Heliopolis Housing & Development Egypt Equities | Real Estate | Initiation of Coverage Sunday, 24 July 2016

A conditional turnaround story in the making — Buy PT: EGP86.2 Initiate with Buy/High Risk High Risk ETR: +73%

• Sizeable, prime-located land bank is the primary valuation driver in our view. HELI (EGP) vs. EGX30 Rebased • Old concerns (inefficient business model, slow land monetization) starting to abate … Stock Details Volume (RHS) HELI EGX30 Rebased Last price (EGP) 49.84 • … but key concerns remain: the government control and unclear strategy. mn 52-W High (EGP) 56.30 • Presales and revenues to grow by 7-year CAGRs of 65% and 26%, respectively. 60.00 0.90 52-W Low (EGP) 36.00 0.80 50.00 6M -ADVT (EGPmn) 5.57 0.70 • We estimate HELI’s NAV at EGP62.2/share, implying a P/NAV of 0.80x. 12.1 40.00 0.60 % Chg: M oM • We initiate coverage on HELI with Buy/High Risk and PT of EGP86.2/share (ETR: +73%), 0.50 % Chg: YoY -1.01 30.00 85% of which comes from “unlaunched” land. 0.40 % Chg: YTD -0.1 20.00 0.30 M ubasher Ticker HELI.EGX 0.20 Business model has long been inefficient mainly Initiate with Buy/High Risk; PT EGP86.2/share 10.00 Bloomberg Ticker HELI EY 0.10 due to slow land monetization: Heliopolis Housing (+73%): We set a price target (PT) for HELI at 0.00 - Capital Details

& Development (HELI.EGX) has long had an EGP86.2/share (+73% upside), using a DCF-based No. of Shares (mn) 111.3

Jul-15 Oct-15

Apr-16 M kt Cap (EGPmn) 5,545.1 Jun-16

inefficient business model, thus missing significant sum-of-the-parts (SOTP) valuation model with a Jan-16

Mar-16 Feb-16

Aug-15 Dec-15 Sep-15 Nov-15 May-16 opportunities to exploit the booming real estate WACC of 20.1%. Our base case scenario assumes M kt. Cap (USDmn) 624.3 sector in Egypt over the last few years. Today, we that HELI will develop or co-develop its remaining Free Float (%) 27.1% think HELI’s strategy is still inefficient given that: unlaunched land bank. To account for any possible EGP mn 2013a 2014a 2015a 2016e 2017e 2018e change in HELI’s strategy over the coming years, we • Land sale is the main source of revenues and its Pre-sales 480 474 426 547 1,090 1,950 maintaining a high dividend payout ratio, which examined worst and best case scenarios, resulting in Revenues 338 420 481 683 540 811 would negatively affect its cash cycle. This strategy a valuation range between EGP63.7/share and had forced the company to depend on short-term 111.8/share, respectively. We also estimated HELI’s Net Income 136 184 205 344 154 334 borrowing to finance the construction of its small NAV at EGP62.2/share, implying a P/NAV of 0.80x Revenues Growth (%) 36.3% 24.2% 14.5% 42.2% (21.1%) 50.4% development properties. based on the current stock price, and 1.42x based on Net Income Growth (%) 25.0% 35.7% 11.4% 68.1% (55.3%) 117.0% our PT. Thus, we initiate coverage on HELI with a • It would take HELI some 138 years to totally Gross Profit Margin (%) 59.9% 60.5% 62.7% 69.8% 70.0% 85.2% Buy/High Risk rating. We see room for further PT develop its 25.2mn sqm, assuming its historical rate Net Margin (%) 40.1% 43.8% 42.6% 50.4% 28.5% 41.2% upgrades if the company takes serious steps to of land monetization remains the same. complete its turnaround story by monetizing its land Net Debt (Cash) 174 202 225 136 367 121 … thus, some steps were taken, suggesting a bank at a faster rate. EPS (EGP) 1.22 1.65 1.84 3.09 1.38 3.00 turnaround story could be in the making: HELI BVPS (EGP) 3.46 4.11 4.59 6.44 6.27 8.59 started to shift its strategy towards a more efficient Major investment rationales: (1) Sizeable, free- PER (x) 16.4x 23.4x 30.4x 14.6x 36.0x 16.6x business model, which could shape its turnaround disputed land bank without mandatory development story over the coming years. This shift is evident in: schedule, (2) shifting to a more efficient business PBV (x) 5.8x 9.4x 12.2x 7.0x 7.9x 5.8x model (off-plan sale and co-development * Fiscal year ends in June • Agreeing with SODIC (OCDI.EGX) to co-develop 655 agreements), and (3) benefiting from strong demand Source: Company reports, MubasherTrade Research estimates feddans in New Heliopolis City. Also, attracting new for middle-income housing units. co-developers for its other land plots will positively affect HELI’s valuation. Key risks: (1) Slow land monetization with unclear strategy for most of the remaining raw unlaunched • Adopting an “off-plan sale” model and planning to Mahmoud Ibrahim land bank, (2) high exposure to change in land Senior Equity Analyst double its paid-in capital. prices, and (3) concentration risk. • Paying EGP135mn to execute part of the external Mubasher International infrastructure works in Helio Park. [email protected] Page 1 For more information on MubasherTrade, please visit our website at www.MubasherTrade.com or contact us at [email protected]. Please read the important disclosure and disclaimer at the end of this document. Heliopolis Housing & Development| Egypt | Initiation of Coverage Sunday, 24 July 2016

Table of Contents

Corporate Profile 3 • Corporate Structure 3 • Land bank 4

Financial Summary 5

Projects’ Details 6 • New Heliopolis City 6 • Helio Park 7 • Land scattered in Heliopolis 8 • Nozha El-Obour 8 • Investment properties 9 • Project locations 10

Valuation 11 • 655 feddans land plot (co-development with SODIC) 14 • New Heliopolis City (NHC) after excluding 655 feddans land plot 15 • Helio Park 17 • land plots and developments in Heliopolis district 19 • Nozha El-Obour 19 • Investment properties 20 • Net Asset Value (NAV) 21 • Investment rationale and key risks 23

Business Model 24

Appendix | Legal Disputes 26

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Corporate Profile

Corporate structure Heliopolis Housing & Development (HELI.EGX), a 72.3% subsidiary of government-owned the National Company for Construction & Development, was established as a real estate developer in 1906. HELI’s operations include land Heliopolis reclamation and subdivision, residential real estate development and management, and real estate properties purchase, sale and rental. Currently, HELI, one of Cairo’s oldest developers, is shifting its business model from a pure land seller to a Housing & Development developer with progressive land monetization and clear strategy. HELI’s shares have been listed on the Egyptian Exchange (EGX) since May 1995. At present, HELI has an authorized capital of EGP200mn and a paid-in capital of EGP111mn distributed over 111mn shares at a par value of EGP1/share. Development Properties Investment Properties We see HELI organized under two key segments: development properties and investment properties. I. Development Properties: HELI has 25.2mn sqm of well-located and dispute-free land bank, located in East Cairo. The company has four key projects: (1) New Heliopolis City, (2) Helio Park, (3) legacy land plots scattered in Heliopolis, most New Heliopolis City Merryland Park of which are located in the eastern side of Almaza Airport, and (4) Nozha El-Obour. (NHC) II. Investment Properties: HELI generates rental income from (1) Merryland Park, (2) Tivoli Heliopolis, and (3) other properties subject to the old rental law. 655 feddans Merryland (co-developed Casino Key milestones with SODIC)

Date Event Remaining Showland Casino 1906 The establishment of HELI. land in NHC 1995 HELI obtained ownership of the New Heliopolis City land by virtue of Presidential Decree No. 193 for 1995. Child Park May-95 HELI was floated on EGX. Helio Park Oct-03 The government allocated 1,695 feddans of land plot to HELI to construct the Helio Park project. Aug-08 Magic Dreams stopped paying HELI due rent of the Merryland Casino. Feb-13 Magic Dreams stopped paying HELI due rent of the Child Park. Heliopolis Feb-14 HELI obtained a ministerial approval on Helio Park's first project plan. Tivoli Jun-14 HELI revealed its intention to double its paid-in capital. Oct-14 Halting raw land sales. Square 1258 Mar-15 HELI’s BOD approved to enter into co-development agreements. May-15 HELI signed a preliminary settlement to end the dispute with Magic Dreams (the old tenant of Merryland Casino). Other Properties Fourth (Old Rental Law) May-15 HELI launched an auction to co-develop 655-feddan land (via a revenue-sharing agreement). Neighborhood Jul-15 Court verdict to hand over the National Democratic Party’s (NDP) building to HELI. HELI secured approval of the Egyptian Environmental Affairs Agency to continue in the development works in Sep-15 Eastern side of Merryland Park. Almaza Airport Dec-15 SODIC was awarded HELI’s project for developing a 655-feddan land in New Heliopolis City. Jan-16 HELI co-founded a real estate marketing company with a 5% stake. Mar-16 HELI signed the contract to co-develop 655-feddan land with SODIC. Nozha El-Obour Jun-16 HELI evicts Magic Dreams from Merryland Casino. Source: Company reports Source: Company reports Page 3 For more information on MubasherTrade, please visit our website at www.MubasherTrade.com or contact us at [email protected]. Please read the important disclosure and disclaimer at the end of this document. Heliopolis Housing & Development| Egypt | Initiation of Coverage Sunday, 24 July 2016

Corporate Profile (Cont.’d)

Land bank Land bank details Roads, HELI has an undeveloped land bank amounting Total gross Utilized Utilized Remaining Remaining net Total net NLA to gardens and Disputed Disputed to 25.2mn sqm of unutilized land (excluding the Land Location land area gross land Net land unutilized GLA sellable land land area GLA streets GLA (sqm) NLA (sqm) disputed land bank). This land bank is distributed (sqm) area (sqm) area (sqm) (sqm) area (sqm) as follow: (sqm) (1) (2) (3) (4) (5) (6) (7) =(1)-(3)-(6) =(2)-(4)-(7) • 71% in New Heliopolis City, • 28% in New Cairo “Helio Park” New Heliopolis City Al-Shorouk 24,729,600 14,837,760 60% 3,411,255 2,046,753 9,891,840 3,305,400 1,983,240 18,012,945 10,807,767 • 1% in Heliopolis. El-Obour City El-Obour 393,578 196,789 50% 509,094 254,547 196789 ------We highlight that 100% of HELI’s land is located east of Cairo where the demand is solid. HELI’s Helio Park New Cairo 7,119,050 5,337,864 75% -- -- 1,781,186 -- -- 7,119,050 5,337,864 land bank is recorded on its balance sheet at minimal historical cost with no land development Square 1258 Heliopolis 263,500 154,556 59% 259,645 152,295 108,944 -- -- 3,855 2,261 requirements. This enhanced the profitability Fourth Neighborhood Heliopolis 1,703 1,703 100% ------1,703 1,703 margin of HELI versus its local peers as the Eastern side of Almaza airport Heliopolis 138,000 79,644 58% 14,725 8,498 58,356 21,659 12,500 101,616 58,646 company was focusing on land sales during the previous years. Total (sqm) 32,645,431 20,608,316 63% 4,194,719 2,462,093 12,037,115 3,327,059 1,995,740 25,239,169 16,208,240

Source: Company reports, MubasherTrade Research estimates (for determining unutilized net and gross land area The availability of sizeable prime-located land bank is the main value driver: HELI is one from the largest listed Egyptian developers in term of land bank as the company owns 25.2mn sqm land area in Heliopolis, New Cairo and New Breakdown of HELI’s unutilized GLA Breakdown of HELI’s unutilized NLA HELI is the second largest listed Heliopolis. If the company accelerated its land developers in term of land bank size monetization rate, we believe that HELI’s land bank would suggest a potentially strong operating performance and growth over the 35 coming years due to 1) sizeable prime located Heliopolis 29.7 Heliopolis City 30 land bank without a mandatory development 25.2 City New 0.1mn New schedule, which give the company time to 25 0.1mn Heliopolis sqm Heliopolis explore and exploit good opportunities more sqm Total GLA City 0% Total NLA City 20 efficiently, 2) Debt-free land bank, thus lowering 1% 25.2mn sqm 18.0mn 16.2mn sqm 10.8mn 12.9 the financial burden on the company. sqm sqm 15 67% (mn sqm) 8.9 71% 10 6.5 5.7 However, concentration risk remains a concern: Helio Park Helio Park 5 HELI has a sizable land bank concentrated in the 7.1mn 5.3mn eastern part of Cairo that can be developed over sqm sqm 0 the coming 20 years. Furthermore, most of HELI’s 28% 33% TMG HELI PHD MNHD EMFD SODIC revenues are primary related to the residential Source: company’s reports Source: company’s reports Source: company’s reports segment with minimal contribution from recurring revenues and without any exposure to the second-home segment of the market.

