Real Estate Sector

Sixth of October
Development Investment
Co.-SODIC
Initiation of Coverage
10 June 2008

Recommendation Buy START SMALL…THINK BIG

Value Range (LE) 220-250
Fiercer competition chasing potential profits
Market Price (LE) 180.32 Despite the fluctuations in the building materials prices and the
Up/Downside Potential 22%- 38% new household regulations, we still consider the real estate
sector a good investment opportunity especially for developers
with premium products similar to SODIC. Changes of housing &
commercials attitudes of Egyptians, supported with double digit
Stock Data inflation rate guarantee sufficient demand that shall accelerate
Reuters Code OCDI.CA
the sales plan. Also the extended three years between signing
Shares Outstanding (000s) 28,413 the contract and delivering the unit according to SODIC
Market Cap (LE 000s) 5,033,343 business model allow the company to manage the construction
cost in addition to the current high margin selling prices and
Free Float (%) 74%
the very conservative construction cost assumption which put
52-week range (LE) 52.95 –248.7 the company on the safe side in terms of profitability.
Average Daily Trading Value (LE 000) 34,604
Small land bank ….. In hand of energetic management
SODIC vs. Case 30 SODIC is empowered by a strong energetic management team
that was able, in a very short period, to restructure the
12000 260
11500
company's financial position and translate the five million sqm
240
11000 land bank into high margin upscale projects, to benefit from
220
10500 the current favorable market conditions and the prime locations
200
10000
of its land. The new management strategy can sustain an
9500 180
9000 excellent cash flow for the long term, as well boost up SODIC
160
8500
140
brand and products through strategic alliances with big names
8000
120
that have vast experience in landscaping, designing as well as
7500
7000 100
marketing.

Westown and Eastown, the main driver of value

One more outcome for the SODIC energetic management is its
CA SE30 SODIC utilization of the two plots in the fastest growing suburbs-
Sheikh Zaid City and New Cairo- by developing the twin city
Source: Reuters
centers in conjunction with the Lebanese developer of Beirut
SODIC vs. peers City center (Solidere), SODIC going to make use of the Solider
know-how and benefit from the lack of city centers in these
Land Bank Market cap M.Cap/sq EPS promising areas. The master plans of the two projects are
(mn sqm) (mn EGP) m (EGP) (EGP completed, sales expected to start shortly. The total
) investment costs of the two projects amounted to EGP 19
SODIC 5,000 5,033 1,006 13.27
TMG 48,000 20,748 432 0.66
billion and are expected to generate more than EGP 50 billion
in revenues.
OHD 90,000 15,197 169 1.51
Nasr City 9,000 6,627 736 0.85 Insuring a continuous flow of funds
Heliopolis 34,000 7,008 206 7.6 SODIC is well capitalized through the sufficient internal sources
Source: Naeem estimates of funds, generated from holding large balances of customers'
deposits and receivables. The cash balance exceeds EGP 400
million, insuring continues flow of funds to finance its
underdevelopment projects during the construction phase, as
well as any further future expansions.

Valuation Thesis

We approach SODIC using two methodologies; the DCF method

Marwa Refaat
+202 3302 3799 Ext. 2226
and NAV. The DCF methodology is based on forecasting the
marwa.refaat@naeemholding.com cash flows generated from the underdevelopment projects
during the period from 2008 to 2021, with no terminal value.
The flows are discounted at a WACC of 16.8%, reaching a
value ranging from EGP 220.5/share and EGP 246/share.
Based on the prevailing high prices of land which is expected to
increase further in 2008, the Net Asset Value method yields a
NAV range of EGP 249-269/share.
 INITIATION OF COVERAGE

Table of Contents
03 Investment Summery

04 Egypt Real Estate Sector

03 Sector Overview
06 Furturel Outlook
07 Company Overview

07 Company profile
07 Shareholders’ Structure
07 Business Activity
08 Management
08 Operational Analysis

12 Financial Analysis & Projections

14 SWOT Analysis

15 Valuation

16 Financial Statements

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SIXTH OF OCTOBER DEVELOPMENT INVESTMENT CO.-SODIC

INVESTMENT SUMMARY
Starting 2003, the Egyptian real estate market began recovering from its recession, achieving high
growth rates during the last two years. We see the real estate sector approaching the peak of its
business cycle with enjoyable diminishing growth rate supported by sound economic outlook in
addition to changes in individuals’ habits and foreigners’ purchases. Yet, the augmented inflation
rate is to hardly hit the construction and the real estate sectors which are expected to slow down
soon, particularly the upscale segment to be first hit. We see the upscale supply outweighs demand
at around 27,000 units, on the other hand, the low- and middle- income segments are still
undersupplied, giving more room for growth in these segments. Prices will soar in 2008 for both
units and land, while escalating further for units and relaxing for land afterwards.

Apparently, The developers are to face tougher market conditions during the forthcoming future.
The hike in the prices of raw materials shall push the developers to apply vertical business models.
As well, the competitive environment levy a burden on the shoulders of the “local” developers to
brand and position themselves in the market as to be able to stand side by side with the gulf
players.

We are very positive with SODIC business model as the new management is doing a great job in
restructuring the company and positioning it in the current competitive market. The strength of the
management turned up in overcoming SODIC weaknesses from having limited land bank, unknown
brand and solving the financial issues;

SODIC walked its way to develop all its land bank, amounted to five million sqm, into three main
projects; Allegria, Eastown and Westown which are targeting the high-end segment. Total
investment cost of the projects is estimated at EGP 20 billion yielding EGP 37 billion. SODIC starts
sales of Allegria in April 2007, where 70% of the project is currently sold. Land sales in Westown
and Eastown are to begin in 3Q 2008, whereas sales of real estate is to commence in 2009.

SODIC is branding itself through cooperating with strategic alliances to ensure high quality
standards to its projects. Lately last year, it collaborated with Solidere to develop Westown and
Eastown, capitalizing on Solidere's experience in developing Beirut City Center. Moreover, SODIC is
engaged in the real estate marketing through a joint venture with Coldwell Banker and it is to
establish another JV in conjunction with Solidere. Meanwhile, it is studying expansions in
complementary activities as to achieve the integrity of the business.

