Egypt Real Estate Sector

Sector View: Neutral

Wednesday,
Tuesday, 4 September
13 August 2018 2019 / 7:00 am CLT
Egypt / Real Estate / Sector
Egypt / Real Estate / Q2 2018View
Results (Set on 4 September 2019)

Is the “Home Run” Running out of Steam?

Analyst Performance of the real estate sector in Egypt over the past couple of
Sara Maher years has been resilient, aided by the EGP floatation. Yet, the
Equity Analyst residential segment’s future does not look as comforting. Most argue
[email protected]
that developers, small- or large-sized, concentrated their offerings on
housing units that cater to one sub-market, namely the high to upper
middle class, which is widely perceived to be nothing short of an
unmitigated disaster. While this perception could hold true in certain
scenarios, some market patterns indicate otherwise. In this note, we
lay out the sector’s landscape from its four different main segments.

Contents  Four key segments, different trends: Contrary to perception,

Egypt’s real estate sector is not only residential; it includes other
segments as well with different dynamics, as follows:
• Sector View Page 2
o Residential Page 4 I. Residential (View: Negative): Demand for primary properties is
o Hospitality Page 8 growing at a slower pace than in 2017 and 2018, largely
o Retail Page 10 targeting New Cairo due to its closeness to business districts.
o Office Page 11 We do not expect that buying activity will surpass the levels
• SSE Scorecard Page 12 recorded over the past couple of years. Our stock pick is TMGH.
• Key Corporate Indicators Page 15 II. Hospitality (View: Positive): Egypt’s tourism sector is
approaching pre-revolution peak levels. Also, revitalized
tourism is expected to contribute to Egypt’s GDP growth. Our
Real Estate Index vs. EGX 30 stock picks are TMGH, ORHD, and AMER.
(1-year relative performance) III. Retail (View: Neutral): Additional retail gross land area (GLA) is
EGX30 EGXREAL intended to serve the growing consumer market as spending
5% activity expands. Our stock picks are TMGH and OCDI.
0% IV. Office (View: Neutral): Expected economic growth should lead
-5% to a pick up in demand for office spaces. For the time being,
-10% however, the sector is more inclined towards stability. Our
-15% stock picks are PHDC, MNHD, and potentially ORHD (when it
-20% launches its new commercial project).
-25%
-30%
 SSE Scorecard: In the final section of this note, we present a
scorecard for the segments and 10 EGX-listed companies developed
-35%
from a SWOT analysis that we conducted. Factors laid in the SWOT
matrix and their probabilities led us to an overall Neutral rating on
Egypt real estate sector, while company scores were assigned
Source: Bloomberg. depending on each firm’s exposure to each segment.

Image is designed by Vexels.com

SHUAA Research Page 1 of 18

 Egypt Real Estate Sector
Wednesday, 4 September 2019 / 7:00 am CLT

Sector View
Egypt’s real GDP growth rate has been robust, increasing to 5.6% in
FY2018/19. Meanwhile, real estate activities, which represented 10.4%
of nominal GDP in FY2017/18, are mainly based on two markets: real
estate ownership and business services. The themes running through
the market in this regard are increased supply for the high-income
class, unsatisfied demand for lower classes, and slower increases in
salaries vis-à-vis prices. This triggers an urgent need for a shift in
supply focus to have healthy market dynamics.

GDP sectorial breakdown – FY2017/18  Breaking down the largest demand driver—Egypt’s
(USD260bn) demographics: Home ownership has always been culturally rooted
in the Egyptian society. This culture will remain the most
predominant driver of

Others, Suez Canal,

Agriculture, demand, and that is why growth in real estate is always tied to the
2.2%
16.7% 11.5%
Financial
country’s demographic map. Egypt’s favorable demographics (i.e.
Services, over 100mn population growing at a 2% p.a. clip with c.62% in the 15-
Trade, 4.6%
13.8%
64 years age bracket) indicate that demand from the growing and
young population (i.e. the millennials) for primary homes is well
Oil and
gas, 11.1% underserved. Also, rural-to-urban migration is increasing population
growth rates within major cities in the country. Currently, Egypt’s
overall urbanization rate is 42.6%, growing at 2% annually, which will
Transportation
& Construction, put strain on urban infrastructure in the long term. On the flip side,
10.6% Manufacturing this should ultimately create opportunities for property developers
Industries,
Tourism,
16.7% as huge investment will be needed to cope with the pressures from
2.4% Real Estate, 10.4%
the urban shift.
Source: CBE.  Public investments starting to tap into the sector: Real estate
investments are generally dominated by the private sector.
However, public investments increased with several government-
planned social housing projects aiming to minimize Egypt’s massive
housing deficit which resulted from rapid population growth.
Seeking to narrow the existing supply-demand gap, the Egyptian
government intervened by applying four different measures:

GDP sectorial breakdown – 9M FY2018/19 Egypt’s population distribution by Home ownership rates
(USD238bn) age
Suez
Agriculture, 14%
1.9% 90% 24%
Others, 11.6% 27%
15.9% Financial 80% 39%
Services, 5%
70%
4.7%
60%

Trade, 33% 86%

Oil 40% 76%
13.9% 73%
and 30% 61%
gas, 62% 20%
Transportation & 12.1% 10%
Construction,
0%
10.3%
Manufacturing
Tourism, Industries, 16.9%
2.9% Real Estate, 10.0% 15-64 00-14 65 and above
Owned Rent

Source: CBE. Source: World Bank Data. Source: CAPMAS 2017.