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Financial Summary

Balance Sheet (EGP mn) Per-Share Data FY End: June 2013a 2014a 2015a 2016e 2017e 2018e 2013a 2014a 2015a 2016e 2017e 2018e

Current Assets Price 19.95 38.74 55.90 45.14 49.84 49.84 Cash & Cash Equivalent 3 4 24 92 41 59 # Shares (WA,in mn) 111 111 111 111 111 111 Accounts & Notes Receivable 1,718 1,870 1,829 1,825 1,309 1,498 EPS 1.22 1.65 1.84 3.09 1.38 3.00 Other Current Assets 352 382 415 305 1,026 1,077 DPS 0.85 1.00 1.25 1.55 0.69 1.50 Total Current Assets 2,073 2,255 2,267 2,222 2,376 2,634 BVPS 3.46 4.11 4.59 6.44 6.27 8.59 Fixed Assets (net) & IP 15 15 15 51 84 78 Other Non-Current Assets 8 30 2 2 2 2 Valuation Indicators Net Intangibles 0 - - - - - 2013a 2014a 2015a 2016e 2017e 2018e Total Assets 2,096 2,300 2,284 2,274 2,462 2,714 PER (x) 16.4x 23.4x 30.4x 14.6x 36.0x 16.6x Liabilities & Equity PBV (x) 5.8x 9.4x 12.2x 7.0x 7.9x 5.8x Short-Term Debt 174 201 225 200 380 152 EV/Sales (x) 7.1x 10.8x 13.4x 7.5x 11.0x 7.0x Current Portion of LT Debt - - - 0 0 1 EV/EBITDA 17.1x 23.9x 27.6x 12.6x 24.1x 12.4x Accounts Payable 177 212 262 316 281 246 Dividend Payout Ratio 69.8% 60.5% 67.9% 50.0% 50.0% 50.0% Other Current Liabilities 1,345 1,414 1,269 1,021 1,082 1,340 Dividend Yield 4.3% 2.6% 2.2% 3.4% 1.4% 3.0% Total Current Liabilities 1,696 1,828 1,756 1,538 1,744 1,739 Long-Term Debt 2 2 2 6 6 5 Profitability & Growth Ratios Other Non-Current Liabilities 12 14 14 14 14 14 2013a 2014a 2015a 2016e 2017e 2018e Total Liabilities 1,710 1,844 1,773 1,558 1,764 1,759 Minority Interest ------Revenue Growth 36.3% 24.2% 14.5% 42.2% (21.1%) 50.4% Total Equity 385 457 511 716 698 955 EBITDA Growth 32.8% 34.8% 23.6% 75.5% (40.1%) 85.8% Total Liabilities & Equity 2,096 2,300 2,284 2,274 2,462 2,714 EPS Growth 25.0% 35.7% 11.4% 68.1% (55.3%) 117.0% EBITDA Margin 41.5% 45.0% 48.6% 60.0% 45.5% 56.2% Income Statement (EGP mn) Net Margin 40.1% 43.8% 42.6% 50.4% 28.5% 41.2% 2013a 2014a 2015a 2016e 2017e 2018e ROAE 37.0% 43.7% 42.3% 56.1% 21.8% 40.4% Total Revenue 338 420 481 683 540 811 ROAA 6.9% 8.4% 8.9% 15.1% 6.5% 12.9% COGS (135) (166) (179) (207) (162) (120) GP 203 254 301 477 378 691 Liquidity & Solvency Multiples Other operating (exp.)/ Inc. (62) (65) (68) (67) (132) (236) 2013a 2014a 2015a 2016e 2017e 2018e EBITDA 140 189 234 410 245 456 D&A, Others (2) (2) (1) (1) (4) (7) Net Debt/(Cash) 174 202 225 136 367 121 Net finance exp., taxes (3) (3) (28) (64) (87) (115) Net Debt/Equity 45.3% 44.1% 44.0% 19.0% 52.6% 12.6% NP Before XO & MI 136 184 205 344 154 334 Net debt to EBITDA 1.2x 1.1x 1.0x 0.3x 1.5x 0.3x XO & Minority Interest ------Debt to Assets 0.1x 0.1x 0.1x 0.1x 0.2x 0.1x Net Income 136 184 205 344 154 334 Current ratio 1.2x 1.2x 1.3x 1.4x 1.4x 1.5x

Cash Flow Statement (EGP mn) Consensus Estimates 2013a 2014a 2015a 2016e 2017e 2018e 2016e 2017e 2018e Revenues 532 491 545 Cash from Operating 58 40 98 230 21 342 MubasherTrade Research vs. Consensus 28.5% 10.0% 49.0% Cash from Investing (3) (24) 27 (37) (37) (1) Net Income 263 224 247 Cash from Financing (57) (16) (125) (124) (35) (323) MubasherTrade Research vs. Consensus 31.1% (31.3%) 35.3% Net Change in excess Cash (3) 0 - 68 (51) 18 PER (x), Last Price 14.6x 36.0x 16.6x PER (x), Price Target 27.9x 62.5x 28.8x Capex (3) (2) (1) (37) (37) (1) DY (%), Last price 1.8% 0.8% 1.7% Source: Company data, MubasherTrade Research estimates Fiscal year ends in June a = Actual; e = Estimate Share price at 21-Jul-16

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Projects’ Details

I. New Heliopolis City

Location New Heliopolis City (NHC) is located next to Al-Shorouk City, bordered by the Cairo-Suez Road from the south and the Cairo-Ismailia Road from the north and in front of Madinaty City constructed by Talaat Mostafa Group Holding (TMGH.EGX). NHC’s land was allocated to HELI by Presidential Decree No. 193 for 1995.

Land area NHC’s land extends over an area of 24.7mn sqm, and the company seeks to develop the city in a way that resembles the Heliopolis area in Cairo. NHC is expected to accommodate a population of 250,000 once it is completed.

Master plan HELI had previously pointed out that the land area of NHC will be developed based on the following plan: • 50% residential area. • 28% public roadways and parking garages. • 12% public parks. • 7% commercial, offices and services area. • 3% small environmental friendly industrial zones.

Development Over the last years, HELI had sold 1.9mn sqm land plots within NHC. Moreover, it had developed 0.21mn sqm, which in turn indicates that the project is still in its preliminary stage; strategy HELI has only developed so far 8.5% of NHC’s total area. The company started to implement NHC’s first phase, covering 6.5mn sqm, only in January 1999. An area of 3.5mn sqm of the project’s first phase is allocated for residential purposes. HELI planned to finish the first phase within only five years (at a development rate of 1.3mn sqm p.a.), but was unsuccessful. HELI commenced planning of the project’s second phase in H2 2014 after it had finished its plans for the city’s ninth district, which is considered the first step in developing NHC’s second phase.

In October 2014, the Holding Company for Construction & Development (HCCD), which owns 72% of HELI, suspended land sales after adopting a new strategy aiming to develop the lands instead of selling them. This land development will be implemented through HELI itself and/or setting joint agreements with other real estate developers. In view of that, we believe that the development rate in NHC will accelerate in the future following the company’s new development-oriented strategy in addition to the launch of the new administrative capital city.

In March 2016, Sixth of October for Development & Investment Company (SODIC) (OCDI.EGX) and HELI signed a contract to co-develop a 655-feddans (2.8mn sqm) land. The project is planned to be developed over ten years in four phases and will comprise over 8,600 residential units in addition to the retail and commercial area and a sporting club. The project is expected to generate revenues of EGP30.35bn. SODIC will be responsible for handling the whole development and marketing operations in return for a 70% share of revenues from the residential units and 69.8% share of the commercial/retail area. HELI will be entitled to the remaining 30.0% and 30.2% of the value of the residential units and the commercial/retail area, respectively, in return for the land contribution with a minimum revenue share estimated at EGP5.01bn over the project’s life span. HELI estimates that its revenue share will amount to EGP10bn as real estate prices will continue rising in the future. HELI’s chairman stated earlier that its venture with SODIC boosted the value of the lands surrounding the NHC project. HELI expects that the first phase to be launched in January 2017. The project’s first phase covers a space of 164 feddans (0.69mn sqm).

Since the start of development operations in NHC through June 2015, HELI has constructed 125 buildings, comprising 1,728 residential units out of which 1,688 units were sold for a total value of around EGP594mn. Moreover, the company sold 1,351 land plots covering a total area of 1.9mn sqm for a total value of EGP1.64bn, and constructed 162 villas, almost 70% of which was sold. As per the units under development, HELI is currently establishing a housing compound in the Ninth District comprising 28 residential buildings (558 residential units) at an investment cost of c.EGP159mn. Meanwhile, the company is currently constructing five buildings comprising 60 units in the city’s Fifth Neighborhood at an investment cost of EGP32mn. In April 2016, the company’s chairman unveiled a plan to offer 40,000 sqm services land at an estimated value of EGP100mn. Meanwhile, the company has a plan to develop an area of 500,000 sqm residential area over the upcoming years. The company is currently studying the possibility of utilizing the south side of the city at the project’s entrance from the Cairo-Suez Road by establishing an entertainment area.

In 2016, HELI signed a contract with the National Company for General Contracting & Supplies to carry out the installation of the electricity grids in NHC at a total cost of around EGP228mn. The company also plans to establish a wastewater treatment plant with a total cost of around EGP200mn, in addition to establishing a large water pipeline from the Tenth of Ramadan City Water Station for EGP160mn.

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Projects’ Details (Cont.’d)

II. Helio Park

Location Helio Park project is located in New Cairo City, alongside the Cairo-Suez Road and neighboring Talaat Moustafa Group Holding (TMG)’s (TMGH.EGX) flagship project, Madinaty, in East Cairo.

Land area Helio Park covers a gross land area of 7.12mn sqm with a net land area of 5.34mn sqm. This land was allocated to HELI in 2003 as a compensation by the government for HELI due to the reallocation of another land to Cairo Airport.