Regarding financing its projects, SODIC depends totally on its internal resources in financing its
projects. It starts selling the project in advance of construction where it pockets 15% of the unit's
value on reservation and 75% of the value is installed over three years which ensures a continuous
flow of funds during the construction phase. Due to holding a large balance of receivables, SODIC is
studying the issuance of bonds backed by its receivables.

Since SODIC is recognizing revenues upon delivery of units and land, the proceeds of the
underdevelopment projects will start to show off in the financial records starting 2010 with the
delivery of the first phase in Allegria project. SODIC is able to maintain high profitability margins
exceeding an average of 50%, though assuming a very conservative cost estimates, putting into
consideration an average inflation rate of 10% during the forecasted period

We based our valuation on discounting the Cash Flows generated from the company's projects
during the period 2008-2021. By applying a discount rate of 16.8%, we arrived to an enterprise
value of EGP 6.98 billion vs. market capitalization of EGP 5.03 billion as of June 10th 2008, hence
initiating our coverage with a "buy" recommendation.

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 INITIATION OF COVERAGE

REAL ESTATE INDUSTRY

Real estate sector Egypt’s real estate sector is witnessing a hectic time of an uptrend phase, starting with increased
is attracting appetite of Gulf investors, passing through by revival of the mortgage finance market, going
attention
through changing of housing & commercials attitudes of Egyptians, witnessing escalating prices
ending with the rise of middle class. We can attribute part of the real estate growth to GCC boom
that in turn trails down to Egyptian real estate sector. With Cairo getting very crowded, people are
changing housing attitudes to move to the suburbs for a better quality of life. Moreover, the
developers’ structure is transforming with the entry of large developers with mega projects in the
pipeline.

Good years for real The Egyptian real estate market succeeded in attracting a significant flow of funds not only from the
estate national citizens who are keen to own their home, but also the investments of national and foreign
developers who saw a high potential in the sector. This is reflected in a higher contribution of the
real estate, building and construction sectors in the GDP increasing from 8.2% in the FY 2005/06 to
8.6% in the FY2006/07, where Investments in real estate, building and construction sectors
reached EGP 15.1 billion during the FY 2006/2007 compared to EGP 14.7 billion in FY 2005/06.

The private sector dominates the real estate market activities, as currently the role of the
government is concentrated in reforming the regulatory framework, establishing new cities in the
outskirts of the main cities in Egypt and supporting the low-income segment.

The government The regulatory framework has seen significant improvements during the last five years. Real estate
supports the real registration fee is cut to a maximum of EGP 2,000 per unit down from a fee of 3% of the unit's
estate market value. Moreover, passing the new property tax law will encourage landlords to rent out their
apartments. The government is also concerned about solving the long term financing problem. The
long awaited mortgage finance was activated in 2004 and currently there are four players operating
in the market. The mortgage financing is growing, though at slow pace, amounted to EGP 2 billion
Mortgage finance is in 2007, up from EGP 500 million in FY 2005/06. The current interest on mortgages is in the range
still far from its of 13-14% that is hindering the expansion among low- and middle-income earners, whom the
potential mortgage finance targets initially. In addition, the CBE, along with other banks and mortgage
finance firms established the Egyptian Liquidity Facility Company which will issue securitization
bonds backed by mortgages.

Still facing the After the revival of the Egyptian Economy in 2003, the real estate sector began to see positive
Demand/ Supply growth rates, encouraging developers to increase their investments, yet the sector is still suffering
Dilemma from a demand/supply mismatch. Middle East Ratings and Investor Services (MERIS) foresees a
mismatch between units demand at 750,000 marriages annually, and a supply at 260,000 units.
We believe that the demand figure is overestimated, while the supply is near real. Our calculation
estimates 518,000 marriages; those create a demand for 414,000 units. Our demand estimate
subdivided population into three income segments. The low-income segment presents 53% of total
population, owning 25% of total income. The middle-income segment presents 42% of population,
holding 45% of total income; while the upper-income segment at 5% of population, possesses 30%
of income.

MERIS estimate of Demand breakdown MERIS estimate of Supply

Annual demand Number of Units Annual Supply Number of Units
Demand/Supply Newlyweds 480,000 Low-Income 131,000
gap is tighter for Replacement of marginalized areas 220,000 Middle-Income 35,000
low-income, much Old buildings replacement 50,000 High-Income 10,000
wider for middle Total 750,000 Urban subtotal 176,000
income & non- Rural 84,000
existing for upscale Source: MERIS
Total 260,000
Naeem estimate of Demand breakdown Naeem estimate of Demand & Supply
Annual demand Number of Units Housing Units Demand Supply
Newlyweds 414,400 Low-Income 277,932 170,500
Replacement of marginalized areas 100,000 Middle-Income 220,248 39,500
Old buildings replacement 10,000 High-Income 26,220 27,500
Total 524,400 Total 524,400 270,000
Source: Naeem estimates

Although most of the Egyptian society lies within the low- and middle-income segment where
housing supply is in short, most of the mega projects are targeting upper-middle and high
segments. For upscale units, the housing demand is matched by supply putting into considerations
new projects announcements.

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SIXTH OF OCTOBER DEVELOPMENT INVESTMENT CO.-SODIC

Selective Real Estate Mega Projects

Developer Investment (USD) Project Type Location

Down town
Emaar 4.0 billion Uptown Heights Mixed use Mokattam
Diar 1.0 billion N/A Mixed use Corniche Boulaq
West Cairo
SODIC 1.2 billion Westown Mixed use Cairo-Alex Road
Emaar 700 million Cairo Gate Retail complex Cairo-Alex Road
Damac 300 million Park Avenue Mixed use 6th of October City
Palm Hills 241.6 million Golf Extension Residential 6th of October City
East Cairo
TMG 9.1 billion Madinaty Mixed use New Cairo
Al-Futtaim 3.5 billion Cairo Festival City Mixed use New Cairo
SODIC 1.0 billion Eastown Mixed use New Cairo
Damac 800 million Mixed-use Mixed use New Cairo
Source: Press Clippings; Egypt today, Daily Star, Zawya, Al Mal Newspaper, Al Ahram Newspaper, SODIC and Palm Hills

We believe that the demand on the high-end housing units -we meant here by “high–end”, the
upper middle- and high-income segments- is still high. We based our belief on the following
demand drivers:

Sound economic • A huge population base; the Central Authority of Public Mobilization and Statistic (CAMPAS)
outlook grants high estimated Egypt’s population at 74.1 million as of January 2008 with an annual population
demand… growth rate at 1.9%, providing a sustainable demand.