 Sector View (Cont.’d)
Private sector investment (investments 1) Scheduling the creation of 20 new cities, including the New
injected in real estate) Administrative Capital, in an attempt to redistribute population
and relieve the burden on central Cairo. Those 20 fourth
70,000 25.0%
19.4% 19.8% generation cities should accommodate about 30mn people.
60,000
17.0% 16.6% 20.0% This has offered several opportunities to real estate developers
50,000 14.9%
40,000 15.0% for establishing several developments with standards that
30,000 10.0%
meet both local and foreign demand.
20,000
10,000
5.0% 2) Promotion of the real estate market abroad by the Ministry of
- 0.0%
Housing after detecting an increase in foreign demand
(including that from expats) post the EGP floatation.
3) A draft legislation has been prepared for organizing the real
estate development industry, aiming to increase transparency
Real estate investment by private sector
(EGPmn)
and consolidate the market. The draft bill included the creation
As a % of total private sector investment (RHS) of a public union for Egyptian real estate developers, imposing
fines on unlicensed activities and late deliveries, establishing a
Source: CBE. surety fund to minimize risk for the buyers, and setting up an
electronic real estate registry for each city. This should
eventually create a sense of safety for new investors.
4) Launching more social housing units in different cities and
increasing funding for mortgage finance dedicated to social
housing consumers to recover some of the demand which was
lost due to weak purchasing power. These facilities are now
limited to low- and medium-income classes.
 Property prices leaning more towards stability: Lack of
confidence in the real estate sector was mainly driven by the
variability of property prices in the market in the aftermath of the
EGP floatation. It was believed that prices will keep on escalating
due to the weaker currency and higher expected construction
costs. However,
recently, a decline in costs and a currency appreciation took place,
which supports the notion that prices might remain stable through
the end of the year. There is also another factor that could influence
the pricing mechanism in the same direction; the market has
recently witnessed that the New Urban Communities Authority
(NUCA) has supplied the same targeted sub-market (high-end
segment) with several projects at higher prices, further competing
with the private sector. Thus, we believe price levels could stabilize
as developers are tempted to remain relatively competitive given
that their offered prices are lower than those of NUCA’s projects.
 The housing scene in 2019: As the EGP floatation hurt purchasing
power across the different income classes, demand for housing
within the high segment softened, shifting to the upper and middle
segments. Nonetheless, developers are still mostly targeting the
high and upper-middle segments. That said, there is still reason for
optimism for the housing sector. While sales growth might slightly
slow down or normalize in 2019, housing needs across the income
spectrum will remain strong. In sum, we believe the issue currently
facing the sector is nothing but affordability. Hence, the market’s
ability to provide affordable options to the segment that needs
them the most (i.e. the middle class) should be the deciding factor
in the future.
 Sector View (Cont.’d)
I. Residential
Average household size  Purchase purposes: Below is a breakdown of the three main
drivers to purchasing a residential unit (housing needs, investment
driven,
6 and leisure), while addressing the market characteristics behind
5.2
4.94
5 4.65 them. These characteristics include the young population, EGP
4.18 4.04 decline post-floatation, the observed vast offering in the high-
4
income segment, and the likelihood of each driver dominating in the
3 coming period.
2
1) Housing needs: According to a common statistic, 900,000+
1
marriages and 190,000+ divorces take place each year. If
0 accurate, this reflects a need of 1.09mn+ units annually across
1976 1986 1996 2006 2017
the country. This would translate into heavy demand which has
No. of family members/number of families been a long-term fundamental theme in Egypt’s residential
segment. However, despite this major potential, only c. 10% of
Source: CAPMAS. Egypt's housing units is supplied by professional property
developers, according to Global Property Guide, while the rest is
informal housing. Mid- to high-end properties continue to be
Number of marriages & divorces (000’s)
developed around the country, particularly in Cairo and Giza.
1400 Nonetheless, most of the demand, which is largely unmet, is
1200 generated by the low-income class. The inability to match supply
180 200 192 198 with demand has resulted in a housing shortage of as much as
1000 155 163
149 152 500,000 units a year, according to Oxford Business Group. A
800 142
84
major factor behind the limited supply has been the insufficient
600 78
incentives for undertaking projects targeting the low-income
400 class when compared to more rewarding first-tier
developments.
523 523

200
0 2) Investment: When the Egyptian government decided to float
the EGP, introduce value added tax (VAT), and increase fuel and
electricity prices, many people rushed into the property market
Marriages (000s) Divorce (000s) as an investment venue. To a large extent, this trend has been
created by consumers who had more incentive to buy property
Source: CAPMAS.
to hedge against soaring prices post-floatation, seeing home
ownership as a stable investment opportunity. Hence, an
Urban housing occupancy rates introduction of a project, such as the New Administrative Capital
became a craze in the investment universe. Meanwhile, a lot of
100%
90%
expats immediately shifted money from savings into real estate
12% 10% 15% 15%
80%
15% as it became very cheap in real terms. But this motive is the least
70%
likely to persist out of the three purchasing drivers, as the
28% 28% 23%
30% effects of the EGP floatation, VAT, and pricier energy are already
60% 33%
50% starting to wear off, making prospects revert to their basic
40% needs.
30% 49%
57%
53% 53% 3) Leisure: We also believe the theory of leisure buying holds good
20% 43%
10% here. Purchasing behavior could be motivated by prestige-
0% seeking more than intrinsic factors. This can mostly explain the
Egypt Cairo Giza Alexandria Sharkiya surging sales (including those of secondary homes) achieved by
Occupied Partially Occupied Unoccupied
some EGX-listed companies despite that their per-square-meter
prices are well above what most of the market can afford.
Source: CAPMAS.

