Initiation of Coverage Heliopolis Housing Real Estate | MENA Research

The Land Value Neutral

 Company’s 29m‐sqm land bank is among the largest in , but lower Target Price (EGP) 41 sales velocity could mean potential value unlocking may take time Current Price (EGP) 34.9 Potential Return 18%  Current market implied land‐bank valuation of EGP75/sqm is at a 70%–90% discount to prevailing auction prices Bloomberg HELI EY Reuters HELI.CA  We initiate on Heliopolis Housing with a Neutral rating and a TP of EGP41/share, implying an 18% potential return MCap (EGPm) 2,592 MCap (USDm) 451 Heliopolis Housing has one of the largest land banks in Cairo standing at Free Float 28% 29m sqm. While the company’s business model has historically been Daily Volume (USDm) 0.5 skewed toward plot sales given the size of its land bank, it also sells semi‐ Foreign Own. Limit 100% finished units targeting the mid‐income segment. Additionally, the Foreign Ownership N/A company holds a rental portfolio (35,160 sqm NLA) in central Heliopolis. Note: All prices as of 18 November 2010 Heliopolis Housing is still largely government owned, with the National Company for Construction and Development holding a 73% stake. Price Performance

120 Although Heliopolis Housing scores high on our comparative land model 110 with direct exposure to the primary‐home market in Cairo, its lower sales 100 velocity is a key hurdle in the face of unlocking the land bank’s value. In 90 80 addition, we look at Development Value Added (DVA), which captures the 70 incremental value generated as land is developed in accordance with a 60 developer’s master plan, where considering its mid‐income target market, OND J FMAMJ J A SON HELI EGX 30 the company generates EGP1,480/sqm. While the company scores high on all the above parameters, it trails on sales velocity, implying slower value unlocking, in our opinion. 22 November 2010

We initiate on Heliopolis Housing with a Neutral recommendation and a Ankur Khetawat TP of EGP41/share, implying a potential upside of 18%. We value real Analyst estate companies using a combination of DCF and land valuation. To be +971 4 2935 387 conservative, at this stage we exclude future projects from our valuation, ankur.khetwat@hc‐si.com and apply a 50%–75% discount to the land valuations derived using our Majed Azzam Sister‐Land Approach. We believe the higher discount relative to its peers is Analyst warranted given its lower velocity of sales. We value Heliopolis Housing at +971 4 2935 385 a 66% discount to its 2010e NAV of EGP119/share. The higher discount to majed.azzam@hc‐si.com NAV reflects the company’s higher dependence on plot sales and slower

sales velocity. Nermeen Abdel Gawad

Analyst Key Indicators +20 2 3535 3362 2009a 2010e 2011e nermeen.abdelgawad@hc‐si.com Revenue 143 321 292 GPM 80% 67% 74% Sapna Sharma NP 105 182 151 Analyst NPM 73% 57% 52% +971 4 2935 382 P/BV 13.4x 7.4x 6.3x P/NAV 0.3x 0.3x 0.3x sapna.sharma@hc‐si.com P/E 16.3x 24.6x 14.3x Source: Company data, AlembicHC Disclaimer: See page 18

22 November 2010 Heliopolis Housing Real Estate | Egypt

High Value of Cairo Land Bank to Be Unlocked Slowly

 Huge Cairo land bank (29m sqm) gives the company a high rating on our land valuation model

 However, value unlocking is likely to be limited as the company continues to follow its existing business model, under which value unlocking is gradual and limited

 We value the stock at 66% discount to its NAV of EGP119/share, implying a land value of EGP97/sqm

Sister Land Approach Heliopolis Housing in Perspective

2.5m sqm Heliopolis

148,730 sqm City

19.2m sqm Heliopolis City1

7.1m sqm (Helio Park)

Source: AlembicHC Source: Heliopolis Housing, AlembicHC

Note: (1) Net of 4.3m sqm in legalities

Considering the large land bank of the company, which remains largely undeveloped, we use our land model to put the company in perspective. In our 4 May 2010 note, Land in Focus, we introduced the concept of the “Sister Land Approach,” where we argued our preference for primary‐home land versus secondary. In that note, we conducted an in‐ depth analysis of each developer’s land bank to assess quality and potential value realization. As shown in the above picture, Heliopolis Housing sits in the middle of the pyramid due to its Cairo land bank, which is large and mostly undeveloped.

Land‐Bank Overview

Heliopolis Housing was established by a governmental decree in 1906, with the aim of developing 79m sqm of the Heliopolis area. After successfully developing urban Heliopolis, the company has moved to develop the outskirts of Heliopolis, mainly areas on the Cairo‐ Suez Road and the Cairo‐Ismailia Road. Despite the move by the government to offload its majority stakes in companies, Heliopolis Housing is still largely government owned, with the National Company for Construction and Development owning a 73% stake. Heliopolis Housing follows the classic sales model, which is based on the completion of semi‐furnished units, targeting the mid‐income segment. Depending on market conditions, 2

22 November 2010 Heliopolis Housing Real Estate | Egypt

and at the management’s discretion, Heliopolis Housing releases units for auction (based on highest down payment) through announcements in newspapers. Apart from unit sales (apartments and villas), Heliopolis Housing also sells individual land plots and holds a rental property portfolio in central Heliopolis (35,160 sqm NLA). The company’s business model is skewed toward land sales, as shown in the chart “Business Model” below. However, to further monetize on its vast land holdings, we understand that the company plans to hold and develop some of its land bank that was previously intended for sale.

