JPM Talaat Mostafa Group 2010-06!06!422705

MENA Equity Research
07 June 2010
Initiation
Overweight
Talaat Mostafa Group TMGH.CA, TMGH EY
Price: £E7.99
Play Cairo RE the TMG way - Initiate with OW
Price Target: £E10.70
• We initiate coverage of Talaat Mostafa Group Holding (TMG) with an Property

OW rating and Dec 2010 SOTP based PT of EGP10.7; we also add the AC
Muneeza Hasan
stock to the Analyst Focus List (AFL). At current prices, we see 34% upside (971) 4428-1766
in the stock, which trades at a 34% price to NAV discount. TMG is up 16% [email protected]
YTD, outperforming the benchmark EGX30 Index by 15%. However, we JPMorgan Chase Bank, N.A., Dubai Branch
expect stock price momentum to continue and the price to NAV discount to
Christian Kern
narrow with better upcoming QoQ results on the back of planned handovers
(971) 4428-1789
and a further pick up in new sales momentum. [email protected]
• Strong domestic driven housing demand benefits TMG’s Cairo-heavy JPMorgan Chase Bank, N.A., Dubai Branch
landbank: Targeting Egypt’s middle (35%) and upper middle (12%) Harm Meijer
income segment, which accounts for c. 47% of the country’s total (44-20) 7325-9248
[email protected]
population, TMG is the largest listed developer on the Cairo Stock
Exchange with 50mn sq m in its landbank. About 86% of TMG’s landbank J.P. Morgan Securities Ltd.
is Egypt based, with the rest located in Saudi Arabia – a market with strong
Price Performance
demand dynamics similar to Egypt. We forecast Cairo’s housing shortfall to
9.0
reach 264k units by end-2010, with demand for middle and upper middle
income segments estimated at 125k units. TMG plans to launch off-plan 7.5
£E
sales in Riyadh, Saudi Arabia in 4Q10. 6.0
• Strong sales backlog at EGP24bn and self-funded business model: 4.5

Current sales backlog of EGP24bn provides TMG with high visibility on 3- Jun-09 Sep-09 Dec-09 Mar-10 Jun-10
yr earnings – the highest within our MENA coverage universe. The

TMG - Landbank by location
company has historically and continues to rely on a self-funded business
8%
model, with construction costs funded through cash-based off-plan sales.
Given this, TMG’s balance sheet position is healthy with net debt/equity at
23% at end-1Q10 – at the favorable lower end of the net debt/equity range 78% 14%
for its GCC peers.
• Key risks: The downside risks to our OW rating could come from weaker Cairo Outside Cairo Saudi Arabia
than forecast revenue from planned handovers in 2010-2012, weaker than Source: Company reports
forecast margins on residential units, lower than expected demand for
housing and a poor response to the off-plan sales launch in Saudi Arabia.
Talaat Mostafa Group Holding Company (TMGH.CA;TMGH EY)

FYE Dec 2008A 2009A 2010E 2011E 2012E Company Data
Adj. EPS FY (£E) 0.71 0.53 0.77 0.87 1.35 Price (£E) 7.99
Sales FY (£E mn) 5,421 4,822 7,109 9,024 10,914 Date Of Price 03 Jun 10
Sales growth (%) FY -11% 47% 27% 21% Price Target (£E) 10.70
EBITA FY (£E mn) 1,715 1,240 1,949 2,226 3,571 Price Target End Date 31 Dec 10
Net profit FY (£E mn) 1,442 1,106 1,566 1,775 2,748 52-week Range (£E) 8.63 -
Net profit growth(%) FY -23.3% 41.5% 13.4% 54.8% 4.50
P/E FY 11.2 15.1 10.4 9.1 5.9 Mkt Cap (£E bn) 16.2
P/BV FY 0.7 0.7 0.7 0.6 0.6 Mkt Cap (US) ($ bn) 2.9
Net D/E FY 19.6% 23.7% 20.7% 16.0% 11.1% Shares O/S (mn) 2,030
Source: Company data, Bloomberg, J.P. Morgan estimates. Free Float 45.0%
3Mnth Avg daily value (US$ 9.99
MM)
See page 50 for analyst certification and important disclosures, including non-US analyst disclosures.
J.P. Morgan does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the firm may
have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their
investment decision.
Muneeza Hasan MENA Equity Research
(971) 4428-1766 07 June 2010
[email protected]
Table of Contents
Play Cairo RE the TMG way.....................................................3
Initiate with OW and Dec 2010 SOTP based PT of EGP10.7 .....................................3
Strong domestic driven housing demand benefits TMG's Cairo-heavy landbank .......3
Strong sales backlog at EGP24bn (1Q10)....................................................................4
Self-funded business model; low gearing ....................................................................5
Strong valuations underpinned by robust underlying fundamentals ............................5
TMG in Saudi Arabia – Off-plan sales to be launched in 4Q10 ..................................6
Recurring revenue to account for c. 7% cumulative revenue.......................................7
Key downside risks to our rating and PT .....................................................................7
Valuations – OW TMG with Dec 2010 SOTP based PT of
EGP10.7.....................................................................................8
Key drivers of TMG’s SOTP fair value.......................................................................9
TMG – Strong valuations with 34% price to NAV discount .....................................11
Egypt – 11% of MENA GDP; 28% of MENA population .......14
Egypt – MENA’s most populated country.................................................................15
Egypt property market ...........................................................17
High demand for housing amid low affordability levels............................................17
Housing deficit in upper middle, middle & low income segment…..........................18
…but affordability levels remain low ........................................................................18
Cairo – Residential shortfall to reach 264k units by end
2010 .........................................................................................20
Over 550k marriage contracts signed annually; another way to gauge housing
demand.......................................................................................................................20
Cairo – among the world’s top 10 most populated cities ...........................................21
Cairo's rapidly developing suburban communities ....................................................21
Residential prices have been relatively stable for middle income housing................23
Cairo Commercial - Office space remains undersupplied ..25
Cairo Retail and Hospitality...................................................27
Cairo Retail – limited GLA for high-end retail..........................................................27
Hospitality..................................................................................................................28
Key players - TMG is the largest ...........................................29
Talaat Mostafa Group - Changing Cairo's landscape..........32
Management...............................................................................................................33
Self-funded business model – core in Egypt..............................................................34
Key Projects - Madinaty is the largest ..................................36
Madinaty – 62% of TMG’s SOTP .............................................................................37
Al Rehab 1 and 2 – 12% of TMG’s SOTP value .......................................................38
Al Rabwa 2 – 2% of TMG’s SOTP value..................................................................39
TMG’s first international project – Nasamat Al Riyadh; 5% of the SOTP................40
Hotels and Resorts – 20% of TMG’s SOTP ..............................................................41
Revenue outlook – 3-yr revenue CAGR of 31% ...................43
EBITDA and net profit outlook .................................................................................43
Cash flows and balance sheet ..............................................45
Low gearing with liquidity likely to improve going forward.....................................45
Valuation Methodology and Risks ........................................48
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Play Cairo RE the TMG way

Initiate with OW and Dec 2010 SOTP based PT of EGP10.7
Table 1: TMG EPS - JPM vs. Bberg We initiate coverage of Talaat Mostafa (TMG) with an OW rating and Dec 2010
consensus SOTP based PT of EGP10.7. We also add TMG to the CEEMEA Analyst Focus List.
EGP 2010E 2011E 2012E Targeting Egypt’s middle (35%) and upper middle (12%) income segment, which
Bberg Conc 0.96 1.45 1.80 accounts for c. 47% of the country’s total population, TMG is the largest listed
JPMorgan 0.77 0.87 1.35
developer on the Cairo Stock Exchange with 50mn sq m in its landbank and
Source: Bloomberg and J.P. Morgan estimates
experienced management with a good track record of on time deliveries (c. 25,000
residential deliveries since inception). About 78% of the company's landbank is
located in Cairo, 8% outside Cairo, while the rest is located in Riyadh and Jeddah,
Saudi Arabia – a market with equally strong demand dynamics as Egypt.
Talaat Mostafa is Egypt’s largest The stock trades at a 34% discount to 2010E NAV and our price target implies 34%
listed developer with 50mn sq m upside from current levels. Offering a 3-yr revenue and net income CAGR of 31%
in its landbank, 78% of which is
located in Cairo
and 35%, respectively, on our estimates, TMG is also one of the most attractively
valued stocks in terms of P/B when compared to its regional peers with similar
underlying demand dynamics.
Planned handovers during 2H10, Key near- to medium-term catalysts include upcoming quarterly earnings for 2010
landbank revaluation by CBRE driven by planned handovers, landbank revaluation by CBRE (last valuation carried
and the launch of off-plan sales
in Saudi Arabia in 4Q10 should
out in June 2008), completion and launch of the Nile Hotel in Cairo and the Nasamat
be key near- to medium-term Al Riyadh (Saudi Arabia) off-plan sales launch in 4Q10. The downside risks to our
triggers for stock performance OW rating could come from weaker than forecast revenue from planned handovers in
2010-2012, weaker than forecast margins on residential units, lower than forecast
demand for housing and a poor response to the off-plan sales launch in Saudi Arabia.
Strong domestic driven housing demand benefits TMG's

