THE COMPANY: SODIC operates as a master developer of residential properties, as well as commercial and retail projects, targeting the upper-middle to high-end segments. It has a 6m-sq-metre land bank in Egypt, distributed over eastern Cairo (Eastown), western Cairo (Westown), and the Alexandria Desert Road, in addition to 1.4m sq metres in Syria (50% owned). Since its operational turnaround in 2006, SODIC has achieved sales worth LE5bn ($836.9m) and has collected LE3.7bn ($619.3m). It delivered over 3000 units in Beverly Hills, its first residential development, as well as selling LE3.4bn ($569.1m) worth of units in its flagship project Allegria since the end of 2010. SODIC’s project portfolio includes Forty West (residential) and The Polygon (commercial) in Westown, Autoville (retail), Kattameya Plaza (residential), and a retail centre in Mansoura (50-year lease). Its current business model is dependent on real estate sales, which have contributed an average of 62% of total revenue since 2008. SODIC’s market capitalisation stands at $222m and its free float at 58%. At the end of 2011, its total backlog stood at $3.5bn ($585.8m), with the bulk representing Allegria.

In 2011 SODIC’s revenue rose 4% year-on-year to LE542m ($90.7m), with a net loss of LE193m ($32.3m) versus net income of LE135m ($22.6m) a year earlier. The results were primarily affected by the reversal of subdevelopment sales worth LE145m ($24.3m), impairments charges of LE31m ($5.2m), and costs related to end-of-year employee bonuses. SODIC delivered 259 units in 2011 versus 110 units in 2010. The rights issue it implemented in early 2010 acted as a safeguard against the financial hardship of 2011. At the end of FY11, SODIC was in a net cash position of LE147m ($24.6m with total debt of LE392m, $65.6m cash and marketable securities of LE539m [$90.2m], and a net debt/equity ratio of -2%).

DEVELOPMENT STRATEGY: SODIC’s main priorities in 2012 are to maintain its strong balance sheet, make timely unit deliveries, maintain a high cash collection rate, trigger new sales and manage its debt position. Its sturdy balance sheet will help fund its 2012 capital expenditure needs, estimated at about LE900m ($150.6m), the bulk of which is expected to be financed through receivables collection of LE600m ($100.4m), with the balance likely to be financed through debt. SODIC plans to deliver 350 units in 2012, which should have a positive impact on its top line as its collection rate stood at 91% at the end of 2011.

SODIC stands to benefit from the emerging recovery in real estate demand. It recently launched four development phases of Westown Residences, targeting the upper-middle-income segment with units priced at LE1.2m-2m ($200,844-334,740). These were successfully sold out, contributing 56% to 1Q 2012’s net contracted sales of LE715m ($119.7m). It will also launch Westown Entertainment Hub, expected to generate lease revenue of LE30m ($5m) by 2015. Some 25% of the built-up area of SODIC’s projects will be leased, creating a recurring revenue stream.

The firm plans to venture into the middle-income segment, where real demand lies, estimated at about 250,000 units over the coming five years. Its agreement with the government regarding the construction time frame for its Westown land is expected to trigger more project launches over the coming three years, as evidenced by 1Q 2012’s strong presales.

However, SODIC faces litigation risk on its Eastown land (35% of its undeveloped land), which it acquired in 2006 at LE600 ($100.4m) per sq metre (LE516m, $86.4m, total) and for which it has paid in full. The terms of the acquisition included a five-year delivery schedule from the date the New Urban Communities Authority extended the necessary infrastructure for the project. SODIC plans to appeal the case before the NUCA’s Upper Appeals Committee and the Conflict Resolution Committee, citing the NUCA’s delay in providing necessary infrastructure and licences as well as master plan approval and the armed forces’ delay in removing undetonated missiles present on the site.