Earnings Report /
Egypt

Orascom Development Egypt: Management Meeting Key Takeaways

  • Hospitality segment back to peak levels.

  • Real estate performance continues to be strong.

  • Town management segment doing well.

Al Ahly Pharos Securities Brokerage
25 January 2023

Hospitality segment back to peak levels

  • Hospitality performance in 2022 was back to peak 2019 levels, if not higher, in line with management’s goal to restore 2022 performance to 2019 levels, with a target to exceed these levels in 2023.

  • Management is optimistic on the hospitality side, with 4Q22 having been strong and momentum continuing into 2023, backed by hotel renovations that took place over the last couple of years, with plans to continue renovations in 2023.

  • ORHD as a hospitality provider is a beneficiary of a cheaper EGP and subsequently cheaper Egyptian vacations despite the increase in costs on the back of inflationary pressures.

  • Hotel occupancy rates were high in 2022, including 4Q22. ARRs are also at their highest level.

  • Tourist mix in El Gouna in 2022 was primarily German, followed by Egyptian, followed by European including Dutch, Belgian, Swiss, French, Austrian, and British.

  • Tourist mix in Taba Heights includes Egyptians, Poles, Palestinians, and other Europeans.

Real estate performance continues to be strong

  • Real estate performed very well in 2022, with sales showing double-digit growth in 2022 and average selling prices also showing high double-digit growth in 2022. Management is comfortable with the quality of its sales in terms of margins, which should bode well for profitability over the next few years.

  • FX cap rate on unit selling prices in El Gouna is currently in the vicinity of EGP33/USD, with a goal to always maintain a 10%-20% buffer between the cap rate and the FX rate.

  • Installment schedule in El Gouna remains to span five years.

  • Installment schedule in O West remains to span eight years.

  • Installment schedule in Makadi Heights remains to span six and a half years.

  • Unit delivery takes around two years in El Gouna, three and a half to four years in O West, and three to three and a half years in Makadi Heights.

  • The increase in costs was more-than-made-up-for by the increase in selling prices, which is expected to be the case in 2023.

  • The company is exploring opportunities to sell real estate units to foreigners.

  • The company may consider land sales in the form of controlled high-quality sub-developments and/or JVs.

Town management segment doing well

  • The town management segment is also showing healthy growth.

  • Regarding OCDI’s offer to acquire Orascom for Real Estate, ORHD’s subsidiary that owns the O West project, the due diligence process is ongoing, with the process expected to conclude around the end of 1Q23.

  • There is currently no update on the environmental fine.

  • Debt portfolio includes EGP400.0 million under the 8.0% subsidized lending program for the tourism sector for the renovation of hotels, around EGP200.0-230.0 million of which have been withdrawn so far under the 8.0% interest rate and the rest of which will be withdrawn in 1H23 and be subject to the 8.0% interest rate. Any new loans for hotel renovation will be subject to the 11.0% interest rate.

  • The company is looking at using its debt facilities and receivables securitization as sources of funding.

  • The company could start considering dividends in FY24.