Net of disputed plots, the company’s land bank stands at c29m sqm. That said, of the 79m sqm of land granted to the company in Heliopolis, only 2.5m sqm remain in urban areas, mostly in the Sheraton area. City, the company’s flagship project, located on the Cairo‐Suez Road, accounts for 66% of Heliopolis Housing’s land bank, or c19.2m sqm. The 7.1m sqm in New Cairo was granted to the company by a governmental decree in 2003 as a replacement for some 6.7m sqm in Heliopolis that was reallocated to the Cairo Airport. We understand the remaining 148,730 sqm in Obour City were bought directly from the New Urban Communities Authority (NUCA) for EGP100/sqm.

Breakdown of Land Bank Business Model

4% 1% 2% 4% 100% 13% Heliopolis 9% 80% 32% 46% New Cairo 26% 45% 26% 60% 77%

Obour City 40% 1% 67% 61% 53% 51% New 20% Heliopolis City 20% 64% 0% FY06 FY07 FY08 FY09 FY10 Land Sales Unit Sales Rents Source: Heliopolis Housing, AlembicHC Source: Heliopolis Housing, AlembicHC

New Heliopolis City

New Heliopolis City, the company’s flagship project and largest land bank at roughly 19m sqm (net of 4.8m sqm of disputed land with pending legalities), was granted to the company in 1995 in lieu of a 12km‐long plot of land that was reallocated for the Cairo Airport expansions. New Heliopolis City is to become a full‐fledged mixed‐use city, divided into several districts and designed to feature mainly a mixture of mid‐income buildings and villas. That being said, part of the project is designated for a compound of 28 higher‐end villas, expected to be offered to a strategic investor.

A portion of the disputed land, 0.6m sqm, was returned to the company in July 2010, while 1.2m sqm is still pending final clearance. In early October 2010, amid the recent upheaval surrounding land allocations to developers, the Ministry of Agriculture stated that 1.5m sqm of land in New Heliopolis City, including the disputed 1.2m sqm, has not been allocated to Heliopolis Housing, but has been trespassed on by the company. In

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response, Heliopolis Housing has asserted to the Ministry its rightful possession of the land and is awaiting a court hearing at the end of November.

Among the various law suits filed challenging the validity of the NUCA’s contracts directly allocating land to private developers such as TMG and Palm Hills – with legal jurisdiction in some cases ruling against governmental bodies, as in the case of TMG’s land dispute – we find Heliopolis Housing’s case different, given its government‐based nature and the fact that litigation is against the company for trespassing, rather than against a government body. Nonetheless, we believe litigations will continue to be a hurdle for the stock until further clarity is reached not only regarding Heliopolis Housing’s issue but also regarding land‐related issues in general. We await clarity on the 4.3m sqm of litigated land and prudently exclude it from our valuation.

Obour City

We understand that this plot of land was bought in 1997 from the NUCA for EGP100/sqm. The company offers individual plots for sale at an average price of EGP1,800/sqm. While the trend has been more toward selling plots than developing and selling units, Heliopolis Housing does not intend to sell all of the remaining 56 plots, but rather to develop units based on a rent‐to‐own scheme on some of the plots.

Land Bank Located Entirely in East Cairo

Source: Google Maps, AlembicHC Note: (1) Net of litigations

New Cairo

Located on the Cairo‐Suez Road, the 7.1m sqm were granted to Heliopolis Housing as a replacement for 6.7m sqm in Heliopolis that was reallocated for the Cairo Airport extension. We understand that the Helio Park project’s master plan is awaiting approval

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from the NUCA, and accordingly the project is still in its early stages. The land is intended for a mixed‐use project consisting of six residential areas, comprising 5,700 individual plots (400–600 sqm/plot) and 24,000 units, accommodating a population of 100,000. Some 65% of the project is allocated for residential units, 4% for retail, 8% for leisure, and the remainder for public use (infrastructure).

Heliopolis

The company owns plots scattered across Heliopolis, the main bulk of which are located in the southeastern residential and leisure area of Sheraton. An area of 82,000 sqm is allocated mainly for residential buildings, in addition to 58,000 sqm designated for villas. Located in a strategic area in central Heliopolis, the company owns 11,400 sqm of land in Ghernata City with two buildings covering an area of 900 sqm. Heliopolis Housing is currently studying to offer the site for rent together with the two buildings, where sale prices currently stand at EGP50,000/sqm, according to the company. Additionally, Heliopolis Housing has sold units in four residential buildings on a 5,505‐sqm piece of land it owns in Gesr El Suez (El Hamla Land) at an average price of EGP3,800/sqm.