Master plan In 2008, HELI announced that Helio Park project will be developed in six stages, providing a land’s preliminary master plan, entailing a residential area (64.84%), a commercial area (4.42%), a services area (3.83%), an educational area (1.89%), a leisure area, gardens and other services (8.38%), main roads (10.33%) and easement of high-pressure electricity lines (6.31% ). This master plan may change over the subsequent years if the company succeeds to move the electricity towers which could save around 70 feddans. HELI announced that this project could accommodate around 100,000 residents once completed.

Development Throughout the last years, HELI set many plans to develop the Helio Park project, such as subdividing the land into 5,700 small plots to be offered for sale and developing the strategy remaining area to include 24,000 units. Later, this plan was changed to include another option of a co-development agreement (a revenue-sharing scheme) with other mega local or regional developers. Along the sidelines of the Egypt Economic Development Conference (EEDC) held back in March 2015, HELI had announced that it sought to co-develop Helio Park as this project requires sizeable investment outlays for setting its external infrastructure and for the pre-launches process. However, HELI did not sign any agreement to co-develop this project yet. HELI attributed this notable delay in utilizing this project to the following:

• The huge cost requirement by the government for the project’s external infrastructure, water, and sanitation to the external borders of the project’s land: EGP821mn. • Moving the high-pressure electricity towers to be located outside the project’s borders has an estimated cost of EGP60mn. • Political unrest and security disruptions prevailing in Egypt from 2011 to 2013.

Nonetheless, HELI seeks to overcome these obstacles by the following:

• Negotiating with the government to reduce the cost of building infrastructure from EGP821mn to EGP270mn as the company will set its own desalination stations. HELI aims to schedule the payment of this cost over several years. • Assigning the infrastructure works to one or more subsidiaries of the Holding Company for Construction & Development “HCCD” (HELI’s majority shareholder) that are specialized in setting infrastructure works. These subsidiaries could be entitled to land plots in Helio Park in exchange for setting the project’s infrastructure cost. Moreover, HELI could pay the cost of this infrastructure over several years.

In February 2014, HELI announced that it secured the government’s approval to develop the first phase of the Helio Park project which includes:

• Service area of 0.97mn sqm (represents 10.7% of project’s total area). • Public gardens, club and residential area of 1.1mn sqm (representing 15.9% of project’s total area). We note that the residential area stands at 0.55mn sqm in phase one.

In November 2015, HELI’s chairman announced that the company already paid EGP135mn for the execution part of the infrastructure works, indicating that the company targets to launch the first phase of this project in H2 2016.

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Projects’ Details (Cont.’d)

III. Land scattered in Heliopolis

Location and land area • HELI still owns available-for-sale lands plots with a net space of around 63,000 sqm .

• These lands are located behind Fairmont Heliopolis Hotel (Formerly: Sheraton Heliopolis) and east of Almaza Airport. Furthermore, the company owns a land plot that is extended over an area of 11,000 sqm in Ghernata City in front of the Merryland Park, but the company failed to secure the building’s construction permits due to the presence of historic buildings over the land.

Development strategy • By end of June 2015, HELI unveiled the development of seven properties that are allocated behind Fairmont Heliopolis Hotel (191 residential units) with an estimated cost of EGP34mn. The company also announced that it is currently establishing five properties (60 units) with an estimated cost of EGP32mn.

IV. Nozha El-Obour

Location and land area • HELI bought 93.71 feddans (393,578 sqm) in El-Obour City, the Eighth District, from the New Urban Communities Authority (NUCA) for the purpose of establishing an integrated housing community (Nozha El-Obour).

• The project enjoys a location at a favorable altitude above the ground and close to the city’s main routes.

Master plan • The project is composed of four-story buildings with residential units with floor spaces ranging from 100-185 sqm each. Meanwhile, the company owns the services lands that are available for sale.

• The green space, routes and parking areas account for 40% of the project’s total space. HELI started land utilization of this project in 1999.

Development strategy • In October 2015, the company revealed that it intends to sell nine land plots in El-Obour City for EGP34mn (EGP3,579 per sqm). • The land plots serve both commercial and offices purposes, whereas the prices of both the commercial and administrative spaces amount to EGP4,500/sqm and EGP2,500/sqm, respectively. • By the end of June 2015, HELI announced that it had finished the development of 384 residential units at a total investment cost of EGP93mn.

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Projects’ Details (Cont.’d)

V. Investment properties

Leasing portfolio HELI owns a wide range of recurring revenue-generating assets, namely: • Merryland Casino - Merryland Park • Showland Casino - Merryland Park • Child Park - Merryland Park • Tivoli - Almaza Square, Heliopolis • A group of units and buildings that are leasable based on the ‘old rental’ law (residential units, schools, hospitals, and clubs).

Historical performance of leasing Although the investment properties are located in prime-rated locations in Heliopolis, HELI failed to reap decent profits from most of its recurring revenues- portfolio generating assets, especially from the Merryland Park that comprises a number of leasable assets (Merryland Casino, Showland Casino and Child Park) due to the legal disputes with Magic Dreams (the tenant of the Merryland Park’s assets). Meanwhile, the investment plan for developing the Merryland Park was disrupted by the Ministry of Environment and civil society organizations, which led to the suspension of the development works in the park as it comprises a number of historic landmarks. Thus, this had a significant negative impact on both the financial and operational performance of Merryland Park. Also, HELI suffered from operating losses on the back of incurring labor wages and water costs without generating any revenues from the park. Concurrently, Magic Dreams did not pay accrued rent to HELI for many years. Also, HELI has a number of units and buildings rented to governmental bodies as well as individuals, based on the old rental law, which generate minimal rental income.

Preliminary settlement to end The receivables due from Magic Dreams, for renting both Merryland Casino and Child Park, reached EGP125.3mn by the end of March 2016. Moreover, Magic the dispute with Magic Dreams Dreams did not pay its dues for renting Child Park since February 2013. In May 2015, HELI and Magic Dreams reached a preliminary settlement, stipulating the has failed following:

• The late payment penalty on accrued rents and the gradual increase in rental value will be waived. • Rescheduling the remaining amount related to renting Merryland Casino, after waiving both late payment penalty and the gradual increase in rental value. The accrued amount to HELI would reach EGP55.6mn for the period from 1 August 2008 through 31 December 2015. HELI bypassed the period of time spent by Magic Dreams for securing the required permits from August 2010 unti May 2012 (22 months). HELI also deducted an amount of EGP12mn in return for building a 120-vehicle parking garage next to the existing 110-vehicle garage. • Extending the duration of Merryland Casino’s new contract to expire on 31 December 2028, with an annual increase of 10% and a monthly rent of EGP1,001,000. • Magic Dreams will pay accrued amount to HELI of of EGP2.7mn for renting the Child Park, and will sign a new five-year contract at a monthly rent of EGP71,748 and annual increase of 10%.

According to that settlement, total dues to HELI from Magic Dreams amount to EGP58.3mn. This amount represents the total rental value of both Merryland Casino and Child Park that Magic Dreams should pay in monthly installments over four years at an annual interest rate of 7% starting from January 2016. So far, Magic Dreams did not commit to pay its obligations. Moreover, all the development operations stopped at the Merryland Park by mid-2015 upon a decision made by the Cairo governor following a complaint by civil society organizations which opposed the establishment of a parking garage within that area.

In September 2015, HELI announced that it had secured the approval of the Egyptian Environmental Affairs Agency to continue the development works related to the Merryland Park, but the project did not get off the ground until March 2016 as Magic Dreams showed no seriousness in fulfilling its obligations. Therefore, HELI evicted Magic Dreams from Merryland Casino . In July 2016, HELI awarded an EGP30mn contract to El-Nasr Building & Construction Company (EGYCO) to develop the first phase (22 feddans) of Maryland Park by reclaiming the park’s green area and adding sales points over four months. Moreover, HELI announced that it will start developing the remaining second phase in Merryland Park (23 feddans) after final closure of its dispute with Magic Dreams.

Page 9 For more information on MubasherTrade, please visit our website at www.MubasherTrade.com or contact us at [email protected]. Please read the important disclosure and disclaimer at the end of this document. Heliopolis Housing & Development| Egypt | Initiation of Coverage Sunday, 24 July 2016

Projects’ Details (Cont.’d)

Project locations

Nozha El-Obour

New Heliopolis City

Cairo Airport Helio Park Merryland Park Square 1258 Almaza Airport Heliopolis Madinaty Tivoli

Nasr City I City

AUC

5th settlement New Capital City

Source: Company reports, Google Maps Page 10 For more information on MubasherTrade, please visit our website at www.MubasherTrade.com or contact us at [email protected]. Please read the important disclosure and disclaimer at the end of this document. Heliopolis Housing & Development| Egypt | Initiation of Coverage Sunday, 24 July 2016

Valuation

In valuing HELI, we used two main models, DCF and NAV. However, Base case scenario valuation by project we set our PT based on our DCF valuation which – in our view – reflects the underlying cash flow generation capacity of the Project/segment EV (EGP mn) EV/share (EGP) % of EV company as a going concern. New Heliopolis City Base case scenario — PT of EGP86.2/share (+73% upside): Using a 655 acres - Residential 817 7.34 8.3% DCF-based SOTP valuation model, we reached a price target (PT) of 655 acres - Commercial 234 2.10 2.4% EGP86.2/share, implying a 73% upside potential to the current Total 655 acres 1,050 9.44 10.7% share price, according to our base case scenario. Thus, we initiate coverage on HELI with a Buy/High Risk rating. Moreover, we ran Residential development 3,173 28.52 32.3% two other scenarios, resulting in a valuation range of Commercial development 315 2.83 3.2% EGP111.8/share (+124% upside) for the best case scenario and Services and educational land 82 0.74 0.8% EGP63.7/share (+28% upside) for the worst case scenario. We Industrial land 3 0.03 0.0% applied the following general assumptions for all scenarios: Completed units 42 0.38 0.4% • Cost of equity (COE) is 23.9%, calculated as follows: US 10-year Under construction units 643 5.78 6.5% Treasury yield of 1.55%, inflation differential (between Egypt and Total New Heliopolis City (excluding 655 acres) 4,258 38.27 43.4% USA) of 8.72%, re-levered beta of local peers of 1.29, US equity Total New Heliopolis City 5,308 47.71 54.1% risk premium (ERP) of 6.27%, Egypt’s country risk premium (CRP) Helio Park of 5.52% as implied by its 5-year credit default spread (CDS) of Residential 3,045 27.37 31.0% 4.25%, levered up by 30% to account for inherent volatility in Commercial 402 3.62 4.1% equity returns. • WACC: 20.1%, Tax rate: 22.5%. Educational land 22 0.20 0.2% • SG&A to presales: 5% for land sales and 8% for upcoming off-plan Services land 45 0.40 0.5% sales development activities. Total Helio Park 3,515 31.59 35.8% Residential segment constitutes 88% of our EV …: On a segmental Heliopolis City basis, 87.6% of our valuation of HELI is driven by the residential Residential - upcoming launches 247 2.22 2.5% segment (EGP8.6bn), while commercial, and other non-residential Completed units 69 0.62 0.7% segment accounts for 10.9% and 1.5% of our valuation, respectively. Under Construction units 304 2.74 3.1% Considering the company’s projects, NHC’s valuation came in at Total Heliopolis Ctiy 620 5.57 6.3% EGP5.3bn (54.1% of total valuation), while the valuation of Helio Park, Heliopolis, Nozha El-Obour, and leasing portfolio stood at Nozha El Obour EGP3.5bn (35.8%), EGP0.62bn (6.3%), EGP0.26bn (2.6%), and Completed units 69 0.62 0.7% EGP0.12bn (1.2%), respectively. Under construction units 190 1.70 1.9% Total Nozha El Obour 259 2.33 2.6% … and unlaunched raw land constitutes 85%: As for development type, 85.4% of our valuation of HELI is attributed to unlaunched land Investment properties bank (EGP8.4bn), while the valuation of ‘work in progress’ and Tivoli 31 0.28 0.3% investment properties reached EGP1.3bn (13.4%) and EGP.12bn Properties (old rental law) 7 0.07 0.1% (1.2%), respectively. Showland Casino 22 0.19 0.2% Settlement of HELI’s disputed land area could raise our base case Merryland Casino 53 0.47 0.5% PT by 9.5% to EGP94.5/share: We have singled out the disputed Child Park 2 0.01 0.0% land area from our valuation scenarios. However, if the company Al Montazah Garden 3 0.03 0.0% were to regain its disputed land (3.3mn sqm in NHC, 2.26mn sqm on Total investment properties 118 1.06 1.2% the northern/southern Cairo-Suez Road and 21,659 sqm on the eastern side of Almaza Airport), our base case PT would increase by Total enterprise value (EV) - base case valuation 9,819 88.26 100.0% 9.5% or EGP8.2/share to EGP94.5/share (+90% upside potential). Add: Excess Cash 2 0.02 Please refer to Appendix (pages 26-27) for more details about the Less: Total debt 227 2.04 disputed land area and our valuation. Total equity value (EGP mn) 9,594 86.24 Source: MubasherTrade Research estimates Page 11 For more information on MubasherTrade, please visit our website at www.MubasherTrade.com or contact us at [email protected]. Please read the important disclosure and disclaimer at the end of this document. Heliopolis Housing & Development| Egypt | Initiation of Coverage Sunday, 24 July 2016