• Egypt is a favorable destination for refuges and tourists. With the regional political unrest in
Iraq, Palestine, Lebanon and Sudan. Egypt hosts around 225,000 refuges with need to
relocate. As well, Egypt’s real estate finance law does not prevent the foreigners' ownership of
real estate in the country. Only Sinai has a special status for security considerations, this again
adds more demand especially in the new cities. Foreigners' purchases amounted to EGP 22.7
million during FY2006/07, compared to EGP 90.8 million during the previous year.
•
… in addition to • The sound economic environment plays a critical role in enhancing the demand. Higher
changes in economic growth rate is translated into higher income levels, which is clearly seen in this
individuals’ habits, specific population segment.
and foreigners’
purchases
• Cultural wise, Egyptians prefer investing in real estate rather than approaching the volatile
stock market or suffering from negative real interest rates. The Consumer Price Index (CPI) is
at 12% YoY in February 2008, meanwhile 3-month interest rate on bank deposits is low at 6%
in 2007 resulting in negative real interest rates.
•
• The propensity of many families to move to the suburbs, seeking bigger homes with relatively
more green spaces away from the high population density in the capital, adds further demand
on the high-end units.

The demand on the high-end housing units is met by sufficient supply, as developers are
Fiercer competition
encouraged to operate in this market due to its high liquidity relative to the low-income housing
chasing potential
profits market. They are able to sell the units in advance of construction, which accelerate the cash
conversion cycle and prevent them from falling in the trap of debt financing that many developers
and contractors suffered from during the past decade.

Strong growth in the real estate sector has come also on the back of rising interest from foreign
investors, mainly Gulf investors who view Egypt as an attractive opportunity, owing to relatively
lower costs and high returns compared to the gulf area. Egypt is becoming more linked to Gulf
economics, as GCC boom has a spill over effect on the Egyptian economy, where high oil prices
create positive momentum for Egypt with both Gulf investments and consumption.

Moreover, passing the new property tax law will encourage landlords to rent out their apartments.
The short-run effect of such measure is to increase supply through opening up available unoccupied
Property tax law is
to increase units
and closed units for rent and sale, but the long-run effect is to slow down construction. The total
supplied number of units in Egypt is 27.8 million in 2006, out of which around 7.9 million units (28.5%) are
vacant.

The increasing construction costs represent a threat that shall slow down the supply of housing

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 INITIATION OF COVERAGE

Construction cost units. Building costs of a square meter soared 30% in two months reaching EGP1300/sqm in
appears as a threat February. Yet, we believe that developers that achieve economics of scale and successfully market
in the short-run
their projects in advance of construction won't face a problem in this regard as they will be able to
shift the higher costs to the buyers, rendering their profitability margins at its high levels.

Average land prices Average Prices for upscale housing units

1200 3500

1000 3000
2500

In EGP/sqm
800
In EGP/sqm

2000
600
1500
400
1000
200 500
0 0
2004 2005 2006 2007 2004 2005 2006 2007
East Cairo West Cairo East Cairo West Cairo

Source: SODIC presentation

Real estate prices witnessed a dramatic increase during the last two years with some areas in the
Real estate and outskirts of Cairo saw more than 100% increase in land and units prices. This hike was driven by
land prices hiked the entrance of the gulf players, higher building materials cost and the emergence of many mega
during 2007…
projects at almost the same time. The Egyptian government rides this wave and began offering land
plots through auctions which end up selling the land at a very high premium.

We expect land prices to stabilize in 2008 and relax later, because escalating prices of building
materials coupled with building requirements imposed by the government will put off some
…it is to relax on construction plans. Prices of units are estimated to plum further in 2008 and for the short term,
the short-run fueled by soaring building materials and land. However, the high cost of land and building materials
is surely expected to slow down the construction work and expedite the boom-out in the long-run.

Future Outlook
We view the sector approaching the peak of its business cycle in 2008, with enjoyable diminishing
Real estate sector growth afterwards. By 2013, the business cycle will start a downturn, particularly the upscale
is approaching its segment leaving the developers to operate in a competitive environment with new market
peak… dynamics presented in applying vertical business models such as TMG and Palm Hills, seeking
strategic alliances like the case of SODIC cooperation with Solidere and Palm Hills with Hassan
Allam Sons and Coldwell Banker, as well as branding and positioning themselves in the market.
Prices will adjust accordingly, soaring in 2008 for both units and land, while escalating further for
units and relaxing fro land afterwards.

…leaving the Generally, the industry is sustained by strong demographical and economic factors, in addition to
developers facing efforts exhorted to support the sector through coherent regulations. On the other hand, the
tougher market industry is faced with unfavorable economic dynamics of soaring building materials and land
conditions prices. Thus, we expect slower growth to debut by 2009, where higher units’ prices and a stable
land prices will be a norm, unless the positive outlook on the oil and gas sector to pump Gulf
moneys in the Egyptian market.

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SIXTH OF OCTOBER DEVELOPMENT INVESTMENT CO.-SODIC

COMPANY OVERVIEW
Company profile
Sixth of October Development Investment Co-SODIC (OCDI.CA) was established in 1996 as a
real estate development Company with a capital of EGP 100 million. SODIC is involved in
developing commercial & residential units, retail & entertainment areas and hotels. SODIC
stock is listed in Cairo and Alexandria Stock Exchange & it is from CASE30 constituents. To
date, SODIC market capitalization reached EGP 5.03 billion.