Cairo-heavy landbank
TMG owns roughly 50mn sq m in its landbank of which nearly 78% is concentrated
in Cairo, Egypt. Being the commercial hub and the capital of Egypt, Cairo attracts a
significant number of local migrants with nearly 1,000 people moving into the capital
every week according to a UN development report.
Figure 1: Egypt and Cairo’s housing shortfall Figure 2: TMG - Egypt's largest developer by landbank
'000 Egy pt Cairo
1,000
800
Outside Cairo
800
8%
600
405 Cairo
400 264 282
78%
134 Saudi Arabia
200 93 96
32 19 6 14%
0
Ov erall Low Middle Upper Lux ury
shortfall Middle
Source: Company reports and J.P. Morgan estimates Source: Company reports
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We estimate Cairo’s residential Bursting at the seams, the city is amongst the world’s top 15 densely populated cities
housing shortfall to reach 264k with nearly 18mn people. Despite the new developments coming on stream within
by end-2010. Of this, the
shortfall for middle to upper
the new suburban communities surrounding Cairo, the city’s housing pressures are
middle income segment is unlikely to subside with the urban population estimated to grow at a much faster rate
estimated at 125k units than rural given relatively better employment prospects and lifestyle. Hence, given
continued strong growth in Cairo’s population, we estimate Cairo’s housing stock
deficit to reach 125k for the middle to upper middle income segment by end-2010
with the overall housing shortfall reaching 264k.
Strong sales backlog at EGP24bn (1Q10)

Current sales backlog of EGP24bn provides TMG with high visibility on 3-yr
earnings – the highest within our MENA coverage universe. The tough global
environment in 2009 has had a modest impact on TMG sales, where customer
contract cancellations peaked in 1H09 and currently account for less than 5% of the
total backlog. These have been more than offset by new sales generated in 2H09 and
1Q10. The company generated new sales of EGP1.2bn in 1Q10 and plans to maintain
the overall backlog at EGP25bn for 2010; implying new sales of EGP3bn in 2010,
according to our estimates. TMG plans to further increase its sales backlog to
EGP30bn (net of revenue recognition of units being completed in 2011) by end-
2011; implying new sales of EGP4bn.
Figure 3: TMG - Landbank by project and location

TMG's current sales backlog of 10%
EGP24bn provides 3-year
2%
earnings visibility – the highest
within our MENA universe
14%
66%
8%
Madinaty (Cairo) Al Rehab (Cairo) Al Rabw a (Cairo)

Riy adh and Jeddah Hotel projects (Egy pt)
Source: Company reports
Madinaty is TMG's largest Madinaty is TMG’s largest project by landbank with nearly 33mn sq m accounting
development project and once for 66% of the company’s total landbank and 62% of our SOTP based value. Divided
completed in 2020 will become
MENA’s largest integrated
into 6 overlapping phases, the Madinaty project is due for completion by 2020,
community complex where the first set of handovers is planned for 2H 2010. Once completed in 2020,
Madinaty will become MENA’s largest integrated community style development.
This is followed by the Al Rehab project located in the New Cairo region with nearly
4mn of incremental land area under development.
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Self-funded business model; low gearing

TMG relies largely on a self-funded business model with little upfront funding
requirement to develop city and community complexes. The payment for purchased
land parcels does not entail an initial cash outlay and is typically settled in kind in the
form of residential apartments to the Ministry of Housing (e.g. Madinaty and Al Rehab).
The upfront costs involving development plan and initial infrastructure are funded via
equity or debt, while the overall project construction cost is financed through customer
advances that are typically linked to phased cash outflow. Given the restrictions on
mortgage financing, commercial banks cannot fund off-plan sales directly; thus the self-
funded, off-plan sales model has worked well for TMG. Given this, the company’s
balance sheet is healthy with net debt/equity of 23% as of 31st March 2010 – at the
favorable lower end of the net debt/equity range for its GCC peers.
At 23% (1Q10), TMG’s net Figure 4: TMG enjoys one of the lowest net debt/equity ratios among its GCC peers
debt/equity is at the lower end 490% 454%
relative to its MENA peers 390%
290% 190%
190% 110%
45% 23% 22%
90%
-4%
-10%
Barw a - Aldar - UAE Palm Hills - Dar Al Arkan TMG - Egy pt Emaar -UAE Sorouh -
Qatar Egy pt - KSA UAE
Net Debt / Equity

Source: Bloomberg, Company reports and Zawya
Strong valuations underpinned by robust underlying

fundamentals
Despite the recent run up, TMG’s In Feb 2009, TMG's stock hit a low of EGP2.37, down 81% from its 2008 peak of
valuations remain attractive with EGP12.51. We believe that this was a combination of 1) general lack of appetite for
the stock trading at 9x 2010E
earnings and at a 34% discount
and risk aversion from equities, where real estate developers among others across the
to 2010E book globe hit their trough valuations and 2) legal proceedings against the former
chairman of TMG (these charges have recently been dropped as per Bloomberg).
However, following better than expected macro numbers, limited default from local
real estate investors driven by limited speculative demand and better than expected
sales and earnings announcements by the company, the stock has seen a sharp
recovery from its mid 2009 lows, where it’s up 44% in 12 months.
Figure 5: TMG Price performance since listing (rebased)
140
120
100
80
60
40
20
0
Dec-07 Apr-08 Aug-08 Dec-08 Apr-09 Aug-09 Dec-09 Apr-10
TMG EGX 30 Index

Source: Bloomberg
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Despite this recovery, the stock still trades at a 34% discount to 2010E NAV and 9x
2010E earnings. TMG is by far the only stock within our MENA universe that offers
a 34% discount to 2010E NAV despite the strong underlying demand dynamics of
the Cairo real estate. In Saudi Arabia where underlying demand dynamics are equally
strong and speculative buying remains non-existent, the largest real estate developer
by market cap, Dar Al Arkan, trades at a 5% discount to 2010E book (Bloomberg
consensus).
Figure 6: MENA Large Cap Real Estate developers on P/B 2010E

100% 81% Discount// Premium to P/B
80% 62%
60% 31%
40% 20%
20%
0%
-20% -5%
-40% -14% -22%
-60% -34% -39%
-80% -58%
Jabal Omar - DLF Ltd. - Barw a - Palm Hills Dar Al Arkan Saudi RE - Sorouh TMG Emaar -UAE Aldar
KSA India Qatar - KSA KSA
Source: Bloomberg and J.P. Morgan estimates, Priced on June 03
TMG in Saudi Arabia – Off-plan sales to be launched in

4Q10
TMG has picked Saudi Arabia (KSA) to develop its first mixed used project as part
of the company's geographical diversification strategy. KSA offers a blend of both
strong domestic demand, with its largest population base of 28mn in the GCC, and
14% of TMG’s landbank is strong macros driven by oil backed revenues. Riyadh is Saudi Arabia’s fastest
located in Saudi Arabia – a growing housing market with annual population growth averaging at 2.2%.
market with equally strong
underlying fundamentals as
According to the Riyadh Development Authority, Riyadh needs nearly 18,000 units
Egypt of annual supply over the next 20 years to fill up the housing deficit. With high pent
up demand, Riyadh has been one of the few places where residential prices and rents
have remained stable in the prime residential areas. TMG is a JV partner in Nasamat
Al Riyadh project with a total of 4mn sq in land area (TMG’s share is estimated at
2mn sq m – 50% of the total), where the company plans to launch off-plan sales
during 4Q10. TMG’s share in this project is at 5% of our SOTP value. Apart from
this project, the company owns additional landbank of 2.8mn sq m (TMG’s share is
50% of that) in Jeddah, which will be developed going forward after master
development plans are finalized.
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Recurring revenue to account for c. 7% cumulative revenue

TMG’s hotels and resorts TMG currently has 3 operational hotels with 684 room keys through its hotels and
portfolio accounts for 20% of our resorts management subsidiary Arab Company for Hotels and Tourism Investment
combined SOTP with recurring
revenues representing 7% of the
(ICON). The fourth hotel, Nile Hotel with 191 room keys, is due for completion by
consolidated topline 3Q10, while the company plans to raise this to 5,000 room keys in 5 years of which
1,725 room keys are committed and under development. We only take into account
the committed and under development hotel room keys when calculating our DCF
from the hotel and resort portfolio. The company’s hotel and resort portfolio benefits
from reasonable occupancy levels and healthy operating margins given robust visitor
traffic into Egypt annually. The existing portfolio allows TMG to tap the business
and tourism traffic flow particularly into Cairo and Sharm el-Sheikh (Egypt’s key
tourist destination). With three operational hotels and five hotel and resort projects in
the pipeline, the company’s hotels and resorts portfolio accounts for 20% of our
TMG SOTP value. However, with development revenues from Madinaty and Al
Rehab accounting for a sizable proportion of the company’s consolidated revenues,
the contribution from hotels and resorts at the revenue level is c.7% on average
(2010-2012), as per our estimates.
Key downside risks to our rating and PT

Weaker than forecast revenue for planned handovers
The revenue from villa sales is split into two stages, where TMG records revenue
from the land area for underlying villas upon sales generation and contract
reservation, while revenue from the built up area (BUA) for villas as well as
apartments is recorded only upon handover. Hence, if the company generates lower
than expected new villas sales, it could lead to weaker than estimated revenues over
our forecast period. Similarly, revenues from land sales are also recorded upfront,
hence lower than forecast land sales to Mega Developers in any quarter can result in
lower than estimated revenues from this segment.
Poor response and potential delay in launch of off-plan sales in Riyadh

TMG’s share in Nasamat Al Riyadh is 50%, where the project represents 5% of the
company’s combined SOTP on our estimates. We estimate TMG to achieve 5% sales
of the total BUA in Nasamat Al Riyadh when the project is launched in 4Q10. This
assumption is already below the company’s planned launch at 10% BUA of the total
for 2010. However, the downside to our PT could come from poor response from
Saudi investors thus leading to weaker than forecast new sales in the company’s
Saudi project.
Slowdown in residential demand in Cairo

