Share analysis: Madinet Nasr Housing - Real Estate

Madinet Nasr for Housing and Development (MNHD) is a leading Egyptian real estate developer, offering middle and upper-middle-income housing. The firm was founded in 1959 and given the majority of its approximately 10m-sq-metre East Cairo land bank through a presidential decree in the 1960s. The company was offered on the Egyptian Exchange in 1995 and was partially acquired by Beltone Private Equity in 2006, which improved the firm’s operations. The company has two subsidiaries, Nasr for Civil Works Company and El Nasr for Utilities and Installation.

Improving Value

MNHD’s previous real estate offerings were mainly targeting the middle-income segment. However, after the company’s restructuring, the new management was keen on extracting more value out of its prime East Cairo land bank, seeking a faster land-monetisation pace and higher profitability. MNHD is now gradually shifting its main target to the upper-middle-income segment.

The company has 8.7m sq metres of undeveloped land in East Cairo broken down into 5.5m sq metres in KM45 off the Cairo-Suez Highway and 3.2m sq metres in Teegan in New Cairo. The company holds a diverse project portfolio, including the following already-launched projects: Al Waha in Madinet Nasr, which caters to middle-income housing demand; Primera, a small gated development launched in 2014 inside Al Waha with selling prices at a premium to Al Waha; Tag Sultan (part of Teegan), the company’s first venture into the upper-middle-income segment with a gross-leasable area of approximately 0.30m sq metres; and Al Nasr Gardens, a budget-housing project that was stalled and expected to be resumed before the end of the year. MNHD is also planning to launch Taj City (part of Teegan) in late 2015, a approximately 0.35m-sq-metre project targeting an income segment slightly higher than that of Tag Sultan.

Off-plan sales figures for 2014 increased approximately 32% year-on-year (y-o-y) to LE1bn ($136.3m), which will be recognised until 2018 when the company ends deliveries in Tag Sultan. As of 2014, MNHD’s off-plan sales backlog stood at LE1.2bn, with Tag Sultan representing 95% of the backlog and the Primera project representing the remaining 5%. Standalone revenue increased 17% y-o-y to LE439m ($59.8m). Gross profit margins came in at about 79% in 2014, up three percentage points y-o-y. Net income rose 16% y-o-y to LE187m ($25.5m). Management is expecting LE1.2bn ($163.6m) of off-plan sales in fiscal year 2015, excluding the co-development with Palm Hills Developments (PHD). MNHD has a strong, unleveraged balance sheet with ample borrowing capacity, and the firm has been consistently in a net cash position. Recently, the company signed a LE530m ($72.2m) loan in 2014 for the construction of Tag Sultan. The company generates high margins compared to peers, capitalising on its low-cost land bank.

Development Strategy

MNHD entered into a strategic co-development agreement with PHD for a 0.43m-sq-metre upper-middle income project on its KM45 land and expects to launch sales before the end of the year. Under the agreement, MNHD is entitled to 36% of the project’s revenue while only incurring the project’ infrastructure cost. It also signed a 50-year usufruct retail agreement with Saudi Arabia’s Fawaz Al Hokair Group to build a mall on 100,000 sq metres of land it owns in Teegan. The Egyptian Centres for Real Estate Development, a subsidiary of Al Hokair Group, will construct the mall over three years and operate it for the remainder of the usufruct period. MNHD will have a 20% revenue share of the mall’s yearly revenue. MNHD’s joint venture with PHD will help the company establish its name and the retail agreement with Al Hokair Group will provide MNHD with a recurring revenue stream at minimal cost while increasing the development value of Teegan. In terms of execution, the firm’s management is focused on delivering the Tag Sultan on budget and schedule.