Shareholders’ Structure

Octo ber P ro perty

Development LTD, 16%

Free Float, 75%

High Net worth

Individuals, 9%

Source: Naeem estimates

Business Activity
Five million sqm of SODIC is developing a relatively small land bank amounted to 4.8 million sqm; from which
land under 3.85 million sqm located in West Cairo and almost 1 million sqm in New Cairo. SODIC is in the
development
process of converting all its land bank into projects that are still under construction where it
mainly targets the upper-middle/ high segments.

SODIC was hit by SODIC faced tough market conditions during its growing phase which left the company unable
the last recession to fulfill its commitments and it suffered from liquidity problems and negative bottom lines
during the period 2000-2004. Since 2004, the company began to restructure its financial
position and settle its debts where it was able to cut its losses down and began reaping fruits
of its current existing project, Beverly Hills. SODIC based its business development scheme on
Serious actions three main factors; (i) an integrated business, through vertical and horizontal expansions, (ii)
are taken for a
strategic associates with international reputable companies and consultant houses and (iii) a
strong recovery
well educated, highly qualified management team.

i. Vertical and Horizontal expansions

SODIC took serious steps in its way to be a fully-fledged real estate company by significantly
expand its investments base.

In 2006, SODIC established SODIC property Services in conjunction with Coldwell Banker to
market its projects, where SODIC holds 51% stake in SODIC property. During 2007, SODIC
acquired a 100% stake in 6th of October for Development & Real Estate Projects (SOREAL),
SODIC expands in which owns almost 1 million sqm in Katameya and increased its stake in Beverly Hills Co. to
the real estate 71%. In addition, SODIC owns 20% stake in Royal Garden which is jointly owned to Palm Hills.
development, as Royal Garden assets under development amounted to 70 feddens. SODIC was to acquire 100%
well as real estate
marketing stake in Palm Hills through share swap, yet the deal was ceased since significant terms of the
deal has not been fulfilled. As well, SODIC expands in real estate marketing through the
establishment of SODIC property Services in conjunction with Coldwell Banker and it is to
establish another company that will be a joint venture between SODIC and Solidere for the
purpose of marketing Westown and Eastown.

SODIC is keen to expand its land bank through acquiring land in the outskirts of Cairo, keeping

7
 INITIATION OF COVERAGE

a close eye on the costal areas that is seen, although the upsurge in land prices, as a good
investment opportunity. SODIC was from the bidders in the government land auctions held last
SODIC plans year, yet it refrained from proceeding due to the exaggerated land prices that shall squeeze
vertical & the deal’s IRR which is stated at a minimum of 25-30%. Moreover, the company is intending
horizontal
to expand in complementary activities like real estate marketing and landscaping as to achieve
expansions
the integrity of the business.

In line with the management’s strategy in branding SODIC and capitalizing on its past
An acquisition intention to merge with Palm Hills, we highly believe that SODIC is a potential acquisition
target target.

ii. Strategic Associates

To ensure high quality standards to its projects, SODIC cooperates with a number of
international reputable consultants with vast experience in the fields of golf course designing,
landscape architecture, residential projects designing as well as interior design management.

SODIC, along with During the course of 2007, SODIC signed a co-development agreement with the Lebanese
Solidere are to real estate company Solidere International to develop two new city centers in Egypt;
develop two city Westown and Eastown. Solidere will be responsible for the master-planning, development and
centers property management of the projects while SODIC will be responsible for financing,
construction and general management.

Management
SODIC capitalizes SODIC is headed by Mr. Magdy Rasekh, the founder of the company and who currently owns
on a strong Garden City for Development Co, located in Beverly Hills compound. SODIC capitalizes on a
management with
well educated, highly qualified management team with Mr. Maher Maksoud assigned as the
a sharp vision
Managing Director. Maksoud has a track record in the real estate development field as he
began his career with Orascom Projects and Tourist Developments, he worked his way up to
executive vice president, and he resigned in 2000 to establish Delicious Inc., which founded
Cilantro, a well-known coffee shop chain that was sold to El Sweedy after that at a premium.
Maksoud collaborated with a powerful team with vast experience in the different specializations
of the business.

Operational Analysis
Going back to SODIC operations, we did not see a clear strategy adapted by the company in
developing and selling its sole project "Beverly Hills" at that time. As SODIC was hit by the
past recession and it faced financial problems which delay the progression and the delivery of
the project.

In 2006, A new management was assigned where it began to restructure the company by
settling its debts and adapting a clear strategy to convert all the company's land bank over 5
million sqm into high-end projects.

Currently, SODIC plays the role of the real estate developer and the marketer of the project, in
conjunction with other parties. With regard to the other complementary activities starting from
landscaping, master plan designing and internal designing, SODIC relies on international
reputable houses in implementing such activities.

As for SODIC selling strategy, the company begins selling the project in advance of
construction where 15% of the unit or land’s value is paid on reservation and signing the
contract, 75% is installed over three to four years and 10% of the value is paid upon delivery.
Revenues are recognized upon delivery of land and units, which is seen as a very conservative
method in recognizing revenues which does not reflect the actual progression of the projects.
In line with the sales process, the company is progressing with the project’s infrastructure and
construction works. Details for the projects expected inflows and outflows are stated in the
following section:

• Allegria

Allegria is a low-density residential project located in West Cairo, on the Cairo-Alexandria

Desert Road covering 2.38 million sqm of land where BUA does not exceed 400,867 sqm. The
project contains 1,046 villas and townhouses, a golf course and a clubhouse plot covering
32,000 sqm.

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SIXTH OF OCTOBER DEVELOPMENT INVESTMENT CO.-SODIC

The master plan for the project was designed by the world renowned New York-based firm
Allegria…the proof EDAW, which won an award of merit from the American Society of Landscape Architects
of success (ASLA) for their work on Allegria, whereas the villas are designed by several distinguished local
and international architectural firms including Michael Graves, Arquitectonica, Mark Mack and
the Kamel Consultants and Research Group.