Investment Properties

Heliopolis Housing currently holds a commercial investment portfolio with a NLA of c35,160 sqm in Heliopolis, generating cEGP19m (cEGP540/sqm) per annum. This compares to the range of EGP1,500/sqm–EGP2,000/sqm per annum for other developers under our coverage operating in the outskirts of Cairo (SODIC and TMG). The projects are dry leased, meaning only the land is rented out, while the company holds ownership of the built‐up area at the end of the lease period. Despite the limited nine‐year lease hold period (industry norms range between 49 and 99 years), we understand that these projects have long attracted investors due to their strategic locations.

As mentioned earlier, the company also rents out residential and service properties in central Heliopolis. However, recurring income has never been a significant contributor to the company’s top line, as the properties have been under rent control since President Nasser’s era. Rental rates for 150‐sqm apartments stand at EGP7/month on average in very prime locations, which at prevailing market rates could fetch up to EGP3,000/month. According to the law, the property is passed down through the generations at the same rental rates, as long as there is proof that the new tenants inhabited the unit with their parents. The law is applicable to units and buildings built before the late 1970s. Units that were built later abide by a new rental law implemented in 1996 and are rented under a negotiable contract between the landlord and the tenant. We understand that a new law is being drafted to amend the rent control system, which would allow rents to gradually increase to prevailing market rates. While this bodes well for companies like Heliopolis Housing and Medinet Nasr Housing, we remain cautious about the law’s implementation and implications given the governing legal framework.

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Investment Portfolio Investment Properties NLA (sqm) Monthly Rental1 (EGP) Rental Period Tivoli Heliopolis 4,600 156,000 9 Years Starting August 2007 Merryland 25,800 1,100,000 9 Years Starting June 2008 Hadeeket Al Tefl 4,760 40,500 9 Years Starting April 2008 Showland Area N/A N/A N/A Source: Heliopolis Housing, AlembicHC Note: (1) Annual increase of 10%

Plot Sales to Continue to Dominate Sales Strategy

Since its inception, Heliopolis Housing has been occupied with developing its vast land bank gradually. Its Heliopolis land bank, which contains the most prime plots, is almost completely depleted, with only c2.5m sqm remaining of the c79m initially granted. The bulk of the company’s land bank is now centered around New Heliopolis City (19.2m sqm net of disputed land) and Helio Park (7.1m sqm). As such, the company is now focusing on completing its New Heliopolis City project; roughly 6.8m sqm (80% of the first phase) of the project has been completed and the company is now moving on to develop the second phase for residential purposes. The company is also finalizing the master plan for three of the residential areas of Helio Park, where it plans to invest EGP1.5bn over the development period.

Given that c90% of its land bank lies in New Cairo, Heliopolis Housing operates within an increasingly competitive market. Although the company targets the undersupplied mid‐ income segment, we remain cautious on further market penetration given its relatively stagnated development. Despite its competitive pricing against other developers such as TMG and Medinet Nasr, its classic sales model is impeding further monetization of sales. Nonetheless, we understand that Heliopolis Housing has managed to generate new sales by providing flexible payment terms of up to 10 years in installments. Yet with its slower pace of development, keeping up with other developers is likely to remain a challenge.

Financials and Valuation

Financials

Like most government‐based real estate companies, Heliopolis Housing follows prudent accounting. For cash sales, the company recognizes revenues only upon receipt of the cash amount. As for sales on installments, the company only recognizes the amount due, and considers later installments as deferred revenues, which progressively decline as installments are made. Revenue recognition is spread over the period of the installments (tenor of 10 years at an effective interest rate of 14%). Sales made on installments are carried out through Al Tameer Mortgage Company. Given that Heliopolis Housing used to give out synthetic mortgages at a lower rate of 7%, sales have recently been subdued. To attract new buyers, the company has offered a three‐year installment period with zero interest.

Heliopolis Housing’s assets currently stand at EGP1.5bn, which grew at a CAGR of 15% between 2006 and 2010, driven largely by customer receivables (2006–2010 CAGR of 12%). The company’s receivables represent the largest item on its balance sheet (c73% of 6

22 November 2010 Heliopolis Housing Real Estate | Egypt

total assets), and currently stand at cEGP1.1bn. Despite the weak performance of the company’s mortgage‐based sales with Al Tameer, we believe receivables will continue to grow, especially with the launch of its Helio Park project in New Cairo, expected to happen in mid‐2011. Given the significant amount of receivables, it is important to look carefully at cash collection and overdue receivables. As shown in the chart below, Heliopolis Housing has a healthy collection rate, above c90% over the past four years. Nonetheless, the company has provisions worth EGP25m for its un‐collectable receivables, some of which are as much as 15 years overdue.