Assuming annual 2% growth in Egypt’s population, we estimate the residential
shortfall in Cairo to reach 264K in 2010. However deterioration in Egypt’s macro
fundamentals driven by continued weakness in global macro fundamentals could
result in reduced investor risk appetite leading to lower demand and limited
affordability for housing.
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Valuations – OW TMG with Dec 2010

SOTP based PT of EGP10.7
At current prices, our SOTP The largest contribution to our TMG SOTP comes from the Madinaty, a large
based Dec 2010 PT of EGP10.7 community complex with target population of 600K and construction tenure of 20
implies 34% upside
years (to be completed in 6 overlapping phases over the course of its construction).
Madinaty accounts for 62% of our TMG combined SOTP, followed by Al Rehab (1
& 2) accounting for c. 12% of the company’s SOTP value. We exclude TMG’s
landbank from our SOTP calculation, as we forecast cash flows from all of TMG
projects including Madinaty and Al Rehab for their entire construction period. We
also exclude TMG’s land plot in Jeddah (2.8mn sq m), where construction plans have
not yet been finalized. Slicing our SOTP according to development type, the
development proportion of the company’s SOTP represents 80%, while the
remaining 20% contribution comes from existing investment portfolio and potential
cash flows from planned hotel and resorts projects.
Table 2: TMG - SOTP valuation summary

TMG's share
Total project of project Per
Development Completion Valued Discount value 2010 NPV 2010 share As % of
Project status date interest rate (EGP mn) (EGP mn) (EGP) total
Mixed used projects
Al Rehab 1 Construction stage 2012 100% 15.3% 481 481 0.2 2%
Al Rehab 2 Construction stage 2017 100% 15.7% 2,822 2,822 1.4 10%
Al Rabwa 2 Construction stage 2013 100% 15.3% 489 489 0.2 2%
Madinaty Construction stage 2020 100% 15.7% 17,441 17,441 8.6 62%
Nasamat Al Riyadh - KSA Pre-construction 2012 50% 15.5% 2,737 1,368 0.7 5%
Hotel projects Construction stage 2015 100% 15.5% 2,827 2,827 1.4 10%
Hospitality Portfolio Completed 100% 14.8% 2,700 2,700 1.3 10%
28,129 13.9
(+) Other assets 23,326 11.5

(-) Liabilities -29,654 (14.6)
TOTAL 21,801
Shares outstanding (mn) 2,030
NAV/share 10.7
Target discount 0%
Target NAV 10.7

Source: Company reports and J.P. Morgan estimates
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Figure 7: TMG – SOTP breakup by property type Figure 8: TMG – SOTP breakup by projects
20% 4.9%
10.1%
9.6%
62%
80%
11.7%
Master developments Investment portfolio 1.7%

Al Rehab Al Rabw a 2
Madinaty Nassamat Al Riy adh - KSA
Hospitality Projects Hospitality Portfolio
Source: Company reports and J.P. Morgan estimates Source: Company reports and J.P. Morgan estimates
Key drivers of TMG’s SOTP fair value

We calculate our SOTP using We rate TMG OW with Dec 2010 SOTP based PT of EGP10.70. We do not apply a
base case WACC of 14.8%, discount to our SOTP, as we find Egyptian property market dynamics rather robust
derived via base cost of equity at
16.5%, after tax cost of debt at
with the residential demand largely driven by domestic population rather than expats.
9.6% and target debt to capital of However, we use a high WACC of 14.8% to reflect low affordability levels and high
25% interest & inflation (11.4% as of May 2010) rate environment in the country.
Table 3: TMG — J.P. Morgan WACC calculation

Egyptian 1yr Treasury bill 10.5%
Equity Market Risk Premium (EMRP) 6.0%
Base cost of equity 16.5%
Current Cost of Debt 12.0%

Income Tax Rate 20.0%
After Tax Cost of Debt 9.6%
Debt to Total Capital (Target) 25.0%
Weighted Average Cost of Capital 14.8%
Project and tenure wise discounting guide
Yielding properties 14.8%

Construction stage 15.3%
Preconstruction stage 15.5%
Projects 3 years out 15.8%
Projects 6 years out and beyond 16.5%
Source: J.P. Morgan estimates
Our WACC is calculated using Egypt's benchmark 1 year Treasury bill rate
(currently at 10.5%) to which we add an equity risk premium of 6%, resulting in our
base cost of equity of 16.5%. We use 12% as our base cost of debt, which reduces to
9.6% after we apply a 20% corporate tax rate. Using a target debt to capital of 25%,
we calculate our base WACC at 14.8%. We use our base cost of WACC to discount
cash flows from TMG’s operational investment properties. However, for properties
under construction, we apply an average WACC of 15.3% and for projects that are
still in the preconstruction stage, we add a further 25bps to our construction stage
WACC to discount potential cash flows.
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For Madinaty Phase 5 and 6 that we estimate to be completed in 2017 and 2020,
respectively, we add an incremental 25bps for each phase to our pre-construction
WACC of 15.5%. This takes our Madinaty Phase 5 and Phase 6 WACC of 15.8%
and 16%, respectively and results in a phase BUA-weighted WACC of 15.75%. We
use a 2% terminal growth rate to discount cash flows from TMG's recurring income
generating investment properties
Table 4: TMG - WACC range across projects

WACC range for phases
Projects Stage Completion Low High Average
Al Rehab 1 Construction stage 2012 15.3% 15.3% 15.3%
Al Rehab 2 Construction stage 2020 15.3% 16.0% 15.6%
Al Rabwa 2 Construction stage 2013 15.3% 15.3% 15.3%
Madinaty Construction and pre construction stage 2020 15.3% 16.5% 15.7%
Nasamat Al Riyadh - KSA Pre-construction 2012 15.5% 15.5% 15.5%
Hotel projects Construction and pre construction stage 2015 15.5% 15.5% 15.5%
Hospitality Portfolio Completed 14.8% 14.8% 14.8%
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TMG – Strong valuations with 34% price to NAV discount

TMG – offering a favorable mix vs. its peers
The stock is up 16% YTD and Trading at a 34% discount to NAV (average since 2008) and underpinned by strong
15% relative to the benchmark residential demand fundamentals, TMG makes a compelling buy case when
EGX30 Index. However we
expect momentum to continue,
compared to its regional emerging market peers in our view. The housing demand
with improved upcoming QoQ dynamics within Egyptian real estate are more comparable to Saudi Arabia, India and
earnings through planned Malaysia among other emerging markets, where real estate developers are trading at
handovers and positive close to or at a premium relative to their 2010E NAVs.
response from off-plan sales in
Saudi Arabia
Take, for example, Dar Al Arkan, Saudi Arabia’s largest RE developer by market
cap with similar demand dynamics i.e. residential housing shortfall and under
penetrated mortgage market, trades at an average 5% price to NAV discount.
Similarly, DLF Limited, India’s largest listed developer, is trading at a 66% premium
to its 2010E book. In contrast, while TMG’s UAE peers trade at comparable price to
NAV discounts, we note that the two countries, in our view, differ on the basis of
underlying demand fundamentals.
TMG is up 16% YTD and 15% relative to its Cairo based benchmark EGX30 Index.
In Feb 2009, TMG's stock hit a low of EGP2.37, down 81% from its 2008 peak of
EGP12.51.
Table 5: TMG vs. Key Emerging markets RE developers (>1bn in Mkt cap)
Market Cap P/B Total Return YTD
Company Country US$ bn X %
DLF Ltd India 10.2 1.66 -25

Emaar Prop UAE 5.3 0.61 -17
Dar Al Arkan Rea Saudi Arabia 3.9 0.96 -3
Unitech Ltd India 3.8 1.54 -15
Jabal Omar Development Saudi Arabia 3.2 1.81 -6
Growthpoint Prop South Africa 3.1 1.03 10
TMG Holding Egypt 2.8 0.65 12
Barwa Real Estate Qatar 2.9 1.31 -7
Redefine Property South Africa 2.5 0.93 0
Aldar Properties UAE 2.2 0.42 -37
DBRealty Ltd India 2.1 2.72
Emaar Economic C Saudi Arabia 1.9 1.00 -11
Housing Development India 1.8 1.08 -38
Uem Land Hldg Malaysia 1.5 2.72 16
Sorouh Real Estate UAE 0.7 0.78 -14.8
Average 1.28 -9.7
Source: Bloomberg and J.P. Morgan estimates, Priced on June 02
Hence, we believe that TMG's 34% price to NAV discount should further narrow
moving forward supported by near-term triggers including upcoming quarterly
results for 2010 on the back of planned handovers in Madinaty, a pick up in sales
(1Q10 new sales recorded at EGP1.2bn) and 4Q10 off-plan sales in Riyadh.
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[email protected]
Figure 9: TMG price performance vs. top MENA peer average Figure 10: TMG P/B historical trend
140 TMG Dar Al Arkan Aldar 1.3 Price/Book av g+2std av g+1std
Emaar Sorouh Palm Hills 1.2 av g-1std av g
120 Barw a
1.1
100 1.0
0.9
80 0.8
60 0.7
0.6
40 0.5
20 0.4
0.3
0 0.2
Jun-08 Oct-08 Feb-09 Jun-09 Oct-09 Feb-10 Jun-10 Jan-08 May -08 Sep-08 Jan-09 May -09 Sep-09 Jan-10 May -10
Source: Bloomberg Source: Bloomberg
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Egypt Property Market
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Egypt – 11% of MENA GDP; 28% of