Sales for Allegria began in April 2007, until now 70% of the project was sold with total value of
almost EGP 2 billion. Meanwhile, infrastructure and construction works began in 2007. Allegria
bear a high infrastructure cost averaging EGP 226/sqm compared to an average sector cost of
EGP 163/sqm. As well, average construction cost per sqm stands at EGP1984/ sqm, again
higher than the average standard cost of 1300/ sqm. We credit SODIC for assuming a
conservative construction cost due to the rising building materials cost during the construction
phase of Allegria.
Allegria’s cost is estimated at EGP 1.5 billion and it is to generate EGP 3.2 billion in revenues,
achieving 66% profit margin. Allegria’s villas are to be delivered on three phases starting 2010
till 2012.

We see Allegria as the new management’s tool in re-positioning SODIC in the market. Its
success will pave the way for SODIC to capitalize on its brand and market its forthcoming
projects on better terms.

Allegria expected inflows and outflows

1,600
1,400
1,200
1,000
800
EGP Millions

600
400
200
0
(200)
(400)
(600)
2007 2008 2009 2010 2011 2012
Outflows Inflows

Source: Naeem estimates

• Westown and Eastown

Eastown & SODIC collaborated with the Lebanese real estate company Solidere International to develop
Westown … the
two new city centers in Egypt; Westown and Eastown. SODIC will be responsible for the
main driver of
development of the projects wheras Solidere is in charge of the master plans' designing and
value
marketing of the projects. Solidere has land option to buy 150,000 sqm in Westown at an
exercise price of EGP 1583/ sqm and an option to buy 30,000 sqm in Eastown at an exercise
price of EGP 1833/ sqm. Also, Solidere is to generate fees on lease revenues amounted to
3.75% of lease revenue if occupancy between 60%-80% and 7.5% of lease revenue if
occupancy more than 80%.

The master plans for the two projects are completed, pending the government approval. We
assumed that they will take the approval for the two projects during the Q3 2008. The two
projects are being designed by some of the world’s leading town-planners and architects.

• Westown

Westown is a high-density project located on the Cairo-Alexandria Highway at the intersection

of the Dahshour Road leading to 6th of October City covering 1.2 million sqm with BUA of 2.3
million sqm. The project will include an office park, residential area, entertainment and hotel
facilities.

SODIC is planning to sell 20% of the BUA as infra-structured land and to lease all the retail
area of 189,672 sqm, as well 20% of the area located for hotels. Land sales are to begin by
the end of 2008 whereas real estate sales are expected to start in 2009. Infrastructure work
began in 2008, whereas construction work is to commence by 2009.

We assumed infrastructure cost of an average of EGP 233/sqm and a conservative construction

cost estimates of EGP 5000/sqm for finished residential units, EGP4000/sqm for the semi-

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 INITIATION OF COVERAGE

finished office area and EGP6000/sqm for the retail and hotels, putting into consideration an
average inflation rate of 10% during the construction phase.

Westown’s cost is estimated at EGP 10.8 billion and it is to generate EGP 31.2 billion in
revenues, achieving a high profit margin of 66%. Deliveries are to begin in 2011 till 2021.

Westown expected inflows and outflows

6,000

5,000

4,000
EGP Millions

3,000

2,000

1,000

(1,000)

(2,000)
8

09

17

20

21
00

01

01

01

01

1
0

20

20

20

20

0
2

2
Outflows Inflows
Source: Naeem estimates

• Eastown

Eastown is a high-density project located in New Cairo, next to the new campus of the
American University in Cairo covering 858,000 sqm with BUA of 1.7 million sqm. Eastown will
include a retail mall, an office park, a residential area, a community center and an
entertainment district.

Eastown is the twin of Westown. They are progressing in parallel in all the stages of the
project. SODIC is planning to sell 20% of the BUA as infra-structured land and to lease all the
retail area of 189,672 sqm, as well 20% of the area located for hotels. Land sales are to begin
by the end of 2008 whereas real estate sales are expected to start in 2009. we applied the
same cost estimates of Westown. Eastown investment cost is estimated at EGP 8.3 billion and
it is to generate EGP 23.2 billion in revenues, achieving a high profit margin of 65%. Deliveries
are to begin in 2011 till 2019.

We consider these two projects as the main driver of the company’s value. SODIC shall benefit
from the lack of a downtown area in each of Cairo’s two fastest growing suburbs; Sheikh Zaid
City and New Cairo as well as Solidere brand in developing Beirut City Center in marketing
these projects and maybe open the door for SODIC to capitalize on its “know-how” to mimic
the same idea of a city center in the new cities emerged in Egypt and possibly in the region.

Eastown expected inflows and outflows

6,000
5,000
4,000

3,000
EGP Millions

2,000
1,000
0

(1,000)
(2,000)
(3,000)
08

09

10

11

12

13

14

15

16

17

18

19
20

20

20

20

20

20

20

20

20

20

20

20

Outflows Inflows

Source: Naeem estimates

10
SIXTH OF OCTOBER DEVELOPMENT INVESTMENT CO.-SODIC

• Kattameya Plaza

Kattameya Plaza is a high density mixed-use project, located in New Cairo, close to the new
campus of the American University in Cairo covering 126,000 sqm. Kattameya Plaza includes
450 apartments in 50 buildings.

Kattameya plaza is in its construction phase, almost 10% of the construction work is done.
Sales are set to begin during the second quarter of 2008. The project’s cost stands at EGP 334
million and it is expected to generate 590 million in revenues. Apartments are to be delivered
in 2011 and 2012.

Kattameya Plaza expected inflows and outflows

400
350
300
250
EGPMillions

200
150
100
50
0
(50)
(100)
(150)
2007 2008 2009 2010 2011 2012
Outflows Inflows

Source: Naeem estimates

Total Expected Total Expected Cost

Project Profit Margin
Revenues (EGP) (EGP)
Allegria 3,206,264 1,467,251 54%
Westown 31,248,964 10,721,430 66%
Eastown 23,209,140 8,343,330 64%
Kattameya Plaza 590,437 334,560 43%

Source: Naeem estimates

SODIC shows signs We believe that SODIC is passing through a very critical stage in its business career. On one
of success, but still side, SODIC shall benefit from the introduction of these projects, which are located in prime
not confirmed!
locations, to build strong brand in the region that will grant for the company the opportunity to
join the elite and expand locally and regionally on better terms and conditions. On the other
side, we fear from fierce competition as SODIC is challenging big names with track record in
real estate development and marketing, this lays extra burden on SODIC management to
efficiently manage and market its projects, maintaining the high quality standards of the under
development projects. Another challenge that SODIC will face is the flying land prices that will
significantly cut its margins down in case of any further land acquisition in the future.