Receivables Form c73% of Total Assets (EGPm) Current Overdue at c8% of Receivables (EGPm)

2,000 80% 400 10%

350 8% 1,500 75% 300 6% 250

200 4% 1,000 70% 150 2% 100 500 65% 0% 50 ‐2% ‐ ‐ 60% (50) FY06 FY07 FY08 FY09 FY10 ‐4% 2006a 2007a 2008a 2009a 2010a Receivables Expected Within the Year Receivables Other Assets Receivables % of Assets (RHS) Actual Receivables Source: Heliopolis Housing, AlembicHC Source: Heliopolis Housing, AlembicHC

The company has a net debt position of EGP89m as of 1Q2010/11 and a net debt/equity ratio of 0.3x, reflecting a low equity base of EGP259m. However, as most of the land bank is off balance sheet, the equity is not reflective of the company’s true position. We believe the company’s liquidity is locked up in inventories and receivables, while land monetization remains weak. Accordingly, we estimate that the company will need to raise funds in the coming period as it launches Helio Park, where investments are expected to reach EGP1.5bn.

Sales Value (EGPm) Average Selling Price per Sqm (EGP)

450 4,000

400 3,500 350 3,000 300 2,500 250 2,000 200 1,500 150 1,000 100

50 500

‐ ‐ FY06 FY07 FY08 FY09 FY10 FY06 FY07 FY08 FY09 FY10 Average Land Price Average Unit Price Land Sales Unit Sales Rents

Source: AlembicHC Source: AlembicHC

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Property and land sales have improved significantly to EGP423m in FY09/10, higher than pre‐crisis levels. Land continues to dominate sales, while rents remain subdued. Average prices have moved significantly since 2006, increasing at a CAGR of 30% for units, while land prices increased at a CAGR of 46%.

As with most government‐owned companies that are a dividend play, Heliopolis Housing has a relatively high pay‐out ratio of over 50% and a dividend yield of c5% with its FY09/10 approved EGP1.5/share dividend – compared to a pay‐out ratio of around 50% for Eastern Company (70% owned by the government) and an average of c90% in the past three years for Sidi Kerir (20% indirectly owned by the government), which has one of the highest dividend yields at around 10%. While this is lucrative for minority shareholders in the short term, we feel that it would be more prudent to conserve cash, considering the company’s development obligations in the coming period. Going forward, we expect the company to lower its pay‐out ratio. Also, to improve its capital base, Heliopolis Housing has approved a 50% capital increase through a 2:1 bonus share issue, thus bringing the company’s paid‐in capital to EGP111.3m.

Pay‐Out Ratio at More than 50% (EGP) EPS (EGP/share)

1.6 120% 3.0 1.4 100% 2.5 1.2 80% 1.0 2.0

0.8 60% 1.5 0.6 40% 1.0 0.4 20% 0.2 0.5

‐ 0% ‐ FY06 FY07 FY08 FY09 FY10 FY06 FY07 FY08 FY09 FY10 DPS Pay‐Out Ratio RHS Source: Heliopolis Housing, AlembicHC Source: Heliopolis Housing, AlembicHC

Valuation

We initiate on Heliopolis Housing with a Neutral recommendation and a target price of EGP41/share, implying an upside potential of 18%. Our valuation is based on SOTP of DCF and land valuation. Where a master plan is available we use DCF, otherwise we rely on land valuation. To be conservative, we exclude future projects from our valuation at this stage and apply a 50%–75% discount to the land bank, which we feel is warranted considering Heliopolis Housing’s lower sales velocity. Given the company’s maturity profile, the land bank forms the bulk of our valuation (c89% of overall valuation), while DCF makes up the balance.

We conservatively follow the company’s guidance for FY10/11 sales in New Heliopolis City, Obour City, and Sheraton, which we include in our DCF and deduct from the land bank. The contribution of sales to our DCF is minimal at EGP6/share, which is understandable given its maturity profile, while the land bank contributes EGP35/share.

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Our land‐bank valuation is dominated by New Heliopolis City (EGP15.9/share), primarily due to its size (c19m sqm net of the amount assumed in DCF and disputed land), contributing 45% of valuation. We exclude the 4.3m sqm of disputed land until further clarity on litigations, and apply a 75% discount to the land value given the company’s large land bank and lower sales velocity. For the Heliopolis land bank, we derive cEGP12.8/share after a 50% discount to land value, and the New Cairo land bank (Helio Park) is valued at EGP6/share after a 75% discount again for the large land bank. The Obour City land is estimated at EGP0.5/share (after a 50% discount) given its limited size.