Valuation (Cont.’d)

Major valuation assumptions

Project Best Case Base Case Worst Case

New Heliopolis City • Success of co-development agreement with SODIC. • Success of co-development agreement with SODIC. • Failure of co-development agreement with SODIC. 655 feddans • Land utilization period of 10 years. • Land utilization period of 10 years. • Subdivision development over 20 years. • Annual price escalation rate of 10%. • Annual price escalation rate of 5%.

• Self-development of residential and commercial land. • Self-development of residential and commercial land. • Subdivision development over 20 years. • Selling other non-residential land. • Selling other non-residential land. • Adopting off-plan business model. • Adopting off-plan business model. Remaining land in NHC • Launching more modern development (Gated compounds). • Launching more modern development (Gated compounds). • Land utilization period of 15 years. • Land utilization period of 20 years. • Annual price escalation rate of 10%. • Annual price escalation rate of 5%.

• Co-development of residential and commercial area. • Self-development of residential and commercial area. • Subdivision development over 15 years. • Selling other non-residential land. • Selling other non-residential land. Helio Park • Land utilization period of 10 years. • Land utilization period of 15 years. • External infrastructure cost of EGP270mn. • External infrastructure cost of EGP821mn.

• The upcoming launch will be sold out over 3 years. • The upcoming launch will be sold out over 5 years. • Subdivision development over 5 years. Heliopolis City • Annual price escalation rate of 10%. • Annual price escalation rate of 5%.

• Success of old settlement with Magic Dreams. • Failure of old settlement with Magic Dreams. • Failure of old settlement with Magic Dreams. • Collection of old receivables from Magic Dreams. • Failure to collect old receivables from Magic Dreams. • Failure to collect old receivables from Magic Dreams. Recurring business • Capex: EGP61mn. • Capex: EGP73mn. • Dropping Merryland properties from our valuation. • Terminal growth rate: 5%. • Terminal growth rate: 3%. • Terminal growth rate: 2%.

HELI trades below our worst case scenario PT NHC has the largest contribution for our EV

Stock performance (EGP/share) Base case PT (EGP/share) 14,000

Best case PT (EGP/share) Worst case PT (EGP/share) 12,000 120 EGP111.8/shar | Best case PT 10,000 4,891 100 8,000 EGP86.2/share | Base case PT 4,511 Other 80 6,000 2,930 EGP63.7/share | Worst case PT mn EGP 60 New Heliopolis EGP/share 4,000 7,770 40 City * 5,308 2,000 4,380 20 0 0 Best case Base case Worst case

scenario scenario scenario

Jul-15 Jul-09 Jul-10 Jul-11 Jul-12 Jul-13 Jul-14 Jul-16 Jul-17 Jul-18 Jul-19

Jan-09 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 Jan-17 Jan-18 Jan-19 Jan-10 * Including 655 feddans (co-development with SODIC) Source: MubasherTrade Research estimates Source: MubasherTrade Research estimates Page 12 For more information on MubasherTrade, please visit our website at www.MubasherTrade.com or contact us at [email protected]. Please read the important disclosure and disclaimer at the end of this document. Heliopolis Housing & Development| Egypt | Initiation of Coverage Sunday, 24 July 2016

Valuation (Cont.’d)

Valuation (EV) breakdown

Best case Base case Worst case

Land Land Land scattered in scattered in scattered in Helio Park Helio Park Heliopolis Helio Park Heliopolis Heliopolis

EGP2,039mn EGP3,818mn district EGP3,515mn district district 27.9% 30.2% EGP667mn 35.8% EGP620mn EGP594mn 5.3% 6.3% 8.1% El-Obour NHC * El-Obour NHC * El-Obour EGP259mn EGP7,770mn EGP259mn EGP4,380mn EGP259mn 2.6% By project By 61.4% 2.0% NHC * 59.9% 3.5% EGP5,308mn Investment 54.1% Investment Investment properties properties properties EGP148mn EGP118mn EGP38mn 1.2% 1.2% 0.5%

Commercial Commercial

EGP1,409mn EGP1,069mn 11.1% 10.9% Residential Mixed use EGP1,538mn Residential Residential Services, land 21.0% EGP8,598mn EGP10,958mn educational EGP5,735mn 86.6% 87.6% and Services, 78.4%

By segmentBy industrial educational Commercial EGP293mn and EGP38mn 2.3% industrial 0.5% EGP152mn 1.5%

Development Development properties Development properties EGP1,317mn properties EGP1,317mn Raw land 18.0% EGP1,317mn Raw land development Raw land 13.4% 10.4% development EGP5,956mn development EGP8,385mn type EGP11,196mn 81.5% Investment 85.4% Investment Investment 88.4% properties properties properties EGP148mn EGP118mn EGP38mn By development development By 1.2% 1.2% 0.5%

* including the valuation of 655-feddan plot that will be c-developed with SODIC, Note: commercial valuation includes leasing portfolio; Source: MubasherTrade Research estimates. Page 13 For more information on MubasherTrade, please visit our website at www.MubasherTrade.com or contact us at [email protected]. Please read the important disclosure and disclaimer at the end of this document. Heliopolis Housing & Development| Egypt | Initiation of Coverage Sunday, 24 July 2016

Valuation (Cont.’d)

Valuation assumptions of 655 feddans land plot (co-development with SODIC) Residential segment represents 78% of our valuation

Best Case Base Case Worst Case

Success of co-development agreement P P 

Valuation method DCF DCF NAV - NLA Non-Residential EGP234mn 22% Utilization period 10 years 10 years 20 years

Residential July-17 July-17 July-17 Starting date of utilization Non-Residential July-20 July-20 July-20 Residential EGP817mn Residential 78% Development plan Co-development Co-development Subdivision development Non-Residential

Floor to area ratio* 100% 100% Zero

Residential - Apartment EGP6,600/sqm - BUA EGP6,000/sqm - BUA EGP2,000/sqm - NLA Source: MubasherTrade Research estimates Selling prices ** Residential - Villas EGP7,700/sqm - BUA EGP7,000/sqm - BUA Commercial EGP22,000/sqm - BUA EGP20,000/sqm - BUA EGP3,000/sqm - NLA Our base case EV for 655 feddans (co-development Residential 25% 25% 35% Down payment Non-Residential 25% 25% 35% with SODIC) amounted to EGP1,050mn

Residential Residential (EGP mn) Non-Residential (EGP mn) Installment period 6 years 6 years 5 years Commercial Total Valuation (EGP mn)

Price 10% 5% 5% Annual escalation rate 1,604 Construction & Infrastructure cost 10% 5% 5% 383 * We assume that 90% of BUA will be allocated to residential development and 10% to commercial development; 85% of residential BUA will be allocated to apartments, while the remaining 15% will be allocated to standalone units. 1,050 ** As for our best case scenario, we assume that the selling price will be 10% higher than that in our base case scenario with an annual escalation rate of 10%. 234 ** As for our worst case scenario, the price of residential net land area is estimated at EGP2,000/sqm (matching Beit El-Watan land plots in Al-Shorouk City, which were offered for Egyptian expatriates at USD225/sqm). We assumed commercial and industrial land prices are 1.5x and 0.25x residential land prices, 1,221 432 respectively.

817 Other major assumptions 432 • We assume that 72% of HELI’s revenue share will be recognized upon sale, while the remaining revenues will be recognized after four years (the same revenues recognition method adopted by MNHD for its Capital Gardens project in Sarai). Best Case Base Case Worst Case • Units will be delivered four years after sale. Source: MubasherTrade Research estimates Source: MubasherTrade Research estimates

Page 14 For more information on MubasherTrade, please visit our website at www.MubasherTrade.com or contact us at [email protected]. Please read the important disclosure and disclaimer at the end of this document. Heliopolis Housing & Development| Egypt | Initiation of Coverage Sunday, 24 July 2016

Valuation (Cont.’d)

Valuation assumptions of New Heliopolis City (NHC) after excluding 655 feddans land plot