When approaching SODIC marketing strategy, we see that SODIC did not use to rely heavily
on advertising in marketing their projects. Selling expenses did not exceed EGP 20 million
during 2007. Recently, SODIC began in branding itself through massive advertising campaign.
Furthermore, SODIC provides services, like the establishment of the British International
School and a golf course, positioning Allegria as an up-scale project.

As part of its marketing strategy, SODIC sold two strip malls on Cairo-Alexandria Road; a home
SODIC markets its furnishing strip mall covering 116,824 sqm of land at EGP 2,250/sqm adjacent to Allegria and
projects on the Dahshur strip mall which cover 97,313 sqm of land in a deal worth EGP 67.658 million to the
back of retailers
Egyptian Company for Investment. We believe in SODIC strategy in making the maximum use
of such small land plots in selling them as strip malls. This shall attract international retailers
and hence add more value to the projects.

11
 INITIATION OF COVERAGE

Financial Statement Analysis & Projections

Revenues

During 2007, SODIC realized net revenues of EGP 554.5 million, marking 53% y-o-y growth
rate. Land revenues accounts for 92% of total revenues backed by selling two strip malls on
Cairo-Alexandria Road. The hike in land revenues was attributed to increasing land prices during
2007. The remaining of the revenues was generated from delivering phase I and II units in
Beverly Hills project.

Due to applying a conservative revenue recognition method by recognizing revenues upon

delivery of units and land, SODIC is expected to post modest performance during the coming
two years. Revenues are mainly generated from the delivery of the rest of Beverly Hills units as
well as selling the remaining plot of Dahshour strip mall. Starting 2010, SODIC revenues will
count in billions reflecting the delivery of Allegria project whereas Eastown and Westown inflows
will be recorded in the statements starting 2012. Selling prices per sqm are estimated to
increase at an annual average rate of 11%.

Cost of Goods Sold

SODIC achieved a high gross margin of 67% during 2007, mainly generated from low cost of
land. We are considering the coming two years a transition period where SODIC will be
delivering the rest of Bevery Hills. Gross margin will increase in 2008 due to the low cost of
Dahshour strip mall.

SODIC is able to maintain a stable gross margin of an average of 66% during the forecasted
period, though assuming a very conservative cost estimates, putting into consideration an
average inflation rate on costruction cost of 10% during the forecasted period.

Revenues vs. Profitability

9,000 90%
82%
8,000 80%
67%
7,000 70%
60% 60%
6,000 56%
60%
5,000 43%
50%
EGP Million

41%
4,000
40%
3,000
21% 30%
2,000
1,000 20%
- 10%
(1,000) 2007 2008 2009 2010 2011 2012 2013 2014 0%

Net Income Revenues Gross Profit Margin

Source:SODIC financials

Bottom line

In terms of profitability, SODIC benefited from the upsurge in real estate market during 2007
and was able to achieve a very high margins of more than 70% on land sales. Return on Sales
continued trending upwards to reach 67% compared to 63% recorded last year.

SODIC is to boast very satisfactory profitability margins during the forcasted period; net profit
will reach EGP 378 million in 2010, which will augment to exceed EGP 4 billion by 2014. Return
on sales is expected to appreciate from 34% in 2010 to reach 50% by 2014, which is the
average profit margin rate for both Westown and Eastown projects.

12
SIXTH OF OCTOBER DEVELOPMENT INVESTMENT CO.-SODIC

Sources of funds
6,000

5,000

4,000

3,000

EGP million
2,000

1,000

-
2007 2008 2009 2010 2011 2012 2013 2014

Cash Balance Net Receivables Customers deposits

Source: Naeem estimates

SODIC considerably improved its financial position, achieving a YoY growth rate of 32% in
total assets to reach EGP 2.232 billion. This strong position is supported by cash balance of
EGP 424 million, in addition to EGP 582 million in receivables. Lately this month, the
management declared its intention to issue securitization bonds worth EGP 500 million backed
by the company’s receivables. This came in a step to raise additional funds to finance the
existing projects as well as any further expansions.

We assumed that SODIC will internally financed its underdevelopment projects. Since it sells
in advance of construction. This is reflected in as increasing balances of Customers deposits
as SODIC pockets 15% of the unit's value on reservation, and 75% of the value is installed
over three years which accumulates in the receivables.

13
 INITIATION OF COVERAGE

SWOT Analysis

Strengths Weaknesses

Highly qualified management Limited land bank

Integrated business Its revenue recognition method
Strategic alliances with international Lack of strong brand
companies
Land bank located in prime locations
Self-financing

Opportunities Threats

Regional expansion opportunities, especially Fierce completion among real estate

in MENA region developers
Approach Egypt’s costal areas Fear from a slow-down in the real
An acquisition target estate growth rate

14
SIXTH OF OCTOBER DEVELOPMENT INVESTMENT CO.-SODIC

Valuation
We value SODIC using two valuation Approaches; Income approach (Discounted Cash Flow
methodology) and Asset Approach.

Income Approach

The DCF methodology is based on forecasting the cash flows generated from the underdevelopment
projects during the period from 2008 to 2021, with no terminal value. The flows are discounted at a
WACC of 16.8%. Cost of equity weights 92% and is equal to 17% generated by applying risk-free
rate of 9%, beta of 1.2 and a market premium of 6%. Cost of debt, representing the land debt,
weights 8% with interest rate of 13%. By running a sensitivity analysis for the variation in the
company's beta and the market risk premium, we reached a value ranging from EGP 220.5/share
and EGP 271.9/share.