MENA population
Egypt economy grew 5% in Located in Northern Africa, bordering the Mediterranean Sea, Egypt is one of the
2009—3rd highest within MENA largest economies within the MENA region accounting for 11% of the combined
driven by continued FDI flows,
remittances and tourism
MENA GDP of US$1.7Tr (2009). Despite the challenging global macro dynamics,
revenues Egypt has managed to weather the storm, posting the third highest GDP growth
within the MENA region at 5% in 2009. Our regional economist expects the positive
growth trend to continue well into 2010 with an estimated real GDP growth of more
than 5%. Based on these forecasts, we expect Egypt to achieve GDP per capita of
US$ 3,100 in 2010, up from US$2,500 in 2009. Egypt’s manufacturing, Oil&Gas
and agricultural sectors are the key contributors to GDP, accounting for an aggregate
46% and 17%, 15% and 14%, respectively. The Suez Canal revenues are 3% of
Egypt’s GDP.
Figure 11: Egypt - key sectors' contribution to GDP (2008-09) Figure 12: MENA GDP by major economies
40% Iran
15% 20% UAE
14%
Saudi Arabia Egy pt

17% 22% 11%
3%
11% 14% Kuw ait

Oil, Gas & Others Manufacturing Others 7%
Agriculture, Forests & Fishing Wholesale & Retail Trade Qatar
20%
Suez canal Others 6%
Source: CAPMAS Source: CIA factbook
The Egyptian pound is a freely floating currency ($1=EGP5.5) but has been fairly
stable for the last few years vs. peer emerging market economies. The country’s
inflation peaked at 20% in 2008, dropping to 10% in 2009. J.P. Morgan estimates
Egypt’s inflation to contract further to 7.4% for 2010.
Figure 13: MENA economies GDP per capita (2009) Figure 14: MENA economies real GDP growth (2009)
80,000 75,978 GDP per Capita (US$) Kuw ait -2%-1%
Saudi Arabia
70,000 United Arab 0%
Iran 1%
60,000 Liby a 2%
46,582 Jordan 3%
50,000
Sy rian Arab 3%
40,000 32,488 Bahrain 3%
24,353 Oman 4%
30,000 Yemen 4%
18,718
20,000 14,871 Iraq 4%
Egy pt 5%
10,000 2,450 Lebanon 7%
- Qatar 11%
Qatar UAE Kuw ait Bahrain Oman KSA Egy pt -5% 0% 5% 10% 15%
Source: CIA factbook Source: CIA factbook
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Egypt – MENA’s most populated country

Despite faster urban population With its large indigenous population base of 75mn, Egypt accounts for 28% of the
growth compared to rural, 57% combined population of the MENA region at 281mn. Over the years, Egypt's
of Egyptians are still living in
rural areas
population has been growing at a natural rate of 2% making infrastructure
maintenance and improvement all the more challenging for the government.
Agriculture is the main identifiable source of income generation and, according to
the government statistics, 11% of the country’s workforce is employed in the
agricultural sector. This is followed by manufacturing and related services at 5%.
Despite high economic growth, living conditions for Egyptians remain modest with
c.57% of Egypt's population dwelling in rural areas despite faster urban population
growth rate at 2.3% vs. 0.7% growth in the rural population. Poverty is concentrated
in rural areas and in Upper Egypt with nearly 20% (CIA factbook) of Egyptians
living below the poverty line.
Figure 15: Population - Egypt ranks no. 1 in MENA (281mn) Figure 16: Egypt’s population growing steadily at 2%
Iran Iraq 85 2.4%
27% 11% 80 2.2%
2.0%
Sy ria 75 1.8%
7% 1.6%
70
Saudi Arabia 1.4%
Yemen 65 1.2%
9% 8% 60 1.0%
E
05
06
07
08
09
Rest of the
10
11
12
13
14
20
20
20
20
20
20
20
20
20
20
Egy pt MENA
Population Grow th
28% 10%
Source: CIA Factbook Source: CIA Factbook
On a positive note, the country boasts one of the youngest populations in the world
with an average age of 24 years. According to the Ministry of Investment, over 52%
of Egypt’s population is aged between 5-30 years and only 13% is aged above 45
years.
Figure 17: Egypt’s population split Figure 18: Egypt – 52% population is aged between 5-30 years
45-75 y ears Less than 5

13% y ears
Urban 11%
Population
30-45 y ears
43%
Rural 24%
Population 5-20 y ears
57% 32%
20-30 y ears
20%
Source: CAPMAS Source: Ministry of Investments Egypt
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The family culture, particularly in urban areas, is rapidly evolving where the concept
of dual income households among the middle and the upper middle class population,
which represents over 48% of the population, is slowly becoming more common
given low affordability levels of quality living. The middle income segment accounts
for 35% of Egypt’s population, while c.12% represents the upper middle segment
and only 2% constitute the high income segment based on the housing data provided
by Central Agency for Public Mobilization and Statistics use (CAPMAS).
Figure 19: Egypt - One of the youngest populations in the world Figure 20: Egypt - Income segments based on housing types
50 44 Av erage age Middle
40
40 Income
29 35%
30 24
20
10 Upper Middle
12%
0
Low Income
51% High Income
a
il
um
ca
ic o
y
az
re
an
ri
Ko
lgi
ex
Br
Af
rm
2%
Be
M
h
h
Ge
ut
ut
So
So
Source: : Ministry of Investments Source: CAPMAS
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Egypt property market

High demand for housing amid low affordability levels
• Egypt’s housing demand is driven by indigenous population growth and rapid
urbanization.
• We estimate Egypt’s housing deficit to reach 800k in 2010.
• Of this, the housing shortfall for middle and upper middle income accounts for
378K.
We estimate Egypt's housing Contributing almost 32% to Egypt’s combined GDP and close to 25% to Egypt’s
shortfall to reach 800K by end- population, Cairo attracts the highest level of investment and interest in its real
2010 and calculate Cairo's share
in the total shortfall at 264k units
estate market. However, with close to 40% of Cairo's population living in informal
settlements, the data on residential and commercial real estate is patchy. We rely on
information provided by Egypt’s Ministry of Investments, Central Agency for Public
Mobilization and Statistics use (CAPMAS), CIA Factbook, IMF, UN Development
reports and a handful of real estate agencies that provide insight into Cairo’s real
estate market including Jones Lang LaSalle, Colliers and ColdWell Banker based in
Egypt.
Figure 21: Cairo's informal settlements
Source: Egyptian-German Participatory Development Programme in Urban Areas (PDP)
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Housing deficit in upper middle, middle & low income

segment…
Existing housing stock in Catering to a large urban population as well as being home to local, national and
Downtown Cairo is more than 30 multinational corporates, Cairo retains its place in Egypt as the commercial hub and
years old, where infrastructure
constraints make further
the most active and attractive real estate market. The demand for housing comes
expansion challenging mostly from local home buyers with over 60% being cash based purchases, as the
mortgage market remains largely untapped. Given the less structured expansion and
limited infrastructure in Downtown Cairo, the middle, upper middle and high income
segment has been actively moving away from the centre and towards Greater Cairo,
i.e. the western and eastern extensions of Cairo city. Existing stock of housing is
more than 30 years old and development within Downtown Cairo is nearly
impossible given space limitations. Given low affordability levels and the under
penetrated mortgage market, the new developments have been focused largely on the
upper middle and high income customer segment.
We expect Egypt’s housing deficit to reach 800K in 2010

We forecast residential shortfall We calculate Egypt’s overall housing deficit to reach 800K units in 2010 based on a
for Egypt’s middle income population growth of 2% and an average household size of 4.5 (see Table 6). Of this,
segment at 282K and calculate
Cairo’s share in this at 93K units
we forecast around half of the housing deficit equal to 405K units in the low income
segment which represents 51% of Egypt's overall population base. We calculate
housing deficit for the middle income segment, with 35% weight in Egypt’s
population, to reach 282k units in 2010, while we expect the housing deficit for the
upper middle income segment, 12% of the population, to reach 96k units in 2010.
Table 6: Egypt residential market forecast

2008 2009 2010E 2011E 2012E
Population (000') 74,400 75,888 77,406 78,954 80,533
Y/Y 2.1% 2.0% 2.0% 2.0% 2.0%
Household/unit 4.5 4.5 4.5 4.5 4.5
Required units (000') 16,388 16,715 17,050 17,391 17,739

Supplied units (000') 15,875 16,060 16,250 16,440 16,630
Demand (000') 366 328 334 341 347

Actual annual supply (000') 175 185 190 190 190
Surplus/ (Deficit) (000') -513 -656 -800 -951 -1,109

Source: CAPMAS, UN development report, Ministry of Investments and J.P. Morgan estimates
…but affordability levels remain low

Mortgage market remains With real estate loans accounting for less than 1% of Egypt's combined GDP, most
untapped with real estate loans home purchases are cash based or with 30-60% cash and the balance financed over 5,
accounting for less than 1% of
the country's GDP - amongst the
7, 10 or 15 years mostly by the real estate developer itself.
lowest vs. peer emerging market
economies Bank lending for real estate remains low on the back of 1) Central bank’s restriction
on real estate lending by commercial banks for off-plan units, 2) high interest rates
(14-15%) and 3) lack of awareness among general population with regards to
alternative modes of funding. Egypt's mortgage loans as a percentage of GDP are
also amongst the lowest when compared to other emerging markets with similar
income and population dynamics.
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Figure 22: Egypt - Real estate loans as a % of GDP Figure 23: Egypt – mortgage lending as a % of GDP
Mortgage Finance Companies 14% 12.0%
EGP M n
Banks
3000 Mortgage as % of GDP 0.4% 12%
2500 0.4% 10% 8.0%
8%
2000 0.3%
6% 4.0% 4.0%
1500 0.3% 3.0% 2.5%
4%
1000 0.2% 1.0% 0.4%
2%
500 0.2% 0%
0 0.1% UAE India IndonesiaTurkey Qatar Russia Saudi Egy pt
2005-06 2006-07 2007-08 2008-09 1Q10 2Q10 Arabia
Source: CAPMAS Source: Central banks, IMF and J.P. Morgan estimates
Table 7 highlights average annual income and housing affordability levels across
different income segments prevalent in Egypt. According to a study done by
USAID, 2% of the population belonging to the high income segment draws an
average annual income of EGP820K and given the relatively high savings rate of
35% can afford luxury accommodation ranging between EGP2-7.5mn (US$360K-
1.2mn). At the other end of the spectrum is the low income segment representing
51% of the population with average annual income of barely EGP90K (US$16K) and
a savings rate of close to 3%.
Table 7: Egypt - Housing affordability levels across various income segments

