MEMPHIS REISEN

HELI shifts to revenue-sharing deals amidst execution challenges: HC Analysis – Dailynewsegypt

Mariam Elsaadany, a real estate analyst at HC Brokerage, commented on the sale of Heliopark as a catalyst for land asset monetization. After prolonged periods of underutilized land assets, Heliopolis Company for Housing and Development (HELI) sanctioned the divestiture of a 7.12 million sqm Heliopark land parcel (approximately 31% of its land holdings at the time) to the National Organization for Social Insurance (NOSI) in October 2023. The transaction, valued at EGP 15bn with net proceeds of EGP 13bn, equates to EGP 2,107 per sqm and was finalized in the fourth quarter of 2023.

“The valuation of the Heliopark transaction casts a favorable light on the worth of HELI’s residual land assets in New Heliopolis City. In November 2023, a definitive agreement was signed with Mg Developments to develop 77.19 feddan (0.32 million sqm) within districts 10 and 11 of New Heliopolis City, with HELI’s revenue share amounting to EGP 3.39 billion, or 32.1% of the project’s total revenue. January 2024 saw the signing of a more substantial agreement with Middle East for Investment and Touristic Development for the development of approximately 865 feddan (3.63 million sqm) in New Heliopolis City. HELI’s revenue share from this deal is projected to be around 28% for semi-finished units and 3% for finishing costs, with anticipated revenues of EGP 39.7bn and a guaranteed minimum of EGP 23bn. The scope of this deal may expand to include up to 1,070 feddan,” added Elsaadany.

Elsaadany further noted: “In March 2024, HELI received a proposal from Mountain View to develop a 517-feddan plot (2.17 million sqm) in New Heliopolis City. Additionally, Madinet Nasr Housing (MASR EY) extended an offer to develop three parcels totaling 580 feddan under revenue-sharing conditions. Post-Heliopark sale and these revenue-sharing agreements, HELI retains 12.4 million sqm of undeveloped land in New Heliopolis City, a reduction from the previous 22.2 million sqm. These monetization efforts follow the Ministry of Public Business Sector’s (MPBS) long-standing initiatives to valorize the company’s assets. Looking ahead, we anticipate HELI will prioritize further revenue-sharing arrangements to ensure consistent income and advance the development of New Heliopolis City, leveraging the Heliopark sale proceeds of approximately EGP 4bn for infrastructure investments.”

“Anticipated robust profitability in the short to medium term: Our revenue projections for HELI are primarily derived from its revenue-sharing pact with SODIC (OCDI EY), complemented by the EGP 1.30bn from its inventory of completed units. HELI’s sustained inventory over the past nine quarters has impacted its profit margins. The company’s recent announcement to market 460 residential units in New Heliopolis City, valued at EGP 1.30bn, is expected to bolster its FY24 financials positively.”

“Revenue from SODIC East is poised to be the most significant contributor to HELI’s recurring revenue, accounting for approximately 56% between FY24—26e, followed by about 44% from unit sales. We project revenue of EGP 1.65bn from SODIC East during FY24—26e. HELI has already recognized EGP 1.26bn from this venture, representing roughly 25% of the EGP 5.01bn minimum guarantee. Notably, SODIC East’s revenue incurs virtually no cost, enabling high-profit margins. We estimate revenue of EGP 1.30bn from the 460 units slated for sale in 2024, with an expected margin of around 40%. Future revenue from newly initiated revenue-sharing deals will be incorporated into our forecasts upon their launch.”

“Our estimated gross profit margin for 4Q 2023—FY26e stands at approximately 79%, with total cost projections of EGP 3.40bn for the period. The company’s current receivables are EGP 1.27bn, factored into our collection schedule from 4Q 2023—FY33e, alongside the EGP 1.30bn from impending unit sales. We foresee HELI reducing its debt as it capitalizes on the Heliopark proceeds. We predict a shift from a net debt of EGP 1.45 billion to a net cash position of EGP 3.28bn in 4Q 2023, with a gradual debt reduction to EGP 543 million by FY25 from EGP 1.74bn as of 3Q 2023. These proceeds substantially fortify HELI’s financial standing, despite our projection of a considerable FY23 dividend per share (DPS) of EGP 2.30, implying a net-of-tax yield of close to 18%, based on the March 10 closing price of EGP 12.6 per share,” Elsaadany concluded.