SHUAA Research Page 4 of 18

 Sector View (Cont.’d)
Egypt’s wealth breakdown  But to what extent will affordability pose a dilemma? Most
development companies had raised their prices to maintain their
Class Pop. (mn) Wealth (USDbn)
High 1.0 164.4
margins shortly after November 2016 and in 2018. Therefore, it
Upper-middle 8.8 115.1 would have been safe then to assume that the affordability issue
Middle income 39.2 41.1 may arise at one point of time. Yet, this was not the case for EGX-
Low income 49.1 9.5 listed companies. It is commonly known that purchasing a home is
Total 98.1 330.0 not only financed from an individuals’ income but also from their
Source: AfrAsia Wealth Report, CAPMAS. long-term savings. Hence, we believe that individual wealth should
be factored into the assessment of affordability, noting that wealth
can grow while kept in bank accounts, businesses, or stock markets.

According to a recent publication by AfrAsia Bank, Egypt’s total

wealth stood at USD330bn in 2017, with Cairo alone accounting for
USD140bn (or 42%) of that figure. Wealth here refers to all private
holdings (including property, cash, equities, and business interests
less any liabilities), as owned by nationals. The wealth spectrum is
not plainly visible. So, in our readings, we used the latest data
published by the American Chamber in Egypt which classified
households by their average monthly income and estimated wealth.
Upper-middle and high classes, the fairly-served niche, represent
about 10% of the population and their wealth totaled USD279bn.
Thus, an offering in
a gated community and at a low-asking down-payment to these
classes, which are willing and able, should be sold in a heartbeat.
Driven by their perception of vast supply, consumers would be
selective but only for so long before they eventually make their
purchase. Looking at the low end of the wealth spectrum, it could
be safely concluded that there is a supply shortage as this class
cannot afford units at the current prices, and mortgage offerings
are not for those units advertised on billboards.

Consumers’ affordability levels in Greater Cairo

Source: Colliers International.

SHUAA Research Page 5 of 18

 Sector View (Cont.’d)
Most viewed properties through portal  Price and affordability have contributed to developers’ property
2017 2018 ∆ (+/-) in bps mapping, available options, and customer trending preference:
Apartment 58.4% 62.9% 451 Based on a set of data by Property Finder on the most viewed
Villa 17.1% 16.9% (16) property types on its portal in 2018, the mix of demand for different
Chalet 10.1% 6.7% (341) property types has changed greatly since 2017. This indicates that
Townhouse 4.9% 3.2% (177) the impact of the post-floatation price hike started to materialize in
Twin House 3.6% 2.2% (138) 2018. The demand for apartments grew at the expense of other
Duplex 2.0% 2.6% 65 property types like townhouses and villas, as high prices led some
Penthouse 2.0% 1.9% (7) to downgrade their residence type. It can also be concluded that
Office Space 0.6% 1.1% 47 demand for chalets decreased, pressured by less purchasing power
which forced people to stick to their basic needs and neglect the
Source: Property Finder Egypt.
need for second (holiday) homes. Also, heavy demand in new cities
has led most to invest in residential areas rather than holiday
destinations for a more profitable investment.
 Affordability is a question of available alternative home
financing: The CBE tried to stimulate the mortgage sector by
launching an initiative in 2014 to support mortgage financing for
middle- and low- income households with EGP10bn in facilities. The
CBE’s mortgage initiative was, initially, based on offering low-
lending cost for 20 years, where the needed amount would be lent
out by the bank at a fixed rate of 7% to low-income individuals and
8% to middle-income individuals. However, in 2018, the amount
dedicated (EGP20bn at the time) for the initiative was entirely
consumed, leading the CBE
to limit the offering to low-income households. In May 2019, the
CBE met with the Real Estate Development Chamber and announced
the adoption of a new initiative that provides EGP50bn to middle-
income individuals. Added to the CBE, there are several firms and
banks specializing in mortgage finance, including the Egyptian
Housing Finance Co. (EHFC), Tamweel Mortgage Finance, CIB, and
Arab African International Mortgage Finance. The issues with their
loans however are:
1) the cap placed by some of the lenders on unit financing,
2) high interest rates, and
3) financing purchases of completed units only,
which drove developers to sell directly to consumers, thus
removing banks from the equation and inducing demand for off-
plan units. All in all, mortgage activity remains weak in the Egyptian
market. Drawing strong demand for mortgages in the long term is a
question of flexible loans and lower interest rates.
 Sector View (Cont.’d)
Residential units stock  Primary sales dominance: Demand for first-hand properties
continued to grow in 2019, albeit at a slower rate than in 2017 and
250
47
13 2018, due to more flexible payment terms, as opposed to the case
200
in the secondary market. That demand largely targets New Cairo
12 because of its proximity to business districts. The strong
150 performance and numerous launches of the off-plan segment took
their toll on the secondary market, yet that can be partly explained
100 by a cyclical effect. When off-plan launches are slower, unit sales in
the secondary market rebound slightly, especially if offered at deep
50
discounts which is currently the case. Delivery-wise, high
114 127 137 155 159 172 219
0 completion levels are expected in 2020, with planned deliveries of
2015 2016 2017 2018 2019F 2020F 2021F 47,000 units, but the likelihood of all these units being completed
on schedule is still questionable.
Current Stock (000s) Future Supply (000s)
 Demand vs. supply: As exhibited, the supply of pricier units fairly
Source: JLL, Q2 2019.
exceeds demand. Despite that, new projects have been launched
targeting the high-end market still, which indicates a possible
long- term concentration risk, especially as consumers are leaning
more towards leasing.
Rentals (USD/sqm)
 Rental market on the rise: Clearly, rents across the market have
45% 40% been rising, especially in the New Cairo area, where apartment and
40%
35%
villa rentals increased 28% and 40%, respectively, in H1 2019. The
28% increase in rental prices can be partly attributed to a shift in
30%
25% consumer preference to leasing rather than owning a unit, until
20% 17%
15%
their purchased off-plan units are delivered.
10.0%
10% 6%
5% -1.0% 1%
-3%
0%
-5% Apartment Villa Apartment Villa
-10%
New Cairo Sixth of October

