Deutsche Bank - Egypt Real Estate - (6th of July 2010) - SODIC

5 July 2010 Real Estate, Construction and Building Materials Egypt Real Estateexcept for the selling prices. To illustrate, we have used TMG’s selling prices (includinginterest component) for a 10 year payment plan. The payment plan is 15% at booking (Yr 1),10% annually for the next 4 years and 9% annually for the next 5 years. Our analysissuggests that although the cash market in its current form largely stretches the affordabilityof mid-income consumers; however, the developers that offer flexible financing schemes forcustomers increases affordability for customers and should be able to recorddisproportionate market share gains.Figure 49: Affordability backed by structured financing schemeEGP Yr 1 Yr 2 Yr 3 Yr 4 Yr 5 Yr 6 Yr 7 Yr 8 Yr 9 Yr 10BUA (sqm) 90 90 90 90 90 90 90 90 90 90Price/sqm of BUA 5,938 5,938 5,938 5,938 5,938 5,938 5,938 5,938 5,938 5,938Unit Price (EGP) 534,375 534,375 534,375 534,375 534,375 534,375 534,375 534,375 534,375 534,375Annual Payments 15% 10% 10% 10% 10% 9% 9% 9% 9% 9%Annual cash outflow 80,156 53,438 53,438 53,438 53,438 48,094 48,094 48,094 48,094 48,094Annual household income 100,000 110,000 121,000 133,100 146,410 159,587 172,354 184,419 195,484 205,258Wage Inflation 10% 10% 10% 10% 10% 9% 8% 7% 6% 5%Accumulated savings 97,310Cash Outflow/Income+Savings 41% 49% 44% 40% 36% 30% 28% 26% 25% 23%Threshold cash outflow/income 50% 50% 50% 50% 50% 50% 50% 50% 50% 50%Conclusion: Affordable? Yes Yes Yes Yes Yes Yes Yes Yes Yes YesSource: Deutsche Bank estimatesScreening for risk…SODIC the least riskySODIC and PHD need to raise cash to fund investment propertiesAs of Q1 2010, all the Egyptian developers in our coverage universe had manageable gearinglevels, primarily due to strong cash management in off-plan business models. SODIC has thestrongest balance sheet with net cash of EGP1.2bn (gearing -55%, 40% of market cap),primarily due to the rights issue that raised EGP550m. TMG has a gearing level of 7%, whilePHD has a gearing of 19%. However, the Egyptian developers’ business models are underevolution to include more investment property in their portfolio to capture the high yields inthe non-residential space. As a result, based on the current development plan, both SODICand PHD need to raise EGP1bn each between 2010E-2013E, whereas for TMG, the internalcash flows from deliveries in Madinaty and Al Rehab will be sufficient to fund the investmentproperties.Figure 50: Asset structure Q1 2010 (at cost) – EGPmFigure 51: Net debt equity ratio Q1 2010 and 2013E100%90%80%7%36%2%30%20%10%7%19%19%13%70%0%60%-10%50%40%86%-20%-30%-12%30%63% 63%-40%20%-50%10%0%TMG SODIC PHD-60%-55%TMG PHD SODIC TMG PHD SODICQ1 20102013EDevelopment properties Investment Properties Financial AssetsInvestments in associates CashSource: Deutsche Bank estimatesSource: Deutsche Bank estimatesDeutsche Bank AG/London Page 25