Land‐Bank Valuation Land Area Value/Sqm Total Value Value After Discount Project Location Discount (m sqm) (EGP) (EGPm) (EGPm) Heliopolis Heliopolis 2.5 750 1,896 50% 948 New Heliopolis City Shorouk 18.8 250 4,710 75% 1,178 Obour City Cairo‐Ismailia Road 0.1 500 70 50% 35 New Cairo Land New Cairo 7.1 250 1,780 75% 445 Total Value 28.6 8,456 2,605 Total Value/Share 35 Source: Heliopolis Housing, AlembicHC

86% of Value Derived from Land Bank (EGP) Size Rather than Value Dominates Our Valuation

45

40 5.9 New Cairo 35 Obour City EGP6.0/Share EGP0.5/Share 17% 30 1% Heliopolis EGP12.8/ 25 Share 20 36% 35.1 15 New Heliopolis City 10 EGP15.9/ Share 5 45% 0 Land Bank DCF

Source: AlembicHC Source: AlembicHC

FCF (EGPm) Year 2008a 2009a 2010a 2011e 2012e 2013e 2014e 2015e … 2027TY EBIT 164 92 190 186 236 179 79 86 182 Tax Rate 20% 20% 20% 20% 20% 20% 20% 20% 20% EBIT ൈ (1 ‐ T) 131 73 152 149 188 143 64 69 145 Depreciation and Amortization ‐ ‐ ‐ 0 0 0 0 0 1 Capital Expenditure (2) (4) (2) (4) (4) (4) (4) (4) (4) Changes in Working Capital (43) (100) (103) (40) 12 11 117 205 ‐ FCF: Explicit Period 86 (31) 47 105 197 151 177 270 142 Terminal Growth Rate 3% FCF: Terminal 1,274 FCF: Total 86 (31) 47 105 197 151 177 270 1,416 Source: AlembicHC

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For Heliopolis Housing, we use a WACC of 14.5% based on a risk‐free rate of 9%, a country risk premium of 5.5%, and a beta of 1.

Valuation (EGPm) Terminal Growth Rate 3.0% WACC NPV/FCF 510 Beta 1.0 Net Debt or (Cash) 68 Risk‐Free Rate 9.0% Equity 441 Country Risk Premium 5.5% Outstanding Shares 74 Cost of Equity 14.5% DCF Value (EGP/share) 6 Cost of Debt 10.0% Land Value (EGP/share) 35 After‐Tax Cost of Debt 8.5% Total Value (EGP/share) 41 Weights Equity Market Capitalization 2,592 Debt 3.2 Total 2,595 Tax Rate 15.0% WACC 14.5% Source: AlembicHC

Using our “Sister Land Approach,” we evaluate Heliopolis Housing relative to other developers based on the quality of its land bank and its land‐monetization capability. Despite Heliopolis Housing’s large land bank, the company’s classical governmental approach is impeding full value realization. As such, we place Heliopolis Housing’s land bank at an average discount of 75% to derive the target price, compared to market implied valuation of EGP75/sqm.

Market Implied Land Valuation Current Stock Price (EGP/share) (A) 34.9 Less: Backlog (as per DCF) (B) 6 Market Implied Land Valuation (EGP/share) (A ‐ B) 29 AlembicHC Land Valuation (EGP/share) 35 Market Discount to AlembicHC Land Valuation ‐17% AlembicHC Premium to the Market 21%

Outstanding Shares (m) 74.2 Total AlembicHC Land Value (EGPm) 2,605 Undeveloped Land Area (m sqm) 29 Market Implied Land Valuation (EGP/sqm) 75 AlembicHC Land Valuation (EGP/sqm) 91 Market Implied Discount to AlembicHC Value ‐17% AlembicHC Premium to Market 21% Source: AlembicHC

Development Value Added

In addition to our implied‐land‐value analysis, we now also look at Development Value Added (DVA), which captures the incremental value generated as land is developed in accordance with a developer’s master plan. In other words, DVA represents the additional gain, on top of our implied‐land valuation, brought about by the potential development of the land. Considering its mid‐income target market, the company generates DVA of EGP1,480/sqm. However, it is still important to factor in sales velocity because although a piece of land could have a high DVA, its location could very well mean 10

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that its value unlocking will be more protracted. For example, a budget‐housing project might have a low DVA, making it necessary for it to have a high sales velocity to be viable. On this parameter, the company trails as sales have remained subdued considering the size of its land bank. To reflect that, we use a higher discount of 75% for two major plots (New Heliopolis City and New Cairo).

Development Value Added Total Shares (m) 74 Total BUA (m sqm) 14.3 HC Implied Land Value (EGP/sqm) 182 Market Implied Land Value (EGP/sqm) 150

Addition to Current Stock Price if 100% of Land Is Developed (EGPbn) 23.4 DVA (EGP/sqm) 1,482 DVA/Share 286.0 DVA/Share for Each Additional Meter of BUA Sold 20.0 DVA/Share for Each Additional 10% of BUA Sold 31.5

Addition to Our Valuation if 100% of Land Is Developed (EGPbn) 20.8 DVA (EGP/sqm) 1,450 DVA/Share 279.9 DVA/Share for Each Additional Meter of BUA Sold 19.6 DVA/ Share for Each Additional 10% of BUA Sold 28.0 Source: AlembicHC

DVA Calculation Incremental Value Total Value Addition if Selling Price Costs Gross Profit DVA Addition if 100% of Project 100% of Land Is (EGP/sqm) (EGP/sqm) (EGP/sqm) (EGP/sqm) Land Is Developed Developed (EGPm) (EGPm) Heliopolis 5,000 2,000 3,000 2,250 2,845 3,793 Obour City 4,000 2,500 1,500 1,000 70 104 New Cairo 4,000 2,500 1,500 1,375 4,894 5,339 New Heliopolis City 4,000 2,500 1,500 1,375 12,953 14,130 Total 20,761 23,367 Source: AlembicHC