Y-o-Y Q-o-Q
Source: JLL, Q2 2019.

Supply and demand mix by price (2018 )

100%
90% 16%
27%
80%
14%
70%
60% 21% 15%

15%
40% 31%
30% 18%
20%
10% 24%
19%
0%
Supply Demand
Less than 50k From 50k to 1mn From 1mn to 2mn

From 2mn to 4mn More than 4mn

Source: Property Finder Egypt.

 Sector View (Cont.’d)
II. Hospitality
Tourist arrivals and number of nights  Tourism bounces high up: Egypt has been regaining its
No. of tourist arrivals (in millions) worldwide image as a premium tourism destination. But, although
Number of Touristic Nights 000s (RHS)
its tourism sector is still performing way below potential and peak
figures of
2010, with 14mn tourists visiting the country after nearly a decade
15 14.1 160
of turmoil, it seems like the sector is on an eventual recovery.
14 140
13
Egypt’s tourism revenues jumped by 45.8% to USD3.93bn in Q1
120 FY2018/19. An official source from the World Tourism Organization
12 11.2 11.3
11 9.1 100 said that the number of tourists visiting Egypt has increased by 39%
9.5 9.6
10 9.2 80 y/y to 11.3mn. In FY2017/18, total tourism revenues amounted to
9 8.2 60 USD9.8bn.
8
7
40
 Recapturing demand: Foreign spending had plunged back in
6 5.3 20 2016 due to travel bans from European countries, but a 343% leap
5 0 has been well detected in 2017. The EGP devaluation has caused
2010

2011

2012

2016
2014

2018
2013

2015

2017

demand for tourism to pick up significantly internationally and

Source: World Bank Data, CAPMAS. domestically. Also, a weaker EGP has shifted the attention of many
locals towards local destinations instead of international ones for
Egypt tourism source of spending affordability. As for foreigners, hotel rates in USD terms have fallen
substantially, making Egypt a relatively cheap destination.
600 According to Colliers International, domestic tourism continues to
take a fair share of the market, mainly on the back of corporate
500
302

events, weddings, and weekend getaways. Meanwhile, total

261

400 tourist spending is expected to grow at a 5-year CAGR of 17.5% to

EGPbn

223

EGP609bn by 2022.
189

300
157

 Sector catalysts in 2019/2020: Several catalysts are at play to

131

200 boost the sector to its pre-revolution levels. The Ministry of

2016 32 98

307
270
236
203

Tourism has taken some active measures, using the proper

173

100
142

approach for each:

0
2018e

2019f

2021f
2017

1) Resumption of charter flights from Russia to Sharm El-Sheikh

2020f

2022f

and Hurghada.

Foreign Spending Domestic Spending 2) Sphinx International Airport operating international direct
flights.
Source: Colliers International, 2018.
3) Completion of the Grand Egyptian Museum.
Tourism revenues (USDbn) 4) New market players prospectively launching economy and
midscale hotels. The market still needs to meet demand from
millennials who seek different and trendy, yet affordable,
14
12.7 rooms.
12 10.8 11.6
13.2
10.6 5) Improving quality of health care services available as interest in
10
10.5 9.8 medical tourism has increased, supported by Egypt’s
9.8
8 7.4 affordability for those seeking medical treatment.
8.2 9.4

6 3.8

4 5.1 4.4
2006/07

2
2007/08
Source: CBE, SHUAA Securities Egypt estimates.
 Sector View (Cont.’d)
Listed companies keys’ and occupancy  New projects: There are several major hospitality projects that
rates are expected to come on stream in the near future, thus helping
boost
6,000 82% 90% tourism further in addition to past projects. Late 2018, Orascom
78%
80% Development Egypt (ORHD) partnered with Thomas Cook to
5,000
70% develop a 100-room luxury hotel which is scheduled for opening in
4,000 60%
68% October, and rebrand Arena Inn to become Thomas Cook’s Club
50%
3,000 Hotel which was opened in mid-August 2019. Meanwhile, Amer
2,000 30%
Group (AMER) recently launched 180-room Porto Saeed Hotel, and
1,000
10% an astounding brand to the market (with Thomas Cook partnership)
- 0% and an untapped destination (with Porto Saeed Hotel project) are
ORHD TMGH PHDC
two bold moves taken to capture as much demand as the market
Number of Rooms 2018 Occupancy Rates (RHS) has to offer.
 Living on the coast: Going forward, areas expected to be a hive
Source: Company data.
of activity are Ain Sokhna (being close to and cheaper than the
New Administrative Capital), El-Alamein, and the North Coast.
Developers are exerting persistent effort to supply the facilities
Segment performance needed to make these destinations livable year-round.
105 72% 72% 0.8  Hotels supply: In 2018, the continued recovery in the sector has
65%
100 59% 0.7 revived investor confidence and encouraged more developments.
0.6 However, improving security measures for visitors remains key to
95
0.5 sustainable growth in the sector. Occupancies are now at their
90 0.4 highest level since 2011, and average daily rates (ADR) saw double-
85 0.3 digit growth across Egypt, which significantly increased revenue per
0.2 available room (RevPAR), pointing to a positive outlook for the
80
102 87 95 100 0.1 sector.
75 0
2016 2017 2018 2019 (YT
May)

ADR (USD) Occupancy Rates (RHS)

Source: JLL.