Best Case Base Case Worst Case Comment

Valuation method DCF DCF NAV - NLA Utilization period 15 years 20 years 20 years Residential Self-development Self-development Commercial Development plan Subdivision development Education & Services Subdivision Development Subdivision Development Industrial Residential 16.2mn sqm - BUA 16.2mn sqm - BUA 9.0mn sqm - NLA Commercial 0.6mn sqm - BUA 0.6mn sqm - BUA 0.6mn sqm - NLA Area Education & Services 0.6mn sqm - BUA 0.6mn sqm - BUA 0.6mn sqm - NLA Industrial 0.5mn sqm - BUA 0.5mn sqm - BUA 0.5mn sqm - NLA Residential - Apartment EGP4,000/sqm - BUA EGP4,000/sqm - BUA EGP2,000/sqm - NLA - As for our worst case scenario, the price of residential NLA is estimated at Residential - Villas EGP5,000/sqm - BUA EGP5,000/sqm - BUA EGP2,000/sqm (matching Beit El-Watan land plots in Al-Shorouk, which were Selling prices Commercial EGP15,000/sqm - BUA EGP15,000/sqm - BUA EGP3,000/sqm - NLA offered for Egyptian expatriates at USD225/sqm). We assumed commercial, Education & Services land plots EGP1,500/sqm - NLA EGP1,500/sqm - NLA EGP1,500/sqm - NLA educational and industrial land prices are 1.5x, 0.75x and 0.25x residential land Industrial EGP500/sqm - NLA EGP500/sqm - NLA EGP500/sqm - NLA prices, respectively. Residential - Apartment EGP1,450/sqm - BUA EGP1,450/sqm - BUA Residential - Villas EGP2,650/sqm - BUA EGP2,650/sqm - BUA - As per the latest awards from HELI to contractors Construction cost Commercial EGP7,500/sqm - BUA EGP7,500/sqm - BUA Zero - Consultants and supervision fees represent 4.5% of total construction cost. Education & Services Zero Zero Industrial Residential 250 250 Commercial 250 250 Internal infrastructure cost EGP250/sqm - NLA Education & Services EGP250/sqm - NLA EGP250/sqm - NLA Industrial EGP250/sqm - NLA EGP250/sqm - NLA Residential - As for our base case and best case, we used the samy payment facility 25% 25% Commercial adopted currently by HELI. Down payment 35% Education & Services 35% 35% - As for our worst case scenario, we use the payment plan that related to Beit El-Watan land plots. Industrial 35% 35% Residential 6 years 6 years Commercial Installment period 5 years Education & Services 5 years 5 years Industrial Price 10% 5% 5% Annual escalation rate Construction & infrastructure cost 10% 5% 5% Source: MubasherTrade Research estimates

Page 15 For more information on MubasherTrade, please visit our website at www.MubasherTrade.com or contact us at [email protected]. Please read the important disclosure and disclaimer at the end of this document. Heliopolis Housing & Development| Egypt | Initiation of Coverage Sunday, 24 July 2016

Valuation (Cont.’d)

Our base case EV for NHC (excluding 655 feddans) amounted EGP4,258mn Residential segment (including current developments) represents 91% of our base case valuation for NHC (excluding 655 feddans that will be co-developed with SODIC) Under Residential (EGP mn) Non-Residential (EGP mn) Total Valuation (EGP mn) construction & completed 6,166 units 614 EGP684mn 4,258 16.1% 3,948 Residential 400 development Commercial 5,552 EGP3,173mn development 3,857 3,948 74.5% EGP315mn 7.4%

Best Case Base Case Worst Case Services & educational Industrial land land EGP3mn EGP82mn Source: MubasherTrade Research estimates Source: MubasherTrade Research estimates 0.1% 1.9%

Our base case EV for NHC (including 655 feddans) amounted to EGP5,308mn Residential segment (including current developments) represents 88% of our base case valuation for NHC (including 655 feddans that will be co-developed with SODIC) Under construction & completed units EGP684mn Residential 12.9% EGP7,770mn development EGP3,989mn Commercial EGP5,308mn EGP4,380mn 75.2% development EGP549mn 10.3% Best Case Base Case Worst Case Services & Industrial land educational EGP3mn land 0.1% EGP82mn Source: MubasherTrade Research estimates Source: MubasherTrade Research estimates 1.5% Page 16 For more information on MubasherTrade, please visit our website at www.MubasherTrade.com or contact us at [email protected]. Please read the important disclosure and disclaimer at the end of this document. Heliopolis Housing & Development| Egypt | Initiation of Coverage Sunday, 24 July 2016

Valuation (Cont.’d)

Valuation assumptions of Helio Park

Best Case Base Case Worst Case Comment

Valuation method DCF DCF NAV - NLA Utilization period 10 years 15 years 15 years Residential July-17 July-17 July-17 Start Date of utilization Non-Residential Jul-21 July-21 July-21 Residential - We assume that HELI will be entitled to 36% of revenues in exchange for the Co- Development Self - Development Commercial land and external infrastructure cost. We set this assumption according to the Development plan Subdivision Development Education agreement terms between NUCA, Mountain View Egypt and Sisban Holding Subdivision Development Subdivision Development Services signed in May 2015 to co-develop "iCity" project. Residential 6.3mn sqm - BUA 6.3mn sqm - BUA 4.6mn sqm - NLA - We assume a floor-to-area ratio (FAR) of 100% (considering the master plan Commercial 0.3mn sqm - BUA 0.3mn sqm - BUA 0.3mn sqm - NLA of Madinaty, Sarai and Taj City). As per BUA breakdown, we assume that 89% of Area* Education 0.1mn sqm - BUA 0.1mn sqm - BUA 0.1mn sqm - NLA BUA will be allocated for residential, 5% for commercial (average of Madinaty Services 0.3mn sqm - BUA 0.3mn sqm - BUA 0.3mn sqm - NLA and Sarai) and 6% for other purposes. Residential - Apartment EGP8,017/sqm - BUA EGP8,017/sqm - BUA - Development prices were determined according to selling prices in EGP4,000/sqm - NLA Residential - Villas EGP15,950/sqm - BUA EGP15,950/sqm - BUA Madinaty, Sarai and Taj City projects. Selling prices Commercial EGP35,000/sqm - BUA EGP35,000/sqm - BUA EGP6,000/sqm - NLA - Residential land price were assumed lower than Beit El-Watan project in New Education & services land plots EGP3,000/sqm - NLA EGP3,000/sqm - NLA EGP3,000/sqm - NLA Cairo. Residential EGP3,050/sqm - BUA - According to the cost related to Madinaty and Capital Gardens projects Commercial EGP11,295/sqm - BUA - Consultants and supervision fees: 4.5% of total construction cost. Construction cost Zero Zero Education Zero Services Residential Zero EGP628/sqm - BUA Commercial Zero EGP628/sqm - BUA Internal Infrastructure cost EGP837/sqm - NLA Education EGP837/sqm - NLA EGP837/sqm - NLA Services External infrastructure cost EGP270mn EGP821mn EGP821mn Moving electriciy towers EGP60mn EGP60mn EGP60mn Residential 15% 15% Commercial Down payment 35% Education 35% 35% Services Residential - As for our worst case scenario, the installement period were determined 6 years 6 years Commercial according to the payment plan of Beit El-Watan. Installment period 5 years Education - Units to be delivered after four years after sale. 5 years 5 years Services Price 5% 5% 5% Annual escalation rate Construction & Infrastructure cost 5% 5% 5% * We assume that 85% of residential BUA will be allocated to apartments, while the remaining 15% will be allocated to villas.

Other general assumptions • In our base case scenario (self-development), we applied the “full completed method” for revenues recognition. • In our best case scenario (co-development agreement), we assumed that 72% of HELI’s revenue share will be recognized upon sale, while the remaining revenues will be recognized after four years (the same revenues recognition method adopted by MNHD for its Capital Gardens project in Sarai). • We expect that the external infrastructure and moving electricity towers will cost EGP821mn and EGP60mn, respectively, to be expensed by the end of June 2017.

Source: MubasherTrade Research estimates

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Valuation (Cont.’d)

Expected cash flow evolution of Helio Park project

Cash inflow Cash outflow Net cash flow 10,000 8,000 6,000 4,000 2,000 0

EGP EGP mn -2,000 -4,000 -6,000 -8,000 -10,000 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034 2035 2036 2037 2038 2039 2040 2041

Source: MubasherTrade Research estimates

Valuation of Helio Park based on different scenarios Residential segment represents 87% of Helio Park valuation

6,000 60 Commercial 5,000 50 EGP34.3/share EGP402mn EGP31.6/share

4,000 40 11.45% EGP mn EGP

- Residential 3,000 30 EGP18.3/share EGP3,045mn EGP/share Other 2,000 20 86.64%

3,818 3,515 EGP67mn Valuation Valuation 1,000 2,039 10 1.91%

0 0 Best Case Base Case Worst Case

Source: MubasherTrade Research estimates Source: MubasherTrade Research estimates

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Valuation (Cont.’d)

Valuation of land plots and developments in Heliopolis district based on different scenarios Best Case Base Case Worst Case Valuation method DCF DCF NAV - NLA Utilization period * 3 years 5 years 5 years Residential - Apartment Self development Self development N/A Development plan Residential - land N/A N/A Subdivision Development Residential - Apartment EGP8,000/sqm - BUA EGP8,000/sqm - BUA N/A Selling prices Residential - land N/A N/A EGP15,000/sqm - NLA Construction cost Residential - Apartment EGP3,000/sqm - BUA EGP3,000/sqm - BUA Zero Residential - Apartment EGP50/sqm - BUA EGP50/sqm - BUA N/A Internal Infrastructure cost Residential - land N/A N/A EGP50/sqm - NLA Residential - Apartment Down payment 40% 40% 40% Residential - land Residential - Apartment Installment period 6 years 6 years 3 years Residential - land Price 10% 5% 5% Annual escalation rate Construction & Infrastructure cost 10% 5% 5% Total EV (EGP mn) 667 620 594 Total EV (EGP/share) 6.0 5.6 5.3 , * The competed units in Heliopolis will be sold over two years with payment plan over 3 years. As for land plot located in the eastern side of Almaza Airport, we assumed land price of EGP8,000/sqm due to limited heights

Our EV for Nozha El-Obour came in at EGP259mn across our three scenarios 73% of Nozha El-Obour valuation comes from under-constructed units Valuation method DCF Utilization period 3 years Residential Self development Development plan Commercial Services Subdivision development Completed Residential - Apartment EGP3,500/sqm - BUA units Selling prices Commercial EGP11,000/sqm - BUA EGP69mn Services land plots EGP3,579/sqm - NLA 27% Residential - Apartment EGP1,617/sqm - BUA Construction cost Commercial EGP5,000/sqm - BUA Work in Services land plots Zero progress Residential - Apartment EGP200/sqm - BUA EGP190mn Internal Infrastructure cost Commercial EGP200/sqm - BUA 73% Services land plots EGP200/sqm - NLA Residential - Apartment 30% Down payment Commercial 40% Services land plots 40% Residential - Apartment 3 years Installment period Commercial 6 years Services land plots 6 years Source: MubasherTrade Research estimates Source: MubasherTrade Research estimates Page 19 For more information on MubasherTrade, please visit our website at www.MubasherTrade.com or contact us at [email protected]. Please read the important disclosure and disclaimer at the end of this document. Heliopolis Housing & Development| Egypt | Initiation of Coverage Sunday, 24 July 2016

Valuation (Cont.’d)

Valuation assumptions for investment properties Base case valuation – Investment properties Tivoli Showland Property Best Case Base Case Worst Case EGP31mn Casino 26% EGP22mn Settlement with old tenants P   19% Collecting old receivables P   Merryland Properties Properties Start of operations Jul-16 Jun-18  - Merryland Casino (old-law rent) - Showland Casino Cost of development plan EGP61mn EGP73mn  EGP7mn - Child Park  Merryland Rents annual escalation rate 10% 10% 6% Terminal growth rate 5% 3%  Casino Enterprise Value EGP108mn EGP79mn Zero EGP53mn Al Montazah 45% Child Park garden Rents annual escalation rate 7% 7% 7% EGP2mn EGP3mn Tivoli Terminal growth rate % 5% 3% 2% Source: MubasherTrade Research estimates. 1% 3% Enterprise Value 32.2 31.0 30.5 Best case valuation – Investment properties Properties Other Properties Rents annual escalation rate Zero Zero Zero (old-law rent) (Old Rental Law) Terminal growth rate % 5% 3% 2% EGP8mn Enterprise Value 7.7 7.4 7.3 Tivoli Showland 5% EGP32mn Enterprise Value EGP148mn EGP118mn EGP38mn Casino Total valuation 22% Al Montazah EV/share EGP1.33/share EGP1.06/share EGP0.34/share EGP36mn garden 24% Other general assumptions: EGP13mn 9% Gross profit margin 73.0% Merryland Average G&A to revenues 9.7% Casino Child Park WACC 22.5% EGP53mn EGP5mn Source: MubasherTrade Research estimates. 36% 4% Source: MubasherTrade Research estimates.