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Market Implied Land Valuation at a 17% Discount to Heliopolis Housing Trades at c71% Discount to NAV AlembicHC Valuation (EGP/sqm)

100 10% 90 17% Discount 0% 80 ‐10% 70 ‐20% 60 ‐30% ‐40% 50 91 ‐50% 40 75 ‐60% 30 ‐70% 20 ‐80% 10 ‐90% 09 08 10 10 10 10 10 09 09 09 09 10 08 08 08 08 09 0 08 ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ Jul Jul Jul Jan Jan Jan Sep Sep Sep Nov Nov Nov Mar Mar Market Implied Valuation AlembicHC Valuation Mar May May May Source: AlembicHC Source: Bloomberg, AlembicHC

2010e NAV Calculation Forecasted Equity as of 2010e (EGPm) 350 Add: Market Value of Land (EGPm) 8,456 Less: Book Value of Land (EGPm) 2 2010e NAV (EGPm) 8,808 Total Number of Shares (m) 74.2 NAV (EGP/share) 119 Target Price (EGP) 41 Implied (Discount) or Premium to NAV (65%) Market (Discount) or Premium to NAV (71%) Source: AlembicHC

We value Heliopolis Housing at a 65% discount to our estimated 2010e NAV of EGP119/share. To derive the NAV, we adjust Heliopolis Housing’s equity to reflect the market value of the land based on our Sister Land model. The higher discount to NAV reflects the company’s maturity profile, with a large portion of its value coming from land.

Potential Catalysts

Earnings are not a trigger for Heliopolis Housing, which further positions the stock as a play on land given its maturity profile, but land auction results and dividend announcements, as well as the clearance of 600,000 sqm of disputed land in New Heliopolis City in favor of the company, have been catalysts for the name, as depicted in the Price Performance Chart on page 13. As such, we believe that rather than earnings, short‐term catalysts for the name will be positive land‐auction results as well as a favorable outcome regarding the remaining 4.2m sqm of litigated land.

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Company‐Specific Risks

(1) Un‐monetized Land Bank: The company’s government‐based management is, we believe, inhibiting the monetization of its land bank

(2) Land‐Bank Concentration: Heliopolis Housing’s land bank is located entirely in East Cairo. With rising competition, attracting new customers might be challenging

(3) Value Concentration: 92% of valuation is dependent on the land bank; as such, the company is highly leveraged on property prices

Upside Risks

(1) Land‐Monetization Prospects: We believe the company’s attractive land‐bank location might rope in other developers, which could support value unlocking

(2) Rental Law: The proposed amendment to the old rental law could boost the company’s recurring‐revenue inflow

(3) Mortgaged Sales: Customer‐friendly mortgage schemes could further boost its sales, as the company depends on selling on installments

Shareholding Structure Price Performance (EGP/share)

38 Company Land Auction Results Company Land Auction results 36 34 140 Feddans Cleared 32 27.75% 30 Free Float 28

26 Dividend 24 Announcement 72.25% Government's Stake 22 Through National Co. 20 for Construction & 10 10 10 09 10 10 10 10 10 10 10 Development 10 ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ Jul Jan Jun Oct Apr Sep Feb Dec Aug Nov Mar May