Number of branded hotel keys

90,000
79,400 81,800
80,000 77,000 78,200 78,800

70,000

60,000

50,000

40,000

30,000

20,000

10,000

-
Q3 2017 Q3 2018 FY 2018 FY 2019f FY 2020f

Cairo Alexandria Sharm El Sheikh Hurghada

Source: Colliers International.

 Sector View (Cont.’d)
III. Retail
Money velocity vs. inflation  Favorable feature: Egypt’s demographic advantage of a
large, youthful and relatively urbanized population has
created an
35% 1.6
29.8% increasingly rewarding environment for domestic and international
30% 1.4
retailers alike. With more people falling into the middle income
1.2
25% bracket and inflation dropping to single digits (8.7% in July 2019),
1.0
20% household spending momentum should build up.
14.0% 14.4% 0.8
15%
9.8% 11.4% 11.1% 0.6  Spending behavior: Velocity of money is a measure used to gauge
8.2%
10% 0.4 people’s willingness to spend money. When there are more
5% 0.2 transactions being made throughout the economy, money velocity
0% 0.0 increases, and the economy is likely to expand. In 2018, the velocity
2013 2014 2015 2016 2017 2018f* 2019f of money was at 1.3, which is 0.11 higher than the level reported
Inflation, Change in end of period consumer prices
after devaluation and only 0.04 less than the FY2015/16 average.
This means that spending levels are picking up, which ultimately
Velocity of Money
(combined with stronger inbound tourism) should help boost the
*Money Velocity in May, 2018. retail sector.
Source: IMF, World Economic Outlook.
 Retail space supply: Large shopping malls are hosting an
Supply (000 sqm of GLA) increasing number of local and international brands. For example,
Mall of Egypt, the latest mega retail project, was only opened in
2021f 2,350 Cairo in
2020f 10 2017, spanning over 165,000sqm. Its occupancy rate reached as
2,340
much as 96%, which indicates that Cairo’s retail market supply
2019f 216
2,130 remains short. Projects, including Mall of Arabia’s expansion and
2018 Porto’s Park Mall, spanning over 300ksqm, were added to the mall-
2,100
based retail sector in 2018 and will be completed in Q4 2019. This
2017 takes Cairo’s retail footprint to a total of around 2.1mn sqm.
1,900
2016
1,620
Expectedly, 375,000 sqm of retail space is going to the market
2015 during 2019, including Open-Air Mall in Madinaty (23% of expected
1,480
supply) which is partially opened, Almaza City Center, and The Yard
- 500 1,000 1,500 2,000 2,500 Mall in Al-Rehab City which was already completed during Q2 2019.
Completed Future  Rent levels: According to property consultancy JLL, average
retail rents have increased through 2018 by c.10%, reflecting a rise
in the
Source: JLL, Q2 2019.
value of contracts of super regional malls. This increase in rents
suggests a strong demand for and recovery of the retail sector after
Retail space (sqm/capita) the floatation, which is expected to continue into 2019. Meanwhile,
4 vacancies within existing malls are expected to decrease, as
1.16 The lowest retail 1.40
3.5 sqm/capita in the 1.20 several new tenants are prospected to begin operation in H1 2019.
3 0.91 region
1.00 However, with mall additions in 2019, overall market vacancy rates
2.5
2 0.80 are likely to increase.
1.5 0.60
0.26
1 0.17 0.40
0.11
0.5 0.20
0
0.00
Dubai Abu *Riyadh Cairo Jeddah
Dhabi

GLA in malls (mn sqm)

Mall based retail per capita (RHS)
Source: JLL MENA, SCAD, DSC, and GAStat .
(* Population by mid 2017)
 Sector View (Cont.’d)
IV. Office
Office stock in Cairo  Supply breakdown: Developers started launching new office
projects on flexible payment terms after 2016, in response to the
1400
156
rising demand of banks and multinational firms for locations in
1200 integrated business parks. While the sector witnessed diverse
23 1,226
1000 demand across different areas in the country, most of the rental
1070
1050