Risk Premium
6% 7%
Beta
1.2 245.9 229.5
1.3 237.5 220.5
Source: Naeem estimates

Asset Approach

Real estate market conditions plays a role here in pumping SODIC’s assets value up. Land prices
are estimated to stay at its current high level in 2008. We run a scenario analysis with two cases;
the base case scenario where we apply the current market prices based on the prices of the
comparables in each area then we test 10% premium to the current prices. Our analysis implies a
NAV range of EGP 249- 269/share.

Net Asset Value Approach

Land area Sellable Infrastructure Market price NAV NAV-+10%
Project
(000 sqm) land (sqm) cost (mn EGP) (EGP/sqm) (mnEGP) (mnEGP)
Allegria 2,381 898 193.09 2960 2,092 2,272
Westown 1,184 829 159.22 2960 2,177 2,343
Dahshour 17 2.38 4625 77
24 84
Showroom
Casa* 58 41 5.60 2960 111 120
Eastown 857 600 115.31 3700 2,057 2,238
Kattameya 88 13.49 3700 307
126 334
Plaza
Total Asset 6,858
7,390
Value
cash 411.91 411.91
Land Debt (164.30) (164.30)
NAV 5,539,723 7,070 7,638
# of shares 28,413 28.413 28.413
NAV/shares 194.97 248.84 268.81
*Represent SODIC's stake in Rotal Gardens assets
Source: Naeem estimates

15
16

IncomeStatement(inEGP000) 2007A 2008E 2009F 2010F 2011F 2012F 2013F 2014F 2015F 2016F 2017F 2018F 2019F 2020F
Sales 554,575 127,343 27,395 1,248,592 1,790,982 3,797,550 5,634,994 8,558,946 6,074,828 7,725,618 4,246,648 6,080,603 4,148,572 2,973,076
Cost of GoodsSold (185,314) (22,832) (21,583) (730,700) (1,024,484) (1,677,268) (2,248,061) (3,388,778) (2,415,634) (3,065,973) (1,685,915) (2,338,426) (1,586,801) (1,125,626)
GrossProfit 369,261 104,511 5,812 517,892 766,498 2,120,282 3,386,933 5,170,169 3,659,195 4,659,645 2,560,733 3,742,177 2,561,771 1,847,449
GrossMargin 67% 82% 21% 41% 43% 56% 60% 60% 60% 60% 60% 62% 62% 62%
Selling&MarketingExpenses (21,448) (23,593) (25,952) (28,547) (31,402) (34,542) (37,996) (41,796) (45,976) (50,573) (55,631) (61,194) (67,313) (74,044)
General &Admin. Expenses (39,557) (43,513) (47,865) (52,651) (57,916) (63,708) (70,078) (77,086) (84,795) (93,274) (102,602) (112,862) (124,148) (136,563)
Depreciation (802) (1,050) (1,154) (1,270) (1,397) (1,537) (1,690) (1,859) (2,045) (2,250) (2,475) (2,722) (2,994) (3,294)
OperatingProfit 307,454 37,405 (68,005) 436,693 677,180 2,022,032 3,278,858 5,051,286 3,528,424 4,515,797 2,402,500 3,568,121 2,370,309 1,636,842
Interest Incomefrominstallments 15,121 47,175 49,913 72,112 129,777 202,501 184,307 191,582 144,348 146,030 127,962 89,843 47,257 10,399
Interest Income 40,397 47,853 39,119 58,052 39,842 36,911 60,278 104,240 168,466 197,145 221,901 240,418 277,136 287,052
SundryRevenues(Expenses) 5,515 (5,164) (4,868) (4,542) (4,184) 131,457 4,768 5,245 5,770 6,347 6,981 7,679 8,447 9,292
Provisions - (14,650) (19,445) (18,432) (31,582) (34,942) (24,525) (22,847) (16,132) (21,989) (12,765) (13,398) (3,390) (5,918)
ProfitbeforeInterest &Tax 363,011 112,618 (3,287) 543,882 811,033 2,357,959 3,503,687 5,329,507 3,830,875 4,843,329 2,746,580 3,892,662 2,699,760 1,937,666
Interest Expense (1,835) (1,835) - - (12,675) (12,675) (12,675) (12,675) (12,675) (12,675) - - - -
IncomeTax (6,175) - - (106,241) (159,672) (469,057) (698,202) (1,063,366) (763,640) (968,666) (549,316) (778,532) (539,952) (387,533)
NetProfit 369,635 112,618 (3,287) 424,966 638,687 1,876,227 2,792,810 4,253,466 3,054,561 3,874,663 2,197,264 3,114,130 2,159,808 1,550,133

INITIATION OF COVERAGE
ReturnonSales 67% 88% -12% 34% 36% 49% 50% 50% 50% 50% 52% 51% 52% 52%
 SIXTH OF OCTOBER DEVELOPMENT INVESTMENT CO.-SODIC
17