Details of HELI’s investment properties Worst case valuation – Investment properties

2016 Annual rents (EGP mn) Prope rty Loc a tion Are a (sqm) Other MTRe properties Merryland Casino Merryland Park 25,800 36.00 (old rents) Showland Casino Merryland Park 5,664 11.16 EGP7mn Child Park Merryland Park 4,760 0.95 19% Tivoli Almaza Square - Heliopolis 4,600 7.44 Tivoli Other properties (old rental law) (824 units) Scattered in Heliopolis N/A 2.18 EGP31mn 81% Source: Company’s reports, MubasherTrade Research estimates. • We assume rents of Tivoli according to the agreement signed with its tenants in July 2017. • HELI had offered Showland Casino fore lease in June 2008 at monthly rents of EGP525,000, adjusted by assigning an annual escalation rate of 10%. • Child Park rent concluded according to settlement with Magic Dreams. Source: MubasherTrade Research estimates Page 20 For more information on MubasherTrade, please visit our website at www.MubasherTrade.com or contact us at [email protected]. Please read the important disclosure and disclaimer at the end of this document. Heliopolis Housing & Development| Egypt | Initiation of Coverage Sunday, 24 July 2016

Valuation (Cont.’d)

Net Asset Value (NAV) Key assumptions HELI's Net Assets Value (NAV) stands at EGP250/share HELI’s discounted NAV stands at EGP6.9bn (EGP62.2/share), which To estimate HELI’s NAV, we estimated the current market value of before discount, while DNAV amounted to EGP62/share its assets, including land owned at the end of June 2015, then we implies a P/NAV of 0.80x and an upside potential of 25%. Our DCF- EGP mn NAV DNAV based price target, implies a P/NAV of 1.63x. adjusted for debt and other liabilities to derive at NAV per share. Accordingly, we adjust HELI’s equity value as follows: Equity (30 June 2015) 511 511

• Excluding the book value of the company's undeveloped land Land valuation: EGP5.6bn (EGP50/share) and completed units. Le ss: We estimated HELI’s raw land based on recent prices of land • Adding our valuation of HELI’s land bank. BV of land 2 2 transactions. Our land valuation model resulted in a value of BV of completed units 127 127 EGP26.5bn before discount (EGP1,050/sqm) and EGP5.6bn after a • As for the 655 feddans (co-developed with SODIC): We used a price of EGP1,821/sqm (based on its expected revenue share calculated 79% discount (EGP220/sqm for the entire unutilized Add: land bank ‘GLA’ after discount). This reflects our conservative per sqm) with an annual increase of 5%, considering HELI’s valuation for HELI’s land. We highlight that all HELI's unutilized share of revenues and the expected launch price. We assumed MTR valuation of land 26,504 5,564 land bank (25.2mn sqm) is concentrated in the East Cairo, which is a utilization period of 10 years, resulting in a 69% discount rate. Market value of completed units 180 180 witnessing solid demand. • As for NHC (excluding the 655 feddans): We used a price of Deferred profit on installement sales 794 794 We applied different discount factors to each project according to EGP1,000/sqm (based on recent land transactions in Al-Shorouk its size and utilization period: City and NHC) with an annual increase of 5%. We assumed a NAV 2 7 ,8 6 0 6 ,9 2 0 utilization period of 20 years with an annual escalation rate of No. of outstanding shares (mn shares) 111 111 • SODIC’s co-development of 655 feddans (70%, 10 years). 5%, resulting in a 78% discount rate. • NHC, excluding SODIC’s co-development area (79%, 20 years). • As for Helio Park: We set the starting land price at • Helio Park (83%, 15 years). NAV per share (EGP/share) 2 5 0 .4 6 2 .2 • Land plots in Heliopolis (42%, 5 years). EGP2,250/sqm, according to the latest transaction in Future City in addition to land auctioned by NUCA in New Cairo. We Market price (EGP/share) 49.84 49.84 We used a WACC of 19.4% and assumed a 5% annual increase in assumed a utilization period of 15 years with land prices Upside (downside) potential 402.4% 24.8% land prices. We applied our calculated discount mentioned above increasing at a rate of 5% p.a. Thus, the assigned discount rate to land bank NAV valuation due to: amounted to 85%. Moreover, we considered the cost of • Sizeable land bank. HELI is the second largest listed real estate external infrastructure amounting to EGP821mn. P/NAV (X) 0.2 0.8 developers in term of land bank size (25.2mn sqm). • As for land plots scattered in Heliopolis distric: We used Source: Company reports, MubasherTrade Research estimates • Slower land monetization over the last years. EGP15,000/sqm for the "available for purchase" net land area • Slower development relative to its local peers. for the plot located in “Square 1258” and “Fourth • Inefficient business model of selling land and the distribution of Neighborhood (square 1169-1182 )”. We determined this land most of cash inflows as dividends during the market boom over price according to latest auctions held by HELI to sell land plots the last years. in Heliopolis. As for land plot located in the eastern side of • The lack of a clear strategy to monetize HELI’s raw land bank. Almaza Airport, we assumed land price of EGP8,000/sqm due to However, the new land auction and faster-than-expected land limited heights (based on our call with property brokers in monetization can still lower our assigned discount factor on land Heliopolis district. We assumed a utilization period of six years valuation. with a land price annual escalation rate of 5%, resulting in a 41% discount factor. • We considered the market value of completed units owned by HELI at the end of June 2015.

• We added back the value of deferred profit on installment sales as they are non-cash liabilities. • We did not consider the value of all disputed land, as we do not expect to see these conflicts resolved anytime soon.

Page 21 For more information on MubasherTrade, please visit our website at www.MubasherTrade.com or contact us at [email protected]. Please read the important disclosure and disclaimer at the end of this document. Heliopolis Housing & Development| Egypt | Initiation of Coverage Sunday, 24 July 2016

Valuation (Cont.’d)

Total land valuation reached EGP5.6bn, implying EGP50/share after discount Adjusted Adjusted Utilization Discounted Discounted Unutilized land area (sqm)* Price (EGP/sqm) Total value of value of Discount Land value of land period net value net value land (EGP mn) land factor (EGP mn)** (year) (EGP mn) (EGP/share) GLA NLA GLA NLA (EGP/share) New Heliopolis City (NHC) 655 feddans in NHC (co-developed with SODIC) 2,751,000 -- 1,821 -- 5,010 3,689 33.15 10 70% 1,105 9.93 NHC (remaining land) 15,261,945 -- 1,000 -- 15,262 11,237 101.00 20 79% 2,389 21.47 Helio Park - New Cairo*** 7,119,050 -- 2,250 -- 16,018 11,199 100.66 15 83% 1,848 16.61 Heliopolis Square 1258 -- 2,261 -- 15,000 34 25 0.22 5 42% 14 0.13 Fourth Neighborhood -- 1,703 -- 15,000 26 19 0.17 5 42% 11 0.10 Eastern side of Almaza airport -- 58,646 -- 8,000 469 336 3.02 5 42% 196 1.76 Total 36,818 26,504 238.22 79% 5,564 50.01 * Excluding the disputed land area. ** Equal gross land area multiplied by its price or net land area multiplied by its price, adjusted after Net Value of Land (EGP mn) deducting SG&A, taxes and infrastructure cost. *** Deducting the external infrastructure cost. Before Discount After Discount Source: MubasherTrade Research estimates 26,504 5,564

GLA 25.2mn sqm EGP1,050/sqm EGP220/sqm Area NLA 16.2mn sqm EGP1,635/sqm EGP343/sqm

Recent land transaction prices and implied land price for co-development agreements Land Area Area Transaction/auction Transaction value Transaction price Payment term Seller Buyer (sqm) Type date (EGPmn) (EGP/sqm) Down payment Installement period Land transactions NUCA Marina Way Lagoon 630,000 GLA Aug-15 2,073 3,290 na na NUCA Al Hayat Development 357,000 GLA Aug-15 1,139 3,191 na na NUCA Masr El Mahrousa 147,000 GLA Aug-15 533 3,625 na na El Mostakbal Urban Development Wadi Degla 2,350,000 GLA Feb-15 3,779 1,608 10% 7 El Mostakbal Urban Development Al-Ahly for Real Estate Development 453,600 GLA Feb-15 645 1,421 na na El Mostakbal Urban Development Al-Ahly for Real Estate Development 415,800 GLA Feb-15 628 1,511 na na El Mostakbal Urban Development Al-Ahly for Real Estate Development 466,200 GLA Feb-15 749 1,606 na na El Mostakbal Urban Development Al-Ahly for Real Estate Development 336,000 GLA Feb-15 677 2,014 na na NUCA SODIC 1,264,200 GLA May-14 2,424 1,917 10% 4 NUCA - Beit El-Watan Egyptian expatriates na NLA Mar-16 na 4,884 35% 5 Co-development agreements NUCA Mountain View Egypt and Sisban 2,100,000 GLA Mar-15 3,400 MNHD PHD 433,643 GLA Mar-15 2,520 Average price for GLA (EGP/sqm) 2,243 Average price for NLA (EGP/sqm) 4,884 Average price for co-developed GLA (EGP/sqm) 2,960 Source: Company reports, MubasherTrade Research estimates, As for co-development agreements, we assume Floor to area ratio of 100% Page 22 For more information on MubasherTrade, please visit our website at www.MubasherTrade.com or contact us at [email protected]. Please read the important disclosure and disclaimer at the end of this document. Heliopolis Housing & Development| Egypt | Initiation of Coverage Sunday, 24 July 2016

Valuation (Cont.’d)