1050

demand was concentrated on Eastern Cairo where Grade A

973

986
936

800
buildings are available. The main sectors pushing up occupancy
600 rates were oil & gas and online services. Meanwhile, Madinet Nasr
400 Housing & Development’s (MNHD) latest commercial complex
Cobalt Business District (CBD) in Taj City generated EGP620mn of
200
pre-sales in H1 2019. Also, projects that are scheduled for
0 completion by 2020 in Eastern Cairo include Eastown EDNC by
2015 2016 2017 2018 2019F 2020F 2021F Sixth of October Development & Investment (OCDI).
Completed (000 sqm) Future (000 sqm)  A Western Cairo catalyst: Rents in Western Cairo have been
Source: JLL, Q2 2019.
declining during 2018 and H1 2019 due to the weakening demand
for office space in the area. However, when the Sphinx Airport on
the Cairo/Alexandria road becomes fully operational, demand is
expected to step up.
 New trends: The growing number of entrepreneurs and SME
Annual rental prices (USD/sqm)
owners is creating demand for flexible offices (i.e. offices or co-
working spaces that are leased for less than a year). This is a
276 growing sub-market in Cairo, which is reflective of global trends
New Cairo (S2)
276 and caters to those who are targeting lower start-up costs,
264 collaborative working spaces, and short-term leasing.
264
 Prospects in 2019: A Savills research indicates that most
transactions in the market are closed by existing occupiers, while
300
demand from new market entrants is still limited. This pattern is
271
New Cairo (S1) expected to continue this year given that most of the demand for
300 quality office spaces is dominated by multinationals. However,
300 two possible events could strengthen the office segment during
2019-2020:
160
180 1) Parliament intends to discuss the final draft of the rental law
West Cairo
in its next session. The new law will amend previous real
240
estate rental legislations (those of 1977, 1981, and 1996) and is
240
expected to boost demand for office space in Cairo as
336 existing tenants in Central Cairo will turn to Grade A offices in
the new cities since they will be paying a higher quote
336
Central Cairo anyway.
396
420 2) The relocation of banks and some companies’ headquarters
to the New Administrative Capital by mid-2020.
0 50 100 150 200 250 300 350 400 450

Q1 2019 Q1 2018 Q1 2017 Q1 2016

Source: JLL.
SSE Scorecard
Given the market’s backdrop, we found a compelling reason to run a
SWOT analysis for the sector and plot where each EGX-listed
company stands with respect to the mentioned sub-sector financially
and operationally.
 Description: We included a few strengths, weaknesses,
opportunities, and threats for each sub-sector to clearly illustrate
the driving forces behind current market dynamics. Each mentioned
factor for each sub-sector has its own likelihood rate, reflecting our
view at this juncture. Ultimately, all were averaged together to
develop an outlook for the sector and its segments.
 Segment scores: After conducting the SWOT analysis, we came to
an overall Neutral rating on the sector based on the factors laid in
the matrix and the probabilities assigned to them. We note that
some factors affect the majority of companies, such as the growing
reluctancy of homebuyers to buy a unit as a store of value and hikes
in land prices. Other factors have little influence, if at all, over some
companies due to their limited exposure to the other segments.
The hospitality segment received a Positive rating, followed by the
retail and office segment with a Neutral, ending with a Negative
rating on the residential segment. These ratings could change if
some fundamental factors within the Egyptian housing market
witness some changes, such as a wider access to mortgage loans,
and prices that match some levels of income.
 Company scores: Furthermore, we assigned scores to 10 EGX-
listed companies (namely EMFD, PHDC, TMGH, MNHD, ORHD,
EGTS, PORT, AMER, HELI, and OCDI) across the segments. The
score’s scale ranges from 1 to 5, with 5 being the highest. The
companies with the highest overall scores came out to be TMGH,
ORHD, AMER, PHDC, and OCDI. What is common between the
aforementioned companies is their ownership of assets that
generate recurring income streams, ranging from hotels to
restaurants and malls. EMFD and HELI were given a low score due
to the lack of disclosure with respect to their exposure to the
hospitality, retail, and office segments. An overall low-to-average
score was set to all companies in the residential segment.
SSE Scorecard (Cont.’d)
Segment SWOT analysis & views

Residential View: Negative

Strengths Prob.Weaknesses Prob.
 Flexible payment plans. High  Selective demand from vast suburban supply. High
 Young and growing demographics. High  Highly illiquid asset. High
 Strong demand from the middle-income segment. High  Large capital needed to invest in. High
 Inflation-hedge feature. Low  Low access to mortgage. Medium
Opportunities Prob. Threats Prob.
 Housing deficit already present. High  Preference in investing in financial assets instead. High
 High population and traffic density in Central Cairo. High  Competition from NUCA. High
 Urbanization rate growing. Medium  Higher land acquisition cost. High
 Rental activity might increase as studios are a  Economic slowdown may affect demand. Low
common accommodation for foreign students. Medium
 The wave to the New Administrative Capital. Medium
 Decline in construction costs. Medium
 Establishing mass railway and transport network. Medium
 Co-development agreements. Medium
 Global demand for property. Low

Hospitality View: Positive

Strengths Prob. Weaknesses Prob.
 Weak currency. High  Shortage in affordable internal flights. High
 Cheap medical services. High  Low security measures. Medium
 Limited differentiated leisure activities. Medium
 Shortage in economy or mid-scale hotels (hostels). Medium
Opportunities Prob. Threats Prob.
 Resumption of some charter flights to Cairo and Sharm  Charter flights from Russia may remain banned. Medium
El- Sheikh. High
 Growth in domestic travel spending. High  Political instability. Low
 Ministry of Tourism promotion activities. High

Retail View: Neutral

Strengths Prob. Weaknesses Prob.
 Millennials interest in new F&B concepts. High  Additional taxes and increased custom fees. High
 Seasonal spending trends, e.g. Ramadan and Eid. High
 Large consumer base. High
Opportunities Prob. Threats Prob.
 Scarcity of retail space in cities other than Cairo and Giza. High  Growth in e-commerce. High
 Growth in spending activity. High  Vacancy rates growing leading to less leasing activity. High
 Higher international tourism spending. Medium  Lift of subsidies leading to inflation. Medium

Office View: Neutral

Strengths Prob. Weaknesses Prob.
 Multinationals of different industries expanding. High  Dwelling permits. High
 Shortage in Grade A buildings. High  FDIs are still weak in absolute terms. High
 Location within mixed-use developments. High  Reluctancy in moving if already established. Medium
 Low vacancy rates. High
 Hedge against currency volatility instead of leasing. Medium
Opportunities Prob.Threats Prob.
 Need for flexible working spaces. High  Lack of available transportation to the new
business districts. High
 Proximity to the New Administrative Capital. Medium  Recent currency appreciation. Medium

Source: SHUAA Securities Egypt.

