF)
UF/m2 Cost of terrain 30
Terrain Area (meters) 162.58
Terrain Area (sqft) 1750
Project terrain cost (UF/m2) 4877.4
Apartment size (sqft) 300
Apartment size (meters) 28.7
Number of apartments 50
Estimated Construction costs 700
Construction Costs 35000
Permit Cost 98.29
Total Costs 39975.69
Debt 9993.92
Key Financials
NPV (UF) 5,482.45
EBITDA (UF) 23,012.54
Net Profit (UF) 11,094.68
EBITDA (USD) 902,116.82
NPV (USD) 214,918.06
Net Profit (USD) 434,923.63
Leveraged IRR 46.02%
Unleveraged IRR 16.23%
Gross Margin 36.53%
Net Profit Margin 17.61%
Payback Period (years) 2.54
Discounted Cash Flows (in UF)
Occupancy Increase 0 0.4 0.2 0.2 0.2 0
Year 0 1 2 3 4 5
Revenue -­ 25,195.29 12,597.65 12,597.65 12,597.65 -­
Cost (39,975.69) -­ -­ -­ -­
Interest Expense -­ (349.79) (393.54) (393.54) (393.54) (10,387.46)
Cashflows from Operations (39,975.69) 24,845.51 12,204.11 12,204.11 12,204.11 (10,387.46)
Discounted Unleveraged Cashflows (39,975.69) 23,130.39 10,577.33 9,847.17 9,167.40 (7,264.15)
Discounted Leveraged Cashflows (29,981.77) 23,456.03 10,918.41 10,164.70 9,463.02 -­
Appendix D1:PrototypeFinancials

40. Indicator Chile OECD High
Income Country
Avg.
Procedures
(number)
13 12.4
Time (days) 152.0 152.1
Cost (% of value) 0.6 1.7
Building Quality
Control (0-15)
13.0 11.4
Chile Construction Consideration vs. OECD Averages
Appendix D2:Dealing with Construction
Permits
Source: World Bank Group – Doing Business in Chile 2016

41. Appendix D3:Timeline &Costs of construction permits
Source: World Bank Group – Doing Business in Chile 2016

42. Location: Ruta 68, kilómetro48,
Curacaví
[Around 50 mins away from the
city center]
Volume: Able to manufacture
15-20 small 300ft units at once,
a warehouse that could store
50% of the production
Just-in-time delivery to match
module manufacturing
schedule with installation rate
Appendix D4:infiniski factory&
Inventory management

43. Appendix E: Long termimpact – office
segment to takeoff In2017