Flash Report /
Egypt

Pharos Investor Conference: Meeting Minutes – Real Estate

    Al Ahly Pharos Securities Brokerage
    24 June 2019

    Sector overview: Commercial getting a lot of love

    We met with seven real estate companies at our annual investor conference where we were updated on the latest developments in the real estate sector. This relatively quiet year is witnessing a more inflation-dictated growth of 10-15% instead of the 30-50% growth witnessed over the past five years. In light of this subdued residential performance, developers are shifting their focus to commercial real estate.

    Orascom Development Egypt (ORHD)

    Having stopped selling land to sub-developers, ORHD continues to monetise its El Gouna land through selling residential units, developing hotels, and renting out commercial space. Indeed, the company has been achieving stellar sales with residential selling prices in El Gouna growing to EGP43,000/sqm today, from EGP21,000/sqm in 2016 post EGP flotation. In Q1 19, 20% of El Gouna sales were to foreigners. 

    ORHD’s sales performance has also been supported by Makadi Heights and O West, which should take the company towards its FY 19 sales target of EGP6.5-7.0bin. Following German tour company FTI’s office moving to El Gouna, the surrounding area is now earmarked for the establishment of a business park, with banks having expressed interest in opening offices there. Around 70% of visitors to El Gouna are foreigners. With hotel occupancy rate in El Gouna reaching 83%, ORHD’s plan to meet the excess demand for its hotels involves increasing room rates and increasing the number of available hotel rooms through expanding existing hotels and developing new ones, such as Casa Cook. Taba Heights currently receives four weekly flights, and is expected to start generating positive cash flow this year. The company’s expansion plan includes East Cairo and the North Coast.

    Talaat Moustafa Group Holding (TMGH)

    TMGH’s solid Q1 19 sales performance continues with the Q2 19 launch of Privado, a high-end gated community within Madinaty, which generated over EGP4.0bn in sales within three weeks, taking the company towards its FY 19 sales target of EGP24.0bn. The Spine in Madinaty is in its final design stage and is expected to offer 2.3mn sqm of residential BUA and 1.0mn sqm of commercial BUA. The company is also witnessing increased demand for its sports club. The company plans to increase dividend payout as recurring income increases.

    SODIC (OCDI)

    OCDI in Q1 19 was light on launches and Q2 19 should also follow suit with limited launches. However, the company is maintaining its FY 19 sales target of EGP7.2bn, with H2 19 expected to be packed with launches: a new phase in Malaaz using the new masterplan, an apartment phase in SODIC East, the 500-feddan project, and a high-end family unit phase in Al Yosr.

    Palm Hills Developments (PHDC)

    In addition to its conventional high-end projects, PHDC started offering upper-middle projects, most notably with the Q2 18 launch of Badya, the construction of which started this month. PHDC were also the first movers into Alexandria, with Palm Hills Alexandria showing up in Q1 19 sales and expected to also show up in Q2 19, driving the company towards its FY 19 sales target of EGP14.0bn. 

    The company is also monetising its commercial land by launching an office park in May. Commercial inventory of cEGP4.0bn is expected to be offered this year and the next. PHDC’s 7.1mn sqm Botanica land plot was re-zoned from agricultural land to residential/commercial land – the company has to either pay 50% of the land in kind or pay conversion fees, the first option being more likely. The company will continue its receivables securitisation plan with EGP4.0bn earmarked in 2020 to bring down debt.

    Madinet Nasr for Housing and Development (MNHD)

    Since MNHD was given its land by a presidential decree, the company actually owns its land and can sell it as it is. The company is also not obliged to develop the land within to a certain timeline. However, MNHD’s upcoming plan is to significantly accelerate the monetisation of its land, an endeavor that commenced in 2012 with the launch of the Tag Sultan in Taj City, where selling prices were EGP4,500/sqm – it has now increased to EGP20,000/sqm. The company is also yet to monetise 1.5mn sqm of commercial land. Q2 19 should merely witness spillover sales from Q1 19; Q3 19 and Q4 19 should both witness launches that the company expects will take FY 19 sales to its target of EGP7.0bn.

    Heliopolis Company for Housing and Development (HELI)

    Out of 5,400feddans of total land bank, HELI has developed around 200-300feddans, the rest yet to be monetised. The company is planning to sell some plots, with the company’s FY 19/20 revenue target of EGP3.1bn mostly based on selling a 190-feddan land plot in New Heliopolis for EGP2,500/sqm. The company has received interest in its land bank from multiple investors, including an Emirati company. Half of the planned 22% stake sale will go to a company with a track record in real estate development.

    Egyptian Resorts Company (EGTS)

    EGTS sold 25% of its recently launched Bay Condos project in Sahl Hasheesh within a week. There should be a launch in Q4 19 that is expected to generate EGP1.8bn in sales. Later launches include the marina project that is situated on 1mn sqm in Sahl Hasheesh and is expected to encompass 3,000 residential units, 300 berths, and three hotels. Around 15% of residential buyers in Sahl Hasheesh are foreigners, and the company plans to start addressing international clients in its marketing efforts. The company is also considering going into the first-home market by penetrating Cairo and other cities in Egypt.