SSE Scorecard (Cont.’d)
Company score across sub-sectors (from a scale of 1 to 5, 5 being the highest)

Residential Hospitality

EMFD EMFD
5 5
OCDI 4 PHDC OCDI 4 PHDC
3 3
2 2
HELI TMGH HELI TMGH
1 1
0 0

AMER MNHD AMER MNHD

PORT ORHD PORT ORHD

EGTS EGTS

Retail Office

EMFD EMFD
5 5
OCDI 4 PHDC OCDI 4 PHDC
3 3
2 2
HELI TMGH HELI TMGH
1 1
0 0

AMER MNHD AMER MNHD

PORT ORHD PORT ORHD

EGTS EGTS

Sector's segment EMFD PHDC TMGH MNHD ORHD EGTS PORT AMER HELI OCDI
Residential 2 3 3 2 3 2 2 2 2 3
Hospitality 3 2 4 1 5 1 4 4 1 1
Retail 2 2 4 2 3 2 3 3 1 3
Office 1 3 2 3 2 1 1 1 2 3

Source: SHUAA Securities Egypt.

Key Corporate Indicators

EGPmn (FY2018) EMFD PHDC TMGH MNHD ORHD EGTS PORT AMER HELI
OCDI
Income Statement
Revenue 6,342 7,423 10,928 2,783 3,356 126 1,668 1,930 955 3,726
Gross Profit 2,579 2,587 4,057 1,790 1,142 (38) 541 729 612 1,226
EBITDA 1,867 1,691 3,464 1,444 1,122 (94) 271 255 510 336
Interest Income 1,681 98 36 45 224 5 6 - 21 512
Interest Cost (1) (200) (140) (113) (505) - (128) (168) (74) (110)
Net Profit (after Minority) 3,419 812 1,705 1,085 409 (72) 113 77 265 449

Balance Sheet EMFD PHDC TMGH MNHD ORHD EGTS PORT AMER HELI
OCDI
Assets
Cash & Cash Equiv. 5,326 956 4,873 486 1,310 97 89 525 137 2,238
Short term notes receivables - 4,235 - - 1,150 1,008 - - 806 -
Long term notes receivables - 13,087 - 6,149 535 404 - - - 7,666
Accounts Receivables 2,434 1,062 26,525 775 - - 697 767 749 3,969
Development Properties 12,317 9,092 33,559 1,455 762 602 2,757 2,604 1,279 8,772
Total Assets 36,226 34,698 96,274 12,293 9,302 2,430 5,409 6,631 3,626 26,887

Lia bilites
Advance from Customers 14,691 11,485 33,789 39 1,276 282 2,991 1,413 6 16,596
Short term land liabilities - 1,298 - - - 135 120 108 - 203
Long term land liabilities - 2,123 3,248 - 198 627 169 441 - 277
Total Debt 11 4,714 5,149 555 4,230 - 300 376 1,717 1,520
Total Liabilities 22,083 25,483 65,776 8,824 7,022 1,573 4,559 4,831 3,129 21,980
Equity 14,143 9,216 30,497 3,469 2,280 857 850 1,800 497 4,907

Profitability EMFD PHDC TMGH MNHD ORHD EGTS PORT AMER HELI
OCDI
Gross profit Margin 41% 35% 37% 64% 34% -30% 32% 38% 64% 33%
EBITDA Margin 29% 23% 32% 52% 33% -74% 16% 13% 53% 9%
Net profit margin 54% 11% 16% 39% 12% -57% 7% 4% 28% 12%
ROE 24% 9% 6% 32% 25% -8% 13% 4% 53% 9%
ROIC 16% 13% 9% 33% 19% -9% 20% 12% 19% 6%

Financial Strength EMFD PHDC TMGH MNHD ORHD EGTS PORT AMER HELI
OCDI
Current Ratio 1.50 1.06 1.22 3.27 1.75 1.95 1.11 1.37 1.57 0.91
Quick Ratio 0.94 0.55 0.65 2.48 1.47 1.27 0.43 0.57 0.99 0.48
Net Cash/(Debt) 12,273 (2,008) (261) 48 (2,919) 97 (211) 149 (1,580) 2,645
D/E 0.00x 0.51x 0.17x 0.16x 1.86x 0.00x 0.35x 0.21x 3.46x 0.31x
Net Debt/EBITDA - 1.19x 0.08x - 2.60x - 0.78x - 3.10x -
Debt Ratio 0.00 0.23 0.09 0.05 0.48 0.31 0.11 0.14 0.47 0.07
Interest Coverage Ratio 3,483 8 25 13 2 - 2 2 7 3

EMFD PHDC TMGH MNHD ORHD EGTS PORT AMER HELI

TTM P/E OCDI
5.8x 1.0x 13.4x 5.9x 18.6x - 5.4x 13.5x 33.7x 14.8x
P/BV 1.0x 0.8x 0.8x 1.7x 2.9x 3.8x 0.8x 0.4x 26.0x 1.2x
EV/sqm 180x 232x 440x 717x 213x 548x 252x 113x 478x 303x
EV/EBITDA 1x 6x 7x 5x 9x 0x 4x 2x 28x 12x
Rev. growth y/y 41% 12% 28% 15% 29% -55% -30% -10% 3% 62%
Rev. 5 Yr CAGR 39% 44% 18% 31% 23% 34% N/A 17% 23% 23%

Note: Financials are based on 2018 figures.