Ave. annual
Household Family income Unit size Price Ranges (EGP
Income categories size EGP Housing type (sq m) sq m) Unit Price range (EGP )
High income 3.8 820,800 Luxury 170-500 12,000-15,000 2mn-7.5mn
Upper Middle 4.0 384,000 Above average 115-200 6,500-9,500 750K-1.9mn
Middle 4.6 165,600 Economic 80-120 4,500-6,500 360K-780K
Low Income 5.0 90,000 Low cost / subsidized housing 40-70 750-1,000 30K-70K
Source: USAID, Mortgage and Real Estate Advisory Services Project TAPR and J.P. Morgan Estimates
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Cairo – Residential shortfall to reach 264k

units by end 2010
• We calculate Cairo’s housing deficit at 264k unit based on its 32% share in Egypt’s GDP.
• Of the total deficit, we estimate the housing shortfall for the middle and the upper
middle income segment to reach 125k by 2010.
We calculate Cairo’s residential Deriving Cairo's demand based on its 32% (in 2008 Cairo’s GDP contribution
shortfall using its 32% accounted for 33% of Egypt combined GDP) contribution to Egypt's combined GDP,
contribution to Egypt’s total
GDP
we calculate Cairo housing stock deficit at 264k units for 2010E (see Table 8). We
see strong demand within the middle and upper middle income segment given the
under-leveraged market and growing housing deficit.
As a result, out of the overall housing deficit of 264k units, we forecast a housing
deficit of 125k units within the middle and upper middle income segment in Cairo
and a deficit of 6k units within the high income segment.
Over 550k marriage contracts signed annually; another way to gauge housing demand
According to CAPMAS, over 550k marriage contracts are signed in Egypt annually of which nearly 100k (JLLS estimates)
marriages take place in Cairo alone. While we do not take this into consideration when forecasting annual demand for
housing, it nevertheless strengthens our case for a housing deficit in the country.
Keeping our assumptions conservative, even if we estimate 20% of these married couples look for new housing given low
affordability levels, it still implies demand of nearly 132k units annually. Of this c. 62k represents housing demand in the
middle and upper middle income segment and 3k in the high income segment.
Figure 24: Egypt- Annual marriage contracts Figure 25: Egypt- Housing demand from new marriages
700 000' 150 000' units
600 68
100 67
62
500
50 46 47
43
400
15 16 16
2002 2003 2004 2005 2006 2007 2008 -
2007 2008 2009
Annual registered marriage contracts High Income Upper Middle Middle Low Income
Source: CAPMAS Source: CAPMAS and J.P. Morgan estimates
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Table 8: Egypt and Cairo's residential demand by income segments

Overall shortfall Low Income Middle Income Upper Middle High End
Estimates in 000' Egypt Cairo Egypt Cairo Egypt Cairo Egypt Cairo Egypt Cairo
As a % of total demand 33% of Egypt
100% 51% 51% 35% 35% 12% 12% 2% 2%
housing deficit
2008 513 169 260 86 181 60 62 20 12 4

2009 656 216 332 110 231 76 79 26 16 5
2010E 800 264 405 134 282 93 96 32 19 6
2011E 951 314 481 159 335 111 115 38 23 7
2012E 1,109 366 561 185 390 129 134 44 26 9
Source: CAPMAS, UN development report, Ministry of Investments and J.P. Morgan estimates; Note: Cairo demand based on Cairo’s contribution in Egypt's total GDP at 33%.
Cairo – among the world’s top 10 most populated cities

According to a UN development Bursting at the seams, Cairo is amongst the world’s top 15 densely populated cities
report, nearly 1,000 people and the largest within MENA with nearly 18mn people. Cairo is also Egypt's main
migrate to Cairo per week with
40% of the people living in
residential and commercial market given its strategic location, making it the second
informal settlements most attractive location after Dubai in MENA. Being the commercial hub and the
capital of Egypt, Cairo attracts a significant number of internal immigrants with over
1,000 people moving into the capital every week according to a UN development
report. Nearly c. 40% of Cairo’s inhabitants live in informal settlements and the city
is home to 3 of the world’s 30 largest slums according to the same report.
Figure 26: World's most populated cities

Cairo 18 Population in Mn
Los Angeles
Manila
Sao Paulo 21
New York
Mumbai
Delhi 22
Mex ico City
Seoul
Toky o 33
5 10 15 20 25 30 35
Source: http://amolife.com/great-places/top-10-largest-cities-in-the-world.html
Cairo's rapidly developing suburban communities

Originally designed to accommodate 5mn people, Cairo has now become one of the
most populated cities in the world with over 18mn people and one of highest
densities at c. 34,000 inhabitants/sq km and going as high as 100,000 inhabitants/sq
km in certain areas. Hence, in the wake of geographic and infrastructural limitations,
the government initiated a plan to reduce the growing congestion in Cairo's
downtown and set up the New Urban Communities Authority (NUCA) in 1979.
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Table 9: Suburban communities surrounding Downtown Cairo and their target population
City Targeted Number of Inhabitants Land Area (sq m)
1 6th of October 3,750,000 394,177,800

2 New Cairo 2,000,000 283290000
3 Sadat 750,000 481,783,209
4 Obour 600,000 64752000
5 Sheikh Zayed 500,000 42088800
6 10th of Ramadan 500,000 384,465,000
7 Badr 430,000 67584900
8 15th of May 250,000 33590100
9 Shorouq 50,000 43707600
Total 8,830,000 1,795,439,409

Source: New Urban Communities Authority and JLLS
There are 9 satellite cities The NUCA’s main objective is redistribution of inhabitants away from the narrow
surrounding Downtown Cairo strip of the Nile Valley running alongside Downtown Cairo by developing suburban
with 6th of October City and New
Cairo being the most preferred
communities surrounding Cairo. According to Jones Lang LaSalle (JLLS), a leading
locations for people relocating real estate agency, the ultimate plan is to accommodate 9 million people into these
out of Downtown Cairo suburban communities. There are currently 9 major satellite cities surrounding Cairo
– the western and the eastern extension of Downtown Cairo. Among these, 6th of
October City and New Cairo City with c. 677mn sq m in total land area are in heavy
demand with NUCA’s target population for the two cities ultimately at c. 5.7mn. See
Table 9 for details.
Figure 27: Cairo’s outskirts in the 1970s Figure 28: Developed suburban communities around Cairo by 2000s
Source: World Bank

Source: World Bank
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Residential prices have been relatively stable for middle

income housing
Residential prices have been Starting late 2008, the global financial crisis did trigger a correction in Cairo’s high
stable for middle income and upper income housing segment. However, prices within the middle income
housing given under supply,
while prices for high end
segment have remained relatively stable, underpinned by the housing shortfall and
housing segment have come off limited supply albeit limited affordability levels. TMG, which is the largest
by 35-40% in the last 18months developer catering to Cairo’s housing demand within the organized middle and upper
middle income segment, told us that despite demand slowed in 2009, the company
increased average prices by c. 3% and further by 6%YTD.
Figure 29: Cairo residential prices for select locations

EGP /Sq M
16000 15,000
14000
12,000
12000
10000
8,000 8,000
8000 7,000 6,500 6,000
6000 5,000
4,000 4,000 4,500
4000 3,000 3,000
2,000
2000
0
Zamalek New Cairo 6th of Mohandessin Heliopolis Maadi Nasr City
October High Low
Source: JLLS
Contrary to this, Palm Hills Development that has historically been focusing
primarily on the high end market lowered its prices by as much as 40% in 2009 in
order to reach a larger target market in the face of more saturated demand from the
high end segment. However, given that the majority of the property transactions are
cash driven and for owner occupation, the number of contract cancellations (peaked
in 4Q08 and 1Q09) has remained relatively low.
Residential prices vary significantly across different regions in Cairo, where prices
for certain locations in Downtown are still at a premium despite infrastructural and
logistical challenges. For example, residential property in Zamalek and Mohandessin
in Downtown Cairo still trade at a premium relative to properties in some of the new
suburban communities in Cairo’s western and eastern extensions. Within Cairo’s
western extension, 6th of October (30-90 minutes from Downtown Cairo depending
on the flow of traffic) is a popular location for inhabitants relocating out of
Downtown. On the eastern front, New Cairo is home to a large number of working
class (see Table 8, Figure 27 and 28 for details). TMG's mega mixed-used
communities Madinaty (under early stages of construction) and Al Rehab (fully
developed community with a population of c. 120k, a commercial district with 6
banks, 3 local and 3 international schools as well as a large retail area) and Emaar's
projects are all located within New Cairo, while the majority of Palm Hills
Development are located in the western region in 6th of October City and beyond.
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Residential rents, like prices, also vary from one location to another. However,
average residential rents are high in Zamalek averaging at EGP750 sq m (US$136/sq
m). Zamalek is located along the narrow strip of River Nile and is the heart of
Downtown. In contrast Nasr City, which is further from the Cairo downtown, offers
one of the lowest residential rents averaging at EGP300/sq m p.a. (US$55/sq m p.a.).
Figure 30: Cairo rental rates for select locations