Balance Sheet (in EGP 000) 2007A 2008E 2009F 2010F 2011F 2012F 2013F 2014F 2015F 2016F 2017F 2018F 2019F
Cash & Banks 424,647 957,060 782,377 1,161,032 796,850 738,219 1,205,562 2,084,807 3,369,321 3,942,902 4,438,028 4,808,352 5,542,722
Net Receivables 582,630 1,285,426 1,360,024 1,964,892 3,536,167 5,517,730 5,021,977 5,220,217 3,933,197 3,979,016 3,486,702 2,448,039 1,287,669
Inventory 992,280 1,578,287 2,356,101 3,360,680 5,414,841 7,122,323 7,191,274 5,984,990 5,107,337 4,155,949 3,676,759 2,635,994 1,370,685
Other current assets 96,971 12,734 2,739 62,430 89,549 189,878 281,750 427,947 303,741 386,281 212,332 304,030 207,429
Total Current Assets 2,208,776 4,001,508 4,725,522 6,830,159 10,175,989 13,688,518 13,830,561 13,858,359 12,865,226 12,627,909 11,990,681 10,387,424 8,614,795
Total LT Assets 23,738 7,578 7,735 7,908 8,099 8,308 8,539 8,792 9,071 9,378 9,716 10,087 10,495
Total Assets 2,232,514 4,009,086 4,733,257 6,838,067 10,184,088 13,696,827 13,839,100 13,867,151 12,874,298 12,637,287 12,000,397 10,397,511 8,625,290
Customers Deposits 119,488 433,900 975,291 1,896,543 2,861,926 3,313,695 3,655,487 2,950,479 2,951,423 2,366,620 2,158,406 1,355,317 677,076
Suppliers & Contractors 11,002 32,110 42,620 100,998 173,050 191,461 134,382 125,188 88,397 120,489 69,943 73,416 18,577
Notes Payable 164,301 164,301 164,301 140,830 117,358 93,886 70,415 46,943 23,472 -
Due to Customers - 1,285,426 1,360,024 1,964,892 3,536,167 5,517,730 5,021,977 5,220,217 3,933,197 3,979,016 3,486,702 2,448,039 1,287,669
Creditors & other credit balances 81,767 82,952 131,966 199,850 257,865 50,318 67,442 101,663 72,469 91,979 50,577 70,153 47,604
Total Current Liabilities 376,558 1,998,689 2,674,202 4,303,114 6,946,366 9,167,091 8,949,702 8,444,491 7,068,957 6,558,104 5,765,628 3,946,925 2,030,926
Provisions 67,599 82,249 101,695 120,127 151,709 186,650 211,175 234,022 250,154 272,143 284,908 298,306 301,697
Total Liabilities 444,157 2,080,939 2,775,896 4,423,241 7,098,075 9,353,741 9,160,877 8,678,512 7,319,112 6,830,248 6,050,536 4,245,231 2,332,623
Paid-in Capital 279,134 284,134 284,134 284,134 284,134 284,134 284,134 284,134 284,134 284,134 284,134 284,134 284,134
Legal & Statutory Reserves 139,567 139,567 139,567 139,567 139,567 139,567 139,567 139,567 139,567 139,567 139,567 139,567 139,567
Share premium 917,439 962,439 962,439 962,439 962,439 962,439 962,439 962,439 962,439 962,439 962,439 962,439 962,439
Treasury Shares (80,000) (97,500) (65,000) (32,500) -
Retained Earnings 528,467 639,507 636,220 1,061,186 1,699,873 2,956,945 3,292,082 3,802,498 4,169,046 4,420,899 4,563,721 4,766,139 4,906,527
Liabilities and Equity 2,232,514 4,009,086 4,733,257 6,838,067 10,184,088 13,696,827 13,839,100 13,867,151 12,874,298 12,637,287 12,000,397 10,397,511 8,625,290

Free Cash Flow (in EGP 000) 2007A 2008E 2009F 2010F 2011F 2012F 2013F 2014F 2015F 2016F 2017F 2018F 2019F
NOPLAT 313,042 61,805 (45,662) 385,798 613,800 1,695,386 2,527,487 3,835,740 2,680,947 3,382,524 1,827,391 2,650,951 1,747,758
Depreciation 802 1,050 1,154 1,270 1,397 1,537 1,690 1,859 2,045 2,250 2,475 2,722 2,994
Investment Income 2,692 2,961 3,257 3,583 3,941 131,457 4,768 5,245 5,770 6,347 6,981 7,679 8,447
Gross Cash Flow 316,535 65,815 (41,251) 390,651 619,138 1,828,379 2,533,946 3,842,844 2,688,762 3,391,120 1,836,847 2,661,353 1,759,199
Increase in Working Capital (767,172) 368,366 (216,106) (89,426) (1,058,504) (1,341,519) 117,541 356,635 913,346 312,175 352,977 169,027 606,282
Capital Expenditure (4,676) (3,288) (1,312) (1,443) (1,587) (1,746) (1,921) (2,113) (2,324) (2,557) (2,812) (3,093) (3,403)
Gross Investment (771,848) 367,382 (217,418) (90,869) (1,060,092) (1,343,265) 115,621 354,522 911,022 309,619 350,165 165,934 602,879
Free Cash Flow (455,313) 433,197 (258,669) 299,782 (440,954) 485,114 2,649,567 4,197,366 3,599,783 3,700,739 2,187,012 2,827,287 2,362,078
 INITIATION OF COVERAGE
Trading Desk - Egypt

Tarek Abaza
Head of Trading Desk
40 Lebanon St., Mohandessien
Zip Code 12411
Tel.: +202 33037 766/677
Ext. 2407 -2408
Fax: +202 3346 9276
tarek.abaza@naeemholding.com
www.naeembrokerageegy.com

Trading Desk - UAE

Mohamed Shoula
Head of Trading Desk
Emaar Business Park, Building No1,3rd floor,
P.O.Box 119244
Tel. +971 4 3631603 Ext. 1603
mohamed.shoula@naeemholding.com

Mohamed Soliman
Tel. +971 4 3631601 Ext. 1601
mohamed.soliman@naeemholding.com
www.naeembrokerageuae.ae

Analyst Certification

I, Marwa Refaat, hereby certify that the views expressed in this research
report accurately reflect my personal views about securities and
companies that are the subject of this report. I also certify that no part of
my compensation, whether pecuniary or in-kind, was, is, or will be, directly
or indirectly, related to the recommendations or views expressed in this
research report.

Redistribution or reproduction is prohibited
without written permission from NAEEM.
Copyright © 2008 NAEEM Holding, Egypt.
40 Lebanon St., Mohandesin, Cairo
Tell: 2-02-3302 3799
Fax: 2-02-3303 4099
Disclaimer
This report is based on information available to the public. It is not intended
as an offer to buy or sell or a solicitation of an offer to buy or sell the
securities mentioned. The information and opinions in this report were
prepared by NAEEM Research Department from sources it believes to be
reliable at time of publication. NAEEM Research Department accept no
liability or legal responsibility for losses or damages incurred arising from the
use of this publication or its contents. NAEEM Research Department have
the right to change opinions expressed in this report without prior notice.

18