Source: Bloomberg, Company financials.
Key Corporate Indicators (Cont.’d)

EMFD Q1 2019 Q2 2019 ∆ q/q H1 2018 H1 2019 ∆ y/y

Revenue 567 891 57.2% 1,753 1,457 -16.9%
Gross profit 250 353 41.4% 723 603 -16.7%
EBITDA 143 (711) -596.7% 460 (568) -223.4%
Earnings 419 (324) -177.5% 1,102 94 -91.4%
Net cash/(debt) 12,489 11,419 10,473 11,419
ROE 2.87% -2.28% (0.05) 9.32% 0.66% (0.09)
TMGH
Revenue 2,241 2,741 22.3% 3,968 4,942 24.6%
Gross profit 909 996 9.6% 1,557 1,865 19.8%
EBITDA 649 843 30.0% 1,211 1,545 27.5%
Earnings 361 451 24.9% 732 812 11.0%
Net cash/(debt) (67) 98 93 98
ROE 1.23% 1.51% 0.00 2.56% 2.73% 0.00
MNHD
Revenue 634 455 -28.3% 1,267 1,089 -14.1%
Gross profit 472 312 -33.9% 1,000 785 -21.5%
EBITDA 398 223 -44.0% 841 621 -26.1%
Earnings 329 183 -44.5% 588 511 -13.1%
Net cash/(debt) 358 (62) (290) (62)
ROE 9.15% 4.84% (0.04) 20.44% 13.55% (0.07)
ORHD
Revenue 838 1,319 57.5% 1,529 2,329 52.4%
Gross profit 201 325 61.6% 510 616 20.9%
EBITDA 155 299 92.7% 463 564 21.9%
Earnings 89 199 122.1% 144 365 153.6%
Net cash/(debt) (2,667) (2,467) (3,327) (2,467)
ROE 5.21% 9.56% 0.04 10.53% 17.58% 0.07
OCDI
Revenue 941 1,075 14.2% 1,050 2,016 92.0%
Gross profit 270 360 33.3% 514 630 22.6%
EBITDA 117 109 -6.5% 226 227 0.1%
Earnings 161 175 8.5% 373 336 -9.8%
Net cash/(debt) 2,522 2,330 2,666 2,330
ROE 3.20% 3.50% 0.00 7.85% 6.72% (0.01)

Source: Company financials.

Key Corporate Indicators (Cont.’d)
ROE (2017 vs. 2018) ROIC (2017 vs. 2018)
100% 40%

28%
80% 30%

18% 18%
60% 53% 20%
13%
10% 11% 9%
8%
40% 32% 10%
25% 4%
24%
20% 13% 0%
9% 9%
6% 4%
0%
-10%
-8%
-20% -8% -20%
EMFD PHDC TMGH MNHD ORHD EGTS PORT AMER HELI OCDI EMFD PHDC TMGH MNHD ORHD EGTS PORT AMER HELI OCDI

2017 2018 2017 2018

New sales performance (2018 vs. 2017)

200% 180.3%

150%

100%
62.5% 57.2%
50% 19.0%
6.4% 5.6%
0%
∆ y/y %
-9.2%
-50% -28.4%

-100%

AMER TMGH ORHD PHDC MNHD EMFD SODIC PORT

Land geographical allocation

100%
7% 5%
10%
14%
80% 11%
37%
43%
4%
60%
92%
100% 99% 98% 100%
89%
40%
66%
33%
52%
26%
20%

1% 8% 4% 2% 2%
0%
EGTS AMER ORHD EMFD PORT PHDC TMGH SODIC MNHD HELI

West East Coastal

Source: Company data.

Contact Details
 +(202) 16331
143, Bank Zone, 5th Settlement,
New Cairo, First Abu Dhabi Bank Building (6th Floor)
Cairo, Egypt

Disclaimer
This document has been issued by SHUAA Securities Egypt for informational purposes only. This document is not and should not be construed as
an offer or the solicitation of an offer to purchase or subscribe or sell any investment or subscribe to any investment management or advisory
service. SHUAA Securities Egypt has based this document on information obtained from sources it believes to be reliable. It makes no guarantee,
representation or warranty as to its accuracy or completeness and accepts no responsibility or liability in respect thereof or for any reliance
placed by any person on such information. Accordingly, no representation or warranty, express or implied, is or will be made and no
responsibility or liability is or will be accepted by SHUAA Securities Egypt or by any of its respective officers, employees, agents or affiliates in
relation to the accuracy, completeness or fairness of the information or opinions contained herein or any other written or oral information made
available to any interested party or its advisers and any such liability is expressly disclaimed. All opinions expressed herein are subject to change
without notice. This document may not be reproduced or circulated without the prior written consent of SHUAA Securities Egypt. SHUAA
Securities Egypt is regulated by the Financial Regulatory Authority under license number 91.

Issuer of Report
SHUAA Securities Egypt
Website: www.shuaasecurities.com

Copyright
Copyright © 2019, SHUAA Securities Egypt, ALL RIGHTS RESERVED. No part or excerpt of this document may be redistributed, reproduced, stored
in a retrieval system, or transmitted, on any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without the
prior written permission of SHUAA Securities Egypt.