EGP Sq M p.a.
1000 900
800 720 720
600 660
600 540 540
480 480
360 360 360
400 300 240
200
0
Zamalek New Cairo Maadi 6th of Heliopolis Mohandessin Nasr City
High Low October
Source: JLLS
Residential rents in 6th of October City, which is the largest suburban community,
range between EGP360-600/sq m (US$65-109/sq m). The rental yields across Cairo
and greater Cairo (western and eastern extension) vary between 8-15%, where yields
are particularly high in Maadi, which houses major oil and gas multinationals,
embassies and diplomatic agencies.
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Cairo Commercial - Office space remains

undersupplied
• Cairo’s commercial sector remains fragmented with limited supply of Grade A
office space particularly in Downtown Cairo.
• Demand for prime commercial space remains high with less than 1% vacancy
rate and rental yields in the range of 12-15%.
• Over the next 4 years, we estimate c.1.4mn of new supply to come on stream,
which should be able to offset the deficit in the sector.
Commercial space within The demand for the commercial sector in Egypt is characterized by Egypt’s stable
Downtown Cairo remains limited GDP growth of 5+% and large population base that continues to attract inflow of
with vacancy rates at less than
1%
major multinational and regional corporates into the market. The country is
increasingly seen as the preferred destination of major multination corporates and
regional businesses given its positioning as the mid point between Africa and the
Middle East offering access to nearly 280mn people within the MENA region.
Egypt’s capital, Cairo, serves as the commercial hub, however availability of prime
space within Downtown Cairo is constrained and the supply remains fragmented
across Downtown and greater Cairo with favorable vacancy rates of less than 0.5%.
Table 10: Cairo - Existing office supply for select locations

Rent in USD / Sample
Name GLA (sq m) sq m / month Occupiers Location Type
Nile City 100,000 68.4 Orascom, AIG, P7G Nile Corniche Mixed-use
City Stars 70,000 45 Booz & Co, Maersk Nasr City Mixed-use
Smart Village 390,000 34.2 Oracle, Vodafone Cairo-Alex, Desert road Business park
Pyramids Heights 180,000 28.8 KPMG, IBM Cairo-Alex, Desert road Business park
WTC 19,000 25.2 Australian Embassy Downtown Tower
Source: JLLS and J.P. Morgan estimates
We estimate new office supply of Given infrastructural constraints in Downtown Cairo, an increasing number of
1.5mn sq m to come on stream multinational and local companies are relocating towards Cairo’s western and eastern
over the next 4 years
extensions. Cairo has nearly 800k sq m of Grade A office space of which over 570k
sq m office space is located within Smart Village and Pyramids Heights in the 6th of
October City (30-90 minutes from Downtown Cairo). Many local corporates still
located in Downtown Cairo are looking to move facilities and their staff to greater
Cairo in order to avoid traffic congestion and infrastructure constraints within
Downtown Cairo.
Table 11: Cairo - Future supply of Grade A commercial space

Location GLA (sq m) Expected Year of Completion Developer
Eastown /Westown 920,000 2013 onwards SODIC /Solidere
Smart Village Phase 3 293,000 2012 onwards Smart Villages Company
Stone Park 150,000 2013 Rooya Group
Cairo Festival City 70,000 2011 Al Futtaim
Capital Business Park 50,000 2012 Cayan Investment / Dorra Group
Park Plaza 15,000 2012 Al Arabia / Al Ahly
Source: JLLS
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An estimated 1.5mn sq m of new Grade A office supply in the pipeline is expected to

come on stream over the next 4 years. We expect this to be absorbed with robust FDI
flows and continued inflow of new corporates setting up presence in Cairo. Egypt’s
Foreign Direct Investment (FDI) flows have remained robust despite the global
financial crisis, where it attracted nearly US$8bn in 2009 after a peak of US$13bn in
2007-08. About 41% of the FDI flows in the last 5 yrs have been spent on
establishing new corporates, where Egypt has seen nearly 6k new companies being
set up on average annually in the last 5 years. YTD 3,500 new companies have
already been registered according to the Ministry of Investment.
Figure 31: Egypt - Number of newly established corporates Figure 32: Egypt - FDI flows
10 13
'000 8 14
11
8 6 6 12
6
10 8
6
4 8 6
3 3
4 6 4
4 2
2
2
0 0
2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 1H10 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09
Number of new ly established companies FDI Flow s (US$Bn)
Source: Ministry of Investments Source: Ministry of Investments
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Cairo Retail and Hospitality

• Egypt’s capital Cairo faces a shortage of destination malls, where per capita
retail space at 0.03/sq m is the lowest in GCC+Egypt.
• Key retail outlets and open retail spaces occupy c. 314k sq m of GLA vs. 3mn sq
m of retail GLA in Dubai.
• Over the next 3 years, we estimate c. 500k sq m of retail space to come on stream,
taking Cairo’s retail GLA per capita to 0.044/sq m.
Cairo Retail – limited GLA for high-end retail

Cairo’s retail GLA at 0.03 sq m Unlike Dubai, Egypt does not have any major destination malls with the existing
per capita is amongst the lowest Gross Leasable Area (GLA) for the high end segment at only close to 314k sq m vs.
vs. its GCC peers
Dubai retail GLA at over 3mn sq m. The lack of retail space can be gauged by retail
space per capita, which, at 0.03 sq m per capita, is well below Riyadh at 0.52 sq m or
Qatar at 1 sq m, and with Dubai being at the other end of the spectrum with the
highest retail space per capita in MENA region at 1.9 sq m. The City Stars in Cairo is
the largest mall with a total built up area (BUA) of over 700k sq m but GLA of only
close to 150k sq m.
Figure 33: Retail GLA per capita across GCC

Dubai 1.90
Bahrain 1.06
Qatar 1.07
Abu Dhabi 0.87
Riy adh 0.52
Kuw ait 0.30
Oman 0.14
Cairo 0.03
0 0.2 0.4 0.6 0.8 1 1.2 1.4 1.6 1.8 2

GCC Retail Mall GLA per capita (2010)
Source: JLLS, Cairo and J.P. Morgan estimates
Table 12: Cairo - Existing retail GLA

Rent in USD /
Name GLA (sq m) sq m p.a. Location Description
CityStars 150,000 700-900 Nasr City Regional mall
Dandy Mall 90,000 672-888 Cairo-Alex road Community mall
Maadl City Center 25,000 583-842 Maadi Community mall
Nile City 12,000 691-886 Nile Corniche Small annex o office complex
First Mall 10,000 691-907 Giza Speciality luxury goods mall
Source: JLLS, Colliers and J.P. Morgan estimates; Note: The above is note an exhaustive list of retail space across Cairo
Over 500k sq m of high end retail GLA is in pipeline with planned delivery over the
next 3 years. Beyond 2013, SODIC/Solidere are set to start phased delivery of the
retail space in ‘Eastown and Westown’ within the 6th of October City in Cairo. With
a total GLA of over 377k sq m, this incremental GLA takes Cairo’s retail
development pipeline to nearly 1mn sq m over the next 4-5 years. Rents for the high
end retail space ranges between US$580-900/sq m per annum.
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Table 13: Cairo and Greater Cairo - Future retail supply

Name GLA (sq m) Developer Type Location Year of Completion
Eastown & Westown 377,000 SODIC / Solidere Two city centers 6th October / New Cairo 2013 onwards
Mall of Africa 176,000 Fawaz El Hukair Shopping mall 6th October 2010
Cairo Gate 250,000 Emaar Shopping mall Cairo-Alex Desert Road 2012 onwards
Cairo Festival City 160,000 Al Futtaim Mixed-use New Cairo 2011
Source: JLLS, Colliers and J.P. Morgan estimates
Hospitality
13mn people visited Egypt in As Egypt’s business hub as well as a popular tourist destination, Egypt attracts
2009 helping Egypt generate business as well as leisure travelers, where annual visitor traffic into Egypt reached
US$13bn in tourism revenues
13mn in 2009 up from 4mn in 2002. Close to 73% of these represent travelers from
European countries, while Arab travelers account for 15% with American travelers at
4%. Given the high number of travelers, Egypt’s tourist receipts totaled US$13bn in
2009, up from US$8bn in 2006.
Figure 34: Egypt - Annual leisure and business visitors Figure 35: Egypt - Tourism revenues
100% Mn 17 14
13
80%
12 11
12
60% 69% 72% 75% 73% 9
10
40%
7
8
20% 8
21% 18% 15% 15%
0% 2
6
2006 2007 2008 2009
4
Arabs Europeans 2006 2007 2008 2009
Americans Others
Total Tourism Receipts (US$ Bn)
Source: CAPMAS Source: CAPMAS
According to Colliers, there were a total of 175 hotels in Cairo with close to 14,600
room keys in 2008. 3 star hotels account for 32% of the total hotels supply at 46 3
star hotels followed by 27 5 star hotels. However, in terms of room keys, 5 star hotel
rooms has the largest share at 59% and c. 8,600 room keys followed by 4 star hotel
room keys at 2,400 accounting for 17% of the total hotel rooms supply. Occupancy
levels in 5 star hotels remain above 85% with average room rate at US$125-150 per
night.
Figure 36: Cairo - Hotel room keys
Source: Colliers
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Key players - TMG is the largest