Investment Rationale Key Risks

• Massive, prime-located land bank (GLA of 25.2mn sqm) in East Cairo with a location proximate • Slow land monetization with unclear strategy for utilizing most of the company’s land bank. to Egypt’s new capital city. • Development of current projects and setting infrastructure require additional funds. • Land auctions in neighboring land areas could lead to higher land price. • High exposure to any fluctuation in land prices. • HELI is set to benefit from strong demand for middle-income housing. • Concentration risk as HELI’s land bank is entirely situated in East Cairo and mainly catering to • Although HELI’s old leased properties have minimal contribution to its total revenues, any the residential market. change in ‘old rent’ regulations should boost these leased properties’ value and enhance HELI’s • Given that HELI does not provide a clear plan of how it will utilize its raw land over the long run, valuation. its stock could be driven more by market sentiment than fundamental factors. • Sizeable fast growing population (88.4mn people) with attractive demographics (61% of • Selling commercial shops and services land in a low-traffic city like New Heliopolis might population is below 30 years of age). deprive HELI of the opportunity to recognize sizeable recurring revenues in the future. This • High number of annual marriages (953,000 in 2014, +4.8% YoY). would be further exacerbated if the sale of such units is executed at a large discount as • Absence of other low-risk investment alternatives competing for the average citizen’s savings. opposed to selling them after HELI’s projects become more occupied. • A high-inflation environment, local currency devaluation, and unattractive real interest rates • Mortgage finance is inactive due to currently-high mortgage rates. push investors towards real estate investment, which act as an inflation hedge. • Although the supply/demand gap would continue, most of the demand is concentrated in the • Egyptians prefer property ownership over renting, further supporting continuous demand for low-income housing segment, while mega developers focus on the upper-middle income real estate. housing segment. • Households of the middle- and the high-income segments often change their residences to new • The application of property taxes and higher interest rates could reduce investors' appetite cities on the outskirts of Cairo, with better infrastructure and traffic conditions, such as New towards the sector. Cairo and Sixth of October City. Moreover, many companies, schools, and even sporting clubs • The strong growth in prices over the last few years resulted in a lack of affordability across the have relocated their premises to new cities. upper-middle income and high-end segments. • National mega projects, such as the New Suez Canal Development Axis and the New Cairo • Remittances from Egyptian expats, which had supported the sector’s performance over the last Capital, could significantly impact demand for properties in the medium and long terms if it years, started to decline in view of the drop in oil prices (remittances declined c.12% YoY in H1 leads to higher employment. FY2015/16) in addition to the layoff of Egyptians working in GCC countries. • The government’s initiatives to lower mortgage rates could stimulate demand further. • Higher deposit rates and speculation on the US dollar could negatively affect real estate • Legal conditions for investment improved notably as evident in the resolution of many legal investment, drawing attention to a different asset class. disputes over the last few years. • Intensifying competition among Egyptian developers, particularly after the government’s • Huge investments in infrastructure should boost the property market. intervention by offering land plots (land sales or co-development agreements) and units. • Lower prices as opposed to regional peers could attract more FDIs into the sector, especially in the case of an Egyptian pound devaluation vis-à-vis the US dollar.

Page 23 For more information on MubasherTrade, please visit our website at www.MubasherTrade.com or contact us at [email protected]. Please read the important disclosure and disclaimer at the end of this document. Heliopolis Housing & Development| Egypt | Initiation of Coverage Sunday, 24 July 2016

Business Model

Business model has long been inefficient, mainly … thus, some steps were recently taken, subject Expected robust revenues growth in the payment structure. Meanwhile, we expect major due to slow land monetization: HELI had to a turnaround story of HELI’s business: HELI financial year ending June 2016 on the back of contribution from development sales. historically adopted an inefficient business started to shift its strategy towards a more collecting receivables; flourishing future if the Cash position was negatively affected by high model, thus missing a significant positive efficient business model, which could shape its turnaround materializes: We expect that HELI dividend payout ratio: Owing to the opportunity to exploit the booming real estate turnaround story over the coming years. This would post revenues of EGP683mn in 2016 (42% government’s controlling stake in HELI, the latter sector during the last few years. This inefficiency shift is evident in: YoY) with a 7-year CAGR (2015-2022) of 26%, has been implementing an aggressive dividend was evident in the following: assuming that the company delivers a • Halting residential land sales and targeting policy over the last few years by distributing most turnaround story. Although adopting an off-plan • Generating revenues from land sales instead more contribution from properties of its earning as dividends. For the previous sale model could hinder revenues growth in 2017 of developing these lands. developments’ revenues. seven years, HELI recorded an average dividend (because of revenue recognition upon handover), payout ratio of 82%. Concurrently, the company’s • Sustaining a high dividend payout ratio that • Signing an agreement with SODIC to co- we expect HELI to recognize impressive revenues new projects require additional funds, negatively affected HELI’s cash cycle, forcing it develop 655 feddans (2.8mn sqm) in NHC. We starting 2018 as it recognizes its land revenue particularly for its mega development in NHC and to partially rely on short-term borrowing to believe that attracting more new partners to share (most of which is recognized upon sales) Helio Park. This inefficient strategy has negatively finance the construction of its small co-develop other land plots will positively related to its co-development agreement with affected the company’s cash cycle and deprived development properties. affect the company’s valuation. SODIC to develop 655 feddans in NHC. Moreover, it from the utilization of its land bank during the we expect the current receivables factoring • Ironically, the low historical rate of HELI’s land • Securitization of receivables to finance the booming property market. HELI had to secure its contract will accelerate revenue recognition even monetization indicates that it needs 138 years infrastructure cost of mega developments. needed funds from overdrafts during the last further. We believe that BUA handover will to finalize the development of its remaining years, which depressed its profitability. Going • Paying the first installment (EGP135mn) of the dominate revenues over the coming years after land bank (25.2mn sqm). forward, we believe HELI will secure its needed Helio Park external infrastructure cost. halting residential land sales, thus depressing funds through long-term loans or partnership • Adopting a “built-for-sale” business model had profitability margins to hover around 50% over • Shortening the installment period from 10 with other developers. depressed the company’s presales due to its the long term. Gross profit margin had reached years to around six years, while increasing the low execution rate. impressive levels during the last years as the HELI’s stock price implies an unjustified land down payment amounts from 10-20% to 35- company had been recording its land bank value price because of a weak market sentiment on • HELI could not benefit from most of its 40% in the last few years. at historical cost, while it was relying mainly on the back of its inefficient business model: recurring revenue-generating assets as a result • Adopting an “off-plan sale” model which is land sales rather than development. However, Currently, HELI’s stock price implies an EV/sqm of its inability to settle its legal disputes. widely followed by other Egyptian developers. profitability margins should decline over the (unutilized land) of EGP229/sqm, which is still • Excess number of employees. coming years due to more contribution from cheaper than its local peers’ average EV/sqm • Designing a plan to double its capital through handover revenues. On the projects’ front, NHC is (unutilized land) of EGP639/sqm. As per our HELI lags behind peers despite its sizeable land a rights issue. expected to contribute the most to revenues valuation, HELI’s EV/sqm (unutilized land) stands bank: Although HELI is the second largest listed • Launching modern development (gated over the coming years. at EGP389/sqm, which is still lower than the local developers in terms of land bank, the company peers’ average, underscoring our conservative compounds) to exploit the solid demand. Land sales-dominated presales, yet we expect has shown a notable weak performance due to valuation. its inefficient business model. This was evident in • Securing loans with longer maturities and more contribution from development sales: its low annual presales of EGP0.43bn compared grace periods instead of relying on overdrafts. Historically, HELI’s land sales dominated its to a peers’ average presales of EGP5.3bn in 2015. revenues structure, representing 56% and 67% of • Co-establishing a property marketing company This underlines the company’s inability to total pre-sales and revenues, respectively during through a 5% stake of its eGP30mn target capitalize on its prime-located land bank. the period between 2009 and 2015. However, we capital. Moreover, HELI Establishing a Although the company had secured Helio Park believe that this revenue mix will change over the maintenance and services company. land in 2003, the land is still raw, having missed coming years as land sales will represent 1% and the booming properties market in New Cairo • Evicting Merryland old tenants (Magic 7% of total pre-sales and revenues, respectively during the last few years. Dreams) and awarding EGP30mn contract for during the period between 2016 and 2022, as per EGYCO to (EGYCO)to develop the first phase our estimates. We anticipate that presales

(22 feddans) of Maryland park. growth (2015-2022 CAGR of 65%) will be fueled by adopting an off-plan sale plan with a lucrative

Page 24 For more information on MubasherTrade, please visit our website at www.MubasherTrade.com or contact us at [email protected]. Please read the important disclosure and disclaimer at the end of this document. Heliopolis Housing & Development| Egypt | Initiation of Coverage Sunday, 24 July 2016

Business Model (Cont.’d)

Revenues and earnings are set to grow notably Going forward, Land sales contribution is set to decline HELI’s revenues will be dominated by NHC Revenues Gross profit Net income GPM Land sales Development pre-sales Total pre-sales Land sales contribution (RHS) NHC Heliopolis El-Obour Investment properties 2,500 100% 2,500 100% 2,500 85% 90% 1,950 2,000 2,000 80% 2,000 70% 70% 80% 1,500 60% 63% 70% 1,500 60% 1,500 60% 1,090

60% 811 EGP mn EGP 1,000 1,000 40%

691 1,000

683 1,907

EGP mn EGP

EGP mn EGP

540 481 477 50% 547

420 480 474 378

344 426

338 334 301 1,049 500 254

205 500 20%

203 500

184 154 136 40% 154 242 507 326 315 41 43 0 30% 0 232 111 40 0% 0 Jun-13 Jun-14 Jun-15 Jun-16 Jun-17 Jun-18 Jun-13 Jun-14 Jun-15 Jun-16 Jun-17 Jun-18 Jun-16 Jun-17 Jun-18 Jun-19 Jun-20

Source: Company reports, MubasherTrade Research estimates. Source: Company reports, MubasherTrade Research estimates. Source: MubasherTrade Research estimates.

On the presales front, HELI lags behind its peers despite No. of employees are not commensurate with the Halting residential land sales depressed land utilization, but its sizeable land bank… company’s operating performance going forward this will positively affect HELI’s operations Developed land area 10 10 Sold land area Emaar Misr Emaar Misr 8 8 0.30 Total sold and developed area change % 60% 40% 6 PHD * TMG Holding PHD TMG Holding 6 0.20 0.06 0.07 20%

sales (EGP bn) (EGP sales 0.02 SODIC bn) (EGP sales - SODIC 4 - 4 0.05 0%

mn sqm mn 0.10 0.01 0.08 -20% 0.05 0.18 0.17 2 Heliopolis 2 Heliopolis 0.16 0.13 MNHD 0.11 0.07 0.07 -40% 2015 pre 2015 Housing MNHD Housing 0 pre 2015 0 0.00 -60% 0 10 20 30 40 0 1,000 2,000 3,000 4,000 5,000 Jun-09 Jun-10 Jun-11 Jun-12 Jun-13 Jun-14 Jun-15 Raw land bank (mn sqm) No. of employees Source: Company reports Source: Company reports Source: Company reports, MubasherTrade Research estimates. High dividend payout negatively affected HELI’s cash HELI has relied more on overdraft and suffered from Current stock price implies unjustified land prices for cycle… tight liquidity HELI’s land EV/Un-utilized land bank (EGP/sqm) IBD Cash Balance Net Debt to Equity (RHS) 1,400 1,309 3.50 EPS DPS DPO 120% 500 100% 1,200 Average EGP639/sqm 3.00 100% 386 1,000 400 80% 609 2.50 80% 800 724 613 2.00 60% 300 60% 600

1.50 227 351 389 3.09 3.00 204 207 400 229

40% 176 EGP/sqm

1.00 mn EGP 200 158 40% 200

1.84

1.5

1.65

1.55

1.50 1

1 20% 1.38

0.50 1.36

1.25

1.22 1.13

0.9 92 0.97

0.89 0

0.85 0.75 0.00 0.69 0% 100 41 59 20% 3 4 24 EMFD MNHD PHD SODIC TMG HELI - HELI - 0 0% MP* MTRe Jun-13 Jun-14 Jun-15 Jun-16 Jun-17 Jun-18 PT Source: Company reports, MubasherTrade Research estimates, * Based on stock Source: Company reports, MubasherTrade Research estimates. Source: Company reports, MubasherTrade Research estimates. current market price Page 25 For more information on MubasherTrade, please visit our website at www.MubasherTrade.com or contact us at [email protected]. Please read the important disclosure and disclaimer at the end of this document. Heliopolis Housing & Development| Egypt | Initiation of Coverage Sunday, 24 July 2016