Source: Heliopolis Housing, AlembicHC Source: Bloomberg, AlembicHC

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MENA Real Estate and Construction Valuation Multiples Company BB Code Cur CMP1 MCap (USDm) Rec TP Upside P/BV P/NAV P/E ROE Real Estate 09a 10e 11e 09a 10e 11e 09a 10e 11e 09a 10e 11e KSA Dar Al Arkan AL ARKAN AB SAR 8.75 2,520 OW 16.9 93% 0.7x 0.7x 0.6x 0.3x 0.4x 0.4x 4.5x 5.5x 4.2x 15% 12% 14% Al Akaria SRECO AB SAR 25.6 819 N 26.2 2% 1.0x 1.0x 1.0x 0.7x 0.6x 0.5x 32.7x 32.0x 21.3x 3% 3% 4% Average 0.8x 0.8x 0.8x 0.5x 0.5x 0.5x 18.6x 18.7x 12.8x 9% 8% 9% UAE Aldar ALDAR UH AED 2.3 1,628 OW 3.8 64% 0.3x 0.3x 0.4x 0.2x 0.2x 0.2x 8.5x 0.0x 4.8x 3% ‐1% 8% Aldar (Ex‐Reval) ALDAR UH AED 2.3 1,628 OW 3.8 64% 0.4x 0.4x 0.6x 0.2x 0.2x 0.2x 8.5x 0.0x 4.8x 5% ‐1% 14% Emaar EMAAR UH AED 3.6 6,037 OW 4.7 29% 0.8x 0.7x 0.7x 0.3x 0.3x 0.3x 67.7x 10.2x 9.4x 1% 7% 7% Sorouh SOROUH UH AED 1.7 1,179 N 1.9 15% 0.7x 0.6x 0.6x 0.3x 0.3x 0.3x 4.4x 4.4x 14.5x 16% 14% 4% Average 0.6x 0.6x 0.7x 0.3x 0.2x 0.2x 26.9x 7.3x 5.2x 7% 7% 8% Egypt TMGH TMGH EY EGP 8.0 2,787 OW 10 25% 0.7x 0.7x 0.6x 0.6x 0.5x 0.5x 16.0x 16.0x 6.1x 4% 4% 10% SODIC OCDI EY EGP 100.4 621 OW 130 29% 1.7x 1.5x 1.2x 0.7x 0.9x 0.7x 0.0x 16.2x 4.6x ‐7% 9% 25% MNHD EY EGP 31.2 543 OW 39 25% 12.8x 10.4x 6.6x 0.4x 0.4x 0.4x 29.0x 39.4x 18.4x 44% 26% 36% PHD PHDC EY EGP 6.0 1,093 OW 7.5 25% 2.0x 1.5x 1.2x 0.5x 0.8x 0.6x 8.5x 15.0x 5.5x 23% 10% 21% ODH ODHN EY CHF 58.5 1,693 N 69 18% 1.6x 1.4x 1.2x 0.4x 0.5x 0.5x 12.9x 10.1x 8.0x 12% 14% 15% Heliopolis HELI EY EGP 34.9 451 N 41 17% 13.4x 7.4x 6.3x 0.3x 0.3x 0.3x 16.3x 24.6x 14.3x 55% 52% 38% Egypt Resorts EGTS EY EGP 2.0 358 N 2.2 12% 1.9x 1.9x 2.0x 0.2x 0.2x 0.2x 0.0x 0.0x 0.0x 0% ‐1% ‐1% Average 4.9x 3.5x 2.7x 0.4x 0.5x 0.5x 16.5x 20.2x 9.5x 19% 16% 21% Kuwait Mabanee MABANEE KK Kwd 850 1,534 N 900 6% 3.9x 3.4x 3.1x 1.2x 1.3x 1.2x 25.5x 22.7x 24.2x 15% 15% 13% Average 3.9x 3.4x 3.1x 1.2x 1.3x 1.2x 25.5x 22.7x 24.2x 15% 15% 13% Sector Average 2.6x 2.1x 1.8x 0.6x 0.6x 0.6x 21.9x 17.2x 12.9x 13% 11% 13% Construction P/BV EV/EBITDA P/E ROE 09a 10e 11e 09a 10e 11e 09a 10e 11e 09a 10e 11e DSI DSI UH AED 0.954 565.69 OW 1.2 26% 0.8x 0.8x 0.8x 7.2x 8.9x 8.2x 6.3x 11.4x 10.1x 13% 7% 8% DSI (Ex‐Goodwill) DSI UH AED 0.954 565.69 OW 1.2 26% 1.3x 1.3x 1.1x 7.2x 8.9x 8.2x 6.3x 11.4x 10.1x 20% 11% 11% Arabtec ARTC UH AED 1.85 602.45 N 2.4 30% 0.9x 0.8x 0.7x 4.3x 4.1x 3.9x 4.5x 4.4x 5.0x 21% 18% 14% Sector Average 1.0x 1.0x 0.9x 6.2x 7.3x 6.8x 5.7x 9.0x 8.4x 18% 12% 11% Source: Bloomberg, AlembicHC Note: (1) Prices as of 10 November for Saudi, 11 November for Kuwait, and 18 November for Egypt

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22 November 2010 Heliopolis Housing Real Estate | Egypt

Income Statement (EGPm) Year to December 2008a 2009a 2010a 2011e 2012e 2013e 2014e 2015e Unit Sales 224 62 235 202 238 186 ‐ ‐ Services Rendered 7 2 4 5 5 5 5 5 Others 4 19 17 18 19 20 21 22 Deferred Revenues Recognized 46 60 64 68 71 75 78 82 Revenue 280 143 321 292 332 285 104 109

Cost of Unit Sales (95) (29) (105) (77) (69) (80) ‐ ‐ Total Costs (95) (29) (105) (77) (69) (80) ‐ ‐ Percentage of Sales 34% 20% 33% 26% 21% 28% 0% 0%

Gross Profit 185 115 216 215 263 205 104 109 Margin 66% 80% 67% 74% 79% 72% 100% 100%

SG&A Expenses (21) (23) (26) (29) (28) (26) (25) (24) Operating Expenses (21) (23) (26) (29) (28) (26) (25) (24) EBIT 164 92 190 186 236 179 79 86 Margin 59% 64% 59% 64% 71% 63% 76% 78%

Net Financing Cost (0) (0) 41 (5) 1 6 18 21 Investment Income/Interest Income 34 41 0 ‐ ‐ ‐ ‐ ‐ Profit Before Taxes 199 132 228 181 237 185 98 107