Housing development from the According to the 2008 Egypt Housing Survey, about 90% of the country's housing
organized sector account for supply is built informally by what the market refers to as the secret competition.
10% of the total housing
development in Egypt where
According to the survey only 10% of the housing supply has been built by
TMG has historically been the professionals. Within the organized real estate sector, TMG is the leading Egyptian
only developer within the community real estate developer in terms of total land bank at 50mn sq m, sales
organized sector targeting backlog at EGP25bn and housing development of 57,000 units (out of this 32k units
largely the middle and upper are sold units under construction). This is followed by Palm Hills Development,
middle income segment
Egypt’s upscale developer, with a total land bank of 49mn sq m. Six of October
Development and Investment Company (SODIC) is relatively small with total
landbank of 5.8mn sq m and development concentrated in Greater Cairo. Emaar
Properties’ Egyptian subsidiary, Emaar Misr, is one of the leading international
investors in Egypt’s real estate market with a total development portfolio of
US$5.55bn.
Table 14: TMG - Competitive landscape

Comparative valuations Business mix
Market Cap Ave. Traded Value P/B P/E Target Land Bank Development
US$ bn US$ mn (6Mnth) 2010E x 2010E x market sq m mn type
Talaat Mostafa 2,780 8.92 0.61 8.1 Middle & Upper middle 50 City & community complexes
Palm Hills 1,064 1.68 1.24 7.2 High-end 49 Villas
Six of October Dev. & Inv. C. 523 1.75 1.17 14.8 High end 5.8 Residential & commercial
Source: Company reports, Bloomberg and J.P. Morgan estimates
Figure 37: Geographical distribution of land for Egypt's top 3 real estate developers
100% 7%
4% 14%
80%
60% 49%
100%
40% 89%
20% 37%
0%
TMG PHD SODIC
Cairo Outside Cairo International
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Talaat Mostafa Group Holding:

Company Background
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Talaat Mostafa Group - Changing Cairo's

landscape
Company background and shareholder structure
Talaat Mostafa Group (TMG) is Egypt’s largest real estate developer with a total
landbank of 50mn sq m and 20-year track record in property development. TMG
develops large scale integrated city and community complexes mainly located in the
Greater Cairo region. Apart from integrated community complexes, TMG also develops
and manages luxury hotels and resorts. It currently has 3 hotels with 684 room keys and
plans to raise this to 5,000 room keys in 5 years, of which 1,725 room keys are committed
and under development. The group has completed development of 3 community
complexes, while 2 other community complexes (Al Rehab 1 and Al Rabwa 1) are
partially competed with development of their subsequent phases currently under way.
Figure 38: TMG - Organization structure
Source: Company annual report
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TMG was created in June 2007 as a holding company for TMG group’s various real
estate related subsidiaries. As a result of the organizational restructuring, the Arab
Company, Alexandria Real Estate and San Stefano were consolidated into a new
Holding company called TMG.
TMG was formed as a result of In November 2007 following the organizational restructuring process, TMG offered
organizational restructuring 395mn shares through a retail offering (IPO). The institutional and international
completed in Sep 2007
subsequent to which its shares
investors were offered 330mn shares at EGP11.6/sh, while the retail offering for
were listed on the Cairo Stock 65mn shares was made at EGP11/sh. The institutional and international offering was
Exchange in Nov 2007 17x over subscribed, while the retail offering was oversubscribed by 41x. Within the
real estate development sector in Egypt, TMG is the largest listed player with a total
market cap of US$2.8bn and average daily traded value of US$9mn (6-month
average).
TMG RE and Tourism Investment, which include the Talaat Mostafa family and the
Saudi group (Bin Laden, Saudi Arabia), owns a 49.85% stake in TMG. Apart from
the strategic shareholders, other prominent shareholders include Misr Insurance
Company and Banque Misr with 4% and 3% ownership in the company,
respectively. The stock is fairly liquid with a free float of c.43%.
Talaat Mostafa Family and Saudi Figure 39: TMG Shareholding structure
Bin Laden group each own 25% Others
strategic shareholding in TMG 43%
Banque Misr TMG Inv estments

3% (Including Talaat
Misr Insurance Moustafa family and
Company Saudi Group)
4% 50%
Source: Company reports and Bloomberg
Management
TMG is recognized as a strong The TMG group’s history goes back 38 years, when Mr. Talaat Mostafa started his
brand name in Egypt with its construction business with his three sons. The real estate division was established in
long history of development and
timely delivery of committed
the late 80s when Talaat Mostafa’s youngest son Mr. Hisham Talaat Mostafa saw the
units growing opportunity within the real estate sector and formed the real estate arm. The
formation of the real estate division coincided well with the Egyptian government's
programme to expand Cairo and relocate Downtown inhabitants towards Cairo's
suburban outskirts. Talaat Mostafa’s eldest son Mr. Tarek Talaat Mostafa took
control of the construction business, while the second son ventured into the
agricultural division.
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In September 2008, Tarek Talaat Mostafa was appointed as Chairman and Managing
Director of Talaat Mostafa Group Holding. Prior to that, he was the Chairman and
Managing Director of Alexandria Construction Company, one of the largest
contractors in the MENA Region. He is also the Executive Chairman of other
companies such as Alexandria for Electrical Works, Alexandria for Glass
Manufacturing, Alexandria for Tunnels and Alexandria for Construction and
Decoration, in addition to being a board member of a number of the real estate
development companies in the group. He is an elected member of the Egyptian
Parliament and chairs its Housing and Infrastructure Committee, a member of the
National Democratic Party, the Board of the Egyptian Construction Contractors
Union, and the National Union of the Chambers of Commerce. Over 3,000 people
are employed directly at TMG with about 60,000 on-site workforce.
Self-funded business model – core in Egypt

Mortgage financing remains TMG relies largely on a self funded business model with little upfront funding
untapped in Egypt where the requirement to develop city and community complexes. The payment for purchased
company’s self-funded off-plan
business model has worked well
land parcels does not entail initial cash outlay and is typically settled in kind in the
form of residential apartments to the Ministry of Housing (e.g. Madinaty and Al
Rehab).
The upfront costs involving development plan and initial infrastructure are funded
via equity or debt, while the overall project construction cost is financed through
customer advances that are typically linked to cash outflow.
The company does not start construction unless a considerable portion of the planned
units in a particular phase of the project are sold out in order to ensure liquidity
headroom for at least 12-15 months ahead of construction. The customer payments
on sold units are structured to coincide with the planned construction expenses.
Table 15: TMG - Sold BUA and customer advances for key projects
Total BUA Sold BUA Sold BUA Customer advances
sq m mn sq m mn As a % of total EGP mn
Madinaty* 17.1 4.8 29% 15,628
Al Rehab 1 & 2 2.8 1.2 43% 4,310
Al Rabwa 0.12 0.01 59% 315
Total 20.02 6.01 31% 20,253

Source: Company reports. * Madinaty BUA includes district and sector services but excludes land for Mega developers
About 87% of the unit sales in Madinaty are made using one of the long-term
financing arrangements offered by TMG and backed by local and regional banks,
allowing customers to pay in installments. The customer payments depend on
applied financing schemes. Following the contract signing, the customer deposits a
series of post dated cheques with TMG that represent the monthly and annual
installments that add up to the remaining price of the purchased unit including
financing cost. The payments by means of post-dated cheques are structured so that
the instalments during the initial 4-year period prior to delivery of the unit generally
cover all of TMG’s construction outlays.
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Table 16: TMG - Typical payment plan

% # of Cumulative
Cash Price - Four Years Tenure collected instalments collection
Unit Reservation 10.50% 1 10.50%
Contract signing +3 months 10.50% 1 10.50%
Annual instalments +12 months 10.50% 4 42.00%
Delivery instalment +45 months 10.50% 1 10.50%
Monthly instalments 48 26.50%
100.00%
% # of Cumulative
Ten year payment scheme Tenure collected instalments collection
Unit Reservation 7.0% 1 7.00%
Contract signing +3 months 7.0% 1 7.00%
Delivery instalment +45 months 7.0% 1 7.00%
Monthly instalments 48 11.20%
72 10.80%
100.00%
Customer installments are linked The post-dated cheques relating to payments falling due after the scheduled date of
to construction cost outlays delivery of the unit represent a combination of an embedded finance charge covering
thus allowing TMG to keep its
gearing at reasonable levels
TMG’s costs of providing the financing arrangement and TMG’s profit on the sale. If
TMG does not utilise the cheques in connection with these facilities, TMG retains the
embedded finance cheque for its own account. TMG has entered into arrangements
with local and regional banks that allow it to provide financing to purchasers of its
residential units for periods over 4 years and up to 10 and/or 15 years, which are
longer periods than is typical in Egypt. TMG has entered into two types of financing
facilities that support these financing arrangements. If these financing arrangements
are used, the purchase price includes an embedded finance charge.
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Key Projects - Madinaty is the largest

The Madinaty project, in New In its 20-year track record, TMG has completed construction and handover of over
Cairo, represents 66% of TMG’s 25,000 units, implying 4mn sq m in BUA providing accommodation to over 130,000
land bank and 62% of our SOTP
value
inhabitants residing in the Greater Cairo region. Among the company’s completed
projects, the largest is Al Rehab 1 (Ph 1-5) City located in New Cairo with over
22,000 units and 120k inhabitants.
Figure 40: TMG - Landbank split by project Figure 41: TMG - Landbank split by geography
10%
2% Outside Cairo
8%
14% Cairo
66% 78%
Saudi Arabia
14%
8%
Madinaty (Cairo) Al Rehab (Cairo) Al Rabw a (Cairo)