Appendix | Legal Disputes Legal disputes

Disputed land/property Location Area (sqm) Case Description

HELI faced a number of land encroachments in respect in its NHC before the issuance of Presidential Decree No. 193 for 1995 that stipulated the ownership transfer of the New Heliopolis City land to HELI. The land encroachment included the disputed plot between HELI and Egyptian New Heliopolis Al-Shorouk 3,305,400 businessman Mr. Abo El-Enein spanning over 280 feddans in addition to other plots of around 507 feddans. Thus, the total area of the lands land plot encroached on in NHC amounts to 787 feddans (3.3mn sqm). Several verdicts were issued to uphold HELI’s right to the disputed lands, but so far the company was not able to repossess these land plots. HELI owns raw land plots on the left side of Cairo-Suez Road spreading across 2.3mn sqm. A large portion of these land plots is located within the Raw land easement territory of Cairo Airport, where it is prohibited to perform any construction activity, even if for only one-meter high above the ground. on the left side of Heliopolis 2,262,357 Meanwhile, another portion of these land plots (225,000 sqm) was encroached on by the Egyptian Central Security Forces (CSF). HELI has filed a Cairo-Suez Road lawsuit to restore these land plots and mandated a legal counselor in an attempt to obtain a reasonable compensation in the form of an alternative land plot. Ghernata City is located at the heart of the Heliopolis area in front of the Merryland Park, where it spreads across 11,400 sqm. HELI has started a promising development plan to utilize Ghernata City’s land through initiating a real estate project with investments close to EGP500mn, but the project’s buildings have been classified as historic landmarks, Class A. Therefore, HELI formed a committee to negotiate with the National Ghernata Land Heliopolis 11,400 Organization for Urban Harmony to change the classification of the historic buildings to become Class C which would allow construction of a 3- story high building as opposed to Class A which bans construction around the historic buildings. HELI strives to restore such historic buildings and keep them as part of the project’s master plan. Gross floor area of these historic buildings amount to 900 sqm.

Since August 2008, Magic Dreams (the tenant of Merryland Casino) has not paid any rental for the casino that is located inside Merryland Park Merryland Casino Heliopolis 25,800 over 25,800 sqm.

HELI carried out a number of attempts to exploit Showland Casino located inside the Merryland Park extending over an area of around 5,664 sqm. Showland Casino Heliopolis 5,664 However, those attempts have been in vain due to a current legal dispute between both HELI and Magic Dreams. In April 2014, HELI held an auction where it offered Showland Casino for lease, but the auction was halted following a court verdict.

HELI is still unable to utilize Child Park that extends over an area of 4,760 sqm inside the Merryland Park, as the tenant (Magic Dreams) did not Child Park Heliopolis 4,760 follow through with paying the rental value since February 2013 .

HELI owns a two-story building with an area of 1,500 sqm. The building is located in front of the Merryland Park and was leased to the National Democratic Party (NDP) before being dissolved in 2011. Following the Egyptian Revolution of January 2011, the Prime Minister confiscated the The NDP Building Heliopolis 1,500 building and allocated it later on to the Specialized National Councils. HELI filed a lawsuit before the Administrative Court to cancel this decision and retrieve the building. In July 2015, the Administrative Court issued a verdict upholding the company’s right to the building. There are some other legal disputes, such as that over the ownership of the residential apartments which have been leased to the metro workers, while HELI should regain ownership of those units after the dismantling of Heliopolis Metro. There are also many rental units that have been Other disputes violated by tenants who also did not pay their rents. There is also a 21,659 sqm parcel of land that has been encroached on by Almaza Air Base, leading to disputes between the company and the Armed Forces. Currently, HELI is taking legal actions to regain this land.

Source: Company reports

Page 26 For more information on MubasherTrade, please visit our website at www.MubasherTrade.com or contact us at [email protected]. Please read the important disclosure and disclaimer at the end of this document. Heliopolis Housing & Development| Egypt | Initiation of Coverage Sunday, 24 July 2016

Appendix | Legal Disputes (Cont.’d) Valuation of disputed land area

Adjusted Discounted Discounted Adjusted Utilization Discount Land area (sqm)* Price (EGP/sqm) Total value of value of net value net value Disputed land value of land period factor land (EGP mn) land (EGP mn) (EGP/share) (EGP mn)* (year) GLA NLA GLA NLA (EGP/share) New Heliopolis City 3,305,400 -- 1,000 -- 3,305 2,434 21.87 20 79% 517 4.65 The left side of Cairo-Suez Road 2,262,357 -- 1,000 -- 2,262 1,666 14.97 20 79% 354 3.18 The eastern side of Almaza Airport -- 21,659 -- 8,000 173 128 1.15 10 65% 44 0.40 Total 5,741 4,227 37.99 0 78% 916 8.23

Source: Company reports, MubasherTrade Research estimates

Valuation of disputed land area before discount came in at EGP5.7bn Valuation of disputed land area after discount amounted to EGP0.9bn

The left side of The left side of Cairo-Suez Road Cairo-Suez Road EGP2,262mn EGP354mn 39% 39% The eastern The eastern side of Almaza side of Almaza New Heliopolis Airport Airport City EGP173mn New Heliopolis EGP44mn EGP3,305mn 3% City 5% 58% EGP517mn 56%

Source: MubasherTrade Research estimates Source: MubasherTrade Research estimates

Page 27 For more information on MubasherTrade, please visit our website at www.MubasherTrade.com or contact us at [email protected]. Please read the important disclosure and disclaimer at the end of this document. Disclosure Appendix

Important Disclosures METHODOLOGY: We strive to search for the best businesses that trade at the lowest valuation levels as measured by an issuer’s intrinsic value on a per-share basis. In doing so, we follow both top- down and bottom-up approaches. Under the top-down approach, we attempt to study the most important quantitative and qualitative factors that we believe can affect a security's value, including macroeconomic, sector-specific, and company-specific factors. Under the bottom-up approach, we focus on the analysis of individual stocks by running our proprietary scoring model, including valuation, financial performance, sentiment, trading, risk, and value creation. COUNTRY MACRO RATINGS: We analyze the four main sectors of a country’s macroeconomics, then we assign , , and  star for low risk, moderate risk, and high risk, respectively. We use different weights for each economic sector: (a) Real Sector (30% weight), (b) Monetary Sector (10% weight), (c) Fiscal Sector (25% weight), (d) External Sector (15% weight), and (e) Credit Rating and Outlook (20%). STOCK MARKET RATINGS: We compare our year-end price targets for the subject market index on a total-return basis versus our calculated required rate of return (RRR). Taking into account our Country Macro Rating, we set the “Neutral” borderline (below which is “Underweight”) as 20% of RRR for  Country Macro Rating, 40% of RRR for  Country Macro Rating, and 60% of RRR for  Country Macro Rating. That said, our index price targets are based on the average of two models. Model (1): Estimated index levels based on consensus price targets of all index constituents. Stocks with no price targets are valued at market price. Model (2): Estimated index levels based on our expected re-pricing (whether re-rating, de-rating, or unchanged rating) of the forward price-earnings ratio (PER) of each index in addition to consensus earnings growth for the forward year. SECTOR RATINGS: On the sectors level, we focus on six major sectors, namely (1) Consumer and Health Care, (2) Financials, (3) Industrials, Energy, & Utilities, (4) Materials, (5) Real Estate, and (6) Telecom Services & IT. To assess each sector, we use the SWOT analysis to list the strengths, weaknesses, opportunities, and threats in each country. We then translate our qualitative SWOT analysis into a quantitative model to evaluate all six sectors across countries. Each of the measures we used, although mostly subjective, is assigned a score as either +1 (high impact), 0 (medium impact), or -1 (low impact). At a later stage, when assigning the final rating – Overweight, Neutral, or Underweight – for each sector in each country, we realize that sometimes it is unfair to assign equal weights for the sub-sectors in each major sector assessed. Hence, some of the sub-sectors are given different weights for their significant profile in each country. Additionally, the final rating for each sector in each specific country is assigned based on a relative calculation comparing this sector to all other sectors in this country.

SECURITY INVESTMENT RATINGS: We combine intrinsic value, relative valuation, and market sentiment into a single rating. Our three-pronged methodology involves (1) discounted cash flows “DCF” valuation model(s), (2) relative If Risk Rating valuation metrics, and (3) overall sentiment. Whenever possible we attempt to apply all three aspects on the issuers or Total Return Low Moderate High is … securities under review. In certain cases where we do not have our own financial and valuation models, we attempt to (1) (2) (3) scan the market for other analysts’ value estimates and ratings (i.e. consensus view) on average. We compliment this with relative valuation and sentiment drivers, such as positive/neutral/negative news flows. For all issuers/securities Buy Higher than RRR Higher than RRR Higher than RRR covered, we have three investment ratings (Buy, Hold, or Sell), comparing the security’s expected total return (including (B) both price performance and expected cash dividend) over a 12-month period versus its Required Rate of Return “RRR” as calculated using the Capital Asset Pricing Model “CAPM” and adjusted for the Risk Rating we attach to each security. Hold Between RRR Between RRR Between RRR Our price targets are subjective and are estimates of the analysts where the securities covered will trade within the (H) and 20% of RRR and 40% of RRR and 60% of RRR next 12 months. Price targets can be derived from earnings-based valuation models (e.g. Discounted Cash Flow “DCF”), asset-based valuation models (e.g. Net Asset Value “NAV”), relative valuation multiples (e.g. PER, PBV, EV/EBITDA, etc.), Sell Lower than 20% Lower than 40% Lower than 60% or a combination of them. In case we do not have our own valuation model, we use a weighted average of market (S) of RRR of RRR of RRR consensus price targets and ratings. We review the investment ratings periodically or as the situation necessitates. We have decided not to publish a rating on the Not Rated SECURITY RISK RATINGS: We assess the risk profile of each issuer/security covered and assign one of three risk ratings stock due to certain circumstances related to the (NR) (High, Moderate, or Low). The risk rating is weighted to reflect different aspects specific to (1) the sector, (2) the issuer, company (i.e. special situations). (3) the security under review, and (4) volatility versus the market (as measure by beta) and versus the security’s average InvestmentRating Not Covered We do not currently cover this stock or we are annualized standard deviation. We review the risk ratings at least annually or as the situation necessitates. (NC) restricted from coverage for regulatory reasons. Other Disclosures MFS does not have any proprietary holding in any securities. Only as a nominee, MFS holds shares on behalf of its clients through Omnibus accounts. MFS is not currently a market maker for any listed securities. Analyst Certification I (we), Mahmoud Ibrahim, Senior Equity Analyst, employed with Mubasher International, a company under the National Technology Group of Saudi Arabia being a shareholder of Mubasher Financial Services BSC (c) and author(s) to this report, hereby certify that all the views expressed in this research report accurately reflect my (our) views about the subject issuer(s) or security(ies). I (we) also certify that no part of my (our) compensation was, is or will be directly or indirectly related to the specific recommendation(s) or view(s) expressed in this report. Also, I (we) certify that neither myself (ourselves) nor any of my (our) close relatives hold or trade into the subject securities.

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