Income Taxes (40) (27) (47) (27) (36) (28) (15) (16) Minorities ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ Net Profit or (Loss) 159 105 182 154 201 157 83 91 Margin 57% 73% 57% 53% 61% 55% 80% 83% Basic EPS 2.1 1.4 2.4 2.1 2.7 2.1 1.1 1.2 (144) (187) (254) (78) (88) (148) (93) (96) Dividend (2) (3) (3) (1) (1) (2) (1) (1) DPS ‐91% ‐178% ‐140% ‐50% ‐44% ‐94% ‐112% ‐105% Pay‐Out Ratio 164 92 190 186 236 179 80 86 224 62 235 202 238 186 ‐ ‐ EBITDA 7 2 4 5 5 5 5 5 Source: Heliopolis Housing, AlembicHC

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22 November 2010 Heliopolis Housing Real Estate | Egypt

Balance Sheet (EGPm) Year to December 2008a 2009a 2010a 2011e 2012e 2013e 2014e 2015e Assets Cash and Cash Equivalents 49 12 12 29 145 216 320 519 Inventories 171 282 326 179 65 33 33 ‐ Trade and Other Receivables 66 39 31 25 18 12 6 ‐ Current Assets 1,204 1,232 1,438 1,301 1,212 1,078 870 671

Investments ‐ 1 1 1 1 1 1 1 Other Financial Assets 0 0 0 0 0 0 0 0 Long‐Term Bank Deposits 4 4 4 4 4 4 4 4 Non‐current Assets 4 5 5 5 5 5 5 5

Property, Plant, and Equipment 10 12 14 18 21 25 29 33 Projects in Progress 4 4 4 4 4 4 4 4 Permanent 14 16 17 21 25 29 32 36

Total Assets 1,222 1,254 1,460 1,327 1,242 1,112 908 712

Liabilities Customer Deposits 18 14 15 12 9 6 3 ‐ Creditors and Other Credit Balances 81 77 99 79 59 40 20 ‐ Bank Overdraft ‐ 56 78 78 78 78 78 78 Current Liabilities 907 913 982 814 646 477 309 141

Borrowing and Long‐Term Debt 3 3 3 3 3 3 3 3 Creditors 77 145 125 100 75 50 25 ‐ Non‐current Liabilities 80 149 128 103 78 53 28 3

Minority Interest in Subsidiaries ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐

Paid‐Up Capital 74 74 74 74 74 74 74 74 Statutory and Other Reserves 92 97 100 100 100 100 100 100 Retained Earnings 68 25 25 237 345 408 397 395 Shareholder's Equity 235 193 350 411 518 582 571 569 Source: Heliopolis Housing, AlembicHC

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22 November 2010 Heliopolis Housing Real Estate | Egypt

Cash Flow (EGPm) Year to December 2008a 2009a 2010a 2011e 2012e 2013e 2014e 2015e Net Profit Before Minorities 133 99 152 154 201 157 83 91 Depreciation and Amortization 1 1 1 0 0 0 0 0 Change in Working Capital (43) (100) (103) (40) 12 11 117 205 Provisions 26 6 30 ‐ ‐ ‐ ‐ ‐ CF Generated from Operating Activities 116 6 82 115 214 169 201 297

CAPEX PPE (1) (1) 1 (4) (4) (4) (4) (4) Associates ‐ (1) ‐ ‐ ‐ ‐ ‐ ‐ CF Generated from Investment Activities (2) (4) (2) (4) (4) (4) (4) (4)

Dividends Paid (80) (91) (104) (47) (47) (47) (47) (47) Net Borrowings/OD (0) 56 21 ‐ ‐ ‐ ‐ ‐ Others ‐ (4) 4 ‐ ‐ ‐ ‐ ‐ CF Generated from Financing Activities (80) (39) (80) (47) (47) (47) (47) (47)

Net Addition or (Deduction) in Cash 34 (37) 0 64 163 118 150 246 Cash at Beginning of Fiscal Year 6,799 49 12 12 76 239 357 507 Cash at End of Fiscal Year 49 12 12 76 239 357 507 753 Source: Heliopolis Housing, AlembicHC

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22 November 2010 Heliopolis Housing Real Estate | Egypt

Rating Scale Recommendation Potential Return Overweight Greater than 20% Neutral 0% to 20% Underweight Less than 0%

Disclaimer

This document was issued by HC Brokerage, which is an affiliate of HC Securities and Investments (henceforth referred to as “HC”) – a fully fledged investment bank providing investment banking, asset management, securities brokerage, research, and custody services – and Alembic Global Advisors, which is registered with US‐based broker dealer Pulse Trading Inc. (collectively the “Firms”). The information used to produce this document is based on sources that the Firms believe to be reliable and accurate. This information has not been independently verified and may be condensed or incomplete. The Firms do not make any guarantee, representation, or warranty and accept no responsibility or liability to the accuracy and completeness of such information. Expression of opinion contained herein is based on certain assumptions and with the use of specific financial techniques that reflect the personal opinion of the authors of the commentary and is subject to change without notice.

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Disclosures

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22 November 2010 Heliopolis Housing Real Estate | Egypt

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