Riy adh and Jeddah Hotel projects
Source: Company reports Source: Company reports
Al Rehab 1 (Phases 1-5) was completed in 2007 and is a completely self sufficient
city within the New Cairo region. Among the key ongoing projects, Madinaty is by
far the largest with a total land area of 33mn sq m, accounting for 66% of the
company’s total landbank. Madinaty was launched in 2006 with the first set of
residential handovers due in 2H 2010.
Table 17: TMG - Projects snapshot

Built Up Sold BUA Residential Total Start Expected
Area sq m as % of total type units date Completion Location Population
Completed projects
May Fair 592,200 100% Villas 253 2005 El Sherouk in New Cairo 1,265
Al Rawda Al Khadra 84,000 100% Villas&Apartments 1,185 1987 Alexandria 6,245
Virgenia Beach 365,400 100% Villas 368 1995 North Coast N.A.
Al Rehab 1 (Ph 1-5) 3,000,000 100% Villas&Apartments 22,758 1996 2007 New Cairo 120,000
Al Rabwa 1 201,190 100% Villas 649 1994 2008 Sixth of October City, Cairo 3,240
Ongoing Projects
Madinaty 19,421648 29%* Villas&Apartments 107,158 2006 2020 New Cairo 600,000
Al Rehab 1 (Ph6) & 2 2,728,855 43% Villas&Apartments 15,060** 1996/2006 2011/2017 New Cairo 80,000
Al Rabwa 118,320 59% Villas 340 2006 2012 Sixth of October City, Cairo 1,725
Nasamat Al Riyadh 1,214,075 Sales exp. Villas&Apartments 4,315 2009 2012 Riyadh, Saudi Arabia 16,800
in 4Q10
* Madinaty – BUA also includes land for Mega developers but sold residential BUA calculated as a % of total residential BUA which is 16mn sq m
** Al Rehab - Includes units under construction for Phase 6 of Al Rehab 1 and Phases 7-10 in Al Rehab 2. Also includes 600k sq m Land for Mega developers
Madinaty and Al Rehab account for the majority of TMG’s SOTP at 74%. Nasamat
Al Riyadh in Saudi Arabia accounts for 5% of the combined SOTP, while Al Rabwa
represents 2%. Hospitality residential projects and the hospitality portfolio account
for the remaining 20%.
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At end 1Q10, TMG’s sales backlog reached EGP24bn with total customer advances
against this sale at EGP20bn. The customer advances from Madinaty at end 1Q10
totaled at EGP15bn followed by Al Rehab (1&2) at EGP4.3bn.
Figure 42: TMG - Ongoing projects heat map
Source: Company prospectus
Madinaty – 62% of TMG’s SOTP

Once completed in 6 overlapping With total land area of 33.6mn sq m and BUA of 19mn sq m (excludes attributable land
phases by 2020, Madinaty will be area for villas and includes land for Mega developers), TMG launched Madinaty in mid
home to 600k people with over
100k apartments and c. 6,700
2006. The construction is planned in 6 overlapping phases with the first set of
villas handovers within phase 1 due for completion and handover starting 2Q 2010. Madinaty
entails construction and handover of c. 100k apartments and 6,793 villas over the next 9
years with final completion by 2020. The payment for the allotted land parcel for this
project will be made to the Ministry of Housing in kind in the form of completed
residential units accounting for 2.7mn BUA of the total project’s residential BUA of
16.8mn Sq. This cost will be recognized pro rata at the end of each phase. According to
the most recent results, 29% of the residential BUA in Madinaty has already been sold
with roughly EGP15bn in advances from customers against this sale.
29% of Madinaty's total Revenue and project costs

residential BUA is already sold We use EGP11,900/sq m (US$2164/sq m) as blended villa prices and average of
EGP5,900/sq m (US$1073) for apartment sales across Phases 1-6 in Madinaty. Furthermore,
inline with management guidance, we use villa gross margin at 45% and apartment margin at
30%. Unlike some of the other TMG projects, Madinaty is not exempt from tax, hence we
apply a 20% corporate tax to the company cashflows to derive our DCF value.
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Table 18: Phased revenue recognition from Madinaty

Revenue on Residential units and land for Mega developers Total BUA* Phase BUA**
EGP mn 2010E 2011E 2012E 2013E 2014E 2015E 2016E 2017E 2018E sq m mn as % of total
Phase 1 3,412 4,523 3,412 5,635 11,194 3.52 29%
Phase 2 1,711 1,711 3,423 5,990 4,279 2.68 16%
Phase 3 566 566 6,127 5,844 6,127 6,410 2.94 23%
Phase 4 1,422 1,067 1,067 3,595 5,490 1.70 17%
Phase 5 2,339 3,274 1.10 6%
Phase 6 2,056 1.47 9%
Total Residential 3,412 4,523 3,978 7,913 20,455 10,334 13,184 16,622 10,821 13.42 100%
Land for Mega Developers 3,300 3,300 3,300 6,600 6,600 6,600 9,900 6.6
Total revenue 3,412 4,523 7,278 11,213 23,755 16,934 19,784 23,222 20,721 20.02
* BUA excludes BUA of 2.7mn sq m attributable to the Ministry as land cost
** Phase BUA calculation excludes BUA allocated for Mega developers
To discount cash flows from At EGP17.4bn, Madinaty accounts for 62% of our TMG cumulated SOTP value. We
Madinaty, we use a phase- use a weighted average cost of capital to discount cash flows from Madinaty that
weighted WACC of 15.75%
ranges between 15.3% - 16.5% depending upon planned completion. For example the
cash flows from Phase 6 which is due for completion by 2020 are discounted using a
WACC of 16.5%, while Phase 1, which is due for completion by 2013, is discounted
using a WACC of 15.3%.
Figure 43: Madinaty - Projected Cash flows

30,000 EGP Mn 10,000
20,000 8,000
6,000
10,000
4,000
-
2,000
(10,000) -
(20,000) (2,000)
2010E 2011E 2012E 2013E 2014E 2015E 2016E 2017E 2018E
Cash Inflow Cash Outflow Net Change in cash
Source: J.P. Morgan estimates
Al Rehab 1 and 2 – 12% of TMG’s SOTP value

Al Rehab 1 complex is TMG’s first fully-integrated community with over 22k
residential units and c. 120k residents. It has 3 local and 3 international schools, 6
banks, 2 shopping malls and small area allocated for commercial use. The final
phase 5 in Al Rehab 1 was completed in 2007, while Phase 6 with 633 villas and a
BUA of 224k sq m will be completed by 2011. Subsequent to the completion of
Phase 1-5 and launch of Phase 6, TMG also initiated Al Rehab 2 under Phases 7-10
with total residential BUA of 2.1mn sq m and planned completion by 2017.
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Table 19: Al Rehab 1 (Phase 6) and Al Rehab 2 (Phase 7- 10) Projected revenue recognition
Revenue on Residential units and land for Mega developers Total BUA* Phase BUA**
EGP mn 2010E 2011E 2012E 2013E 2014E 2015E 2016E 2017E 2018E sq m mn as % of total
Phase 6 1,341 1,455 0.22 11%
Phase 7 777 777 777 724 0.48 23%
Phase 8 84 84 84 1,123 1,123 1,155 0.58 27%
Phase 9 156 156 880 1,460 1,025 0.51 24%
Phase 10 744 744 744 1,137 0.32 15%
Total Residential 2,202 2,317 861 2,004 1,280 2,779 2,203 1,769 1,137 2.12 100%
Land for Mega Developers 381 992 611 1,369 739 1,501 1,130 837 499 0.61
Total revenue 2,583 3,309 1,472 3,372 2,019 4,280 3,334 2,606 1,636 2.73
Source: Company reports and J.P. Morgan estimates; BUA only reflects the residential part of the project
Al Rehab 1 which was completed Post completion of Al Rehab 2, the total population of this community complex is
in 2007, is TMG's largest expected to reach 200k inhabitants. Upon completion of Al Rehab 2, the total
completed community complex
housing over 120,000 people
covered area for this integrated complex will reach 10mn sq m with a total BUA of
5.7mn sq m including land for Mega developers. Up to 1Q10, Al Rehab 1 Phase 6
was 29% sold, while Al Rehab 2 (Phases 7-10) is 43% sold with first set of
handovers starting end 2Q 2010 onwards.
For Al Rehab 1 (Phase 6), we use blended villas prices of EGP13,000/sq m

(US$2,364/sq m), while for Al Rehab 2 (Phase 7-10), we use blended villa prices of
EGP12,500/sq m (US$2,273/sq m) and average apartment prices of EGP5,360/sq m
(US$975/sq m).
Figure 44: Al Rehab 1 (Phase 6) and Al Rehab 2 (Phase 7-10) projected cash flows
4,000 EGP Mn 2,000
3,000
1,500
2,000
1,000 1,000
- 500
(1,000) 2010E 2011E 2012E 2013E 2014E 2015E 2016E 2017E 2018E
-
(2,000)
(3,000) (500)
Cash Inflow Cash Outflow Net Change in cash
Al Rehab 1 (Phase 6) and Al Rehab 2 (Ph 7-10) account for 12% of our TMG
consolidated SOTP value. For our DCF calculation, we use a Phase-weighted WACC
of 15.6%.
Al Rabwa 2 – 2% of TMG’s SOTP value

Al Rabwa 2 is 59% sold with Al Rabwa 2 is an extension to Al Rabwa 1 with a relatively small BUA of 119k sq m
planned completion in 2012 translating into 340 units. Al Rabwa 1, which was completed and handed over in
2004, is an exclusive compound, with 649 villas, built for the high end market. Al
Rabwa 2, which is due for completion by 2012, is 59% sold. The project accounts for
less than 1% of TMG’s planned BUA across various projects and 2% of the
company’s combined SOTP value.
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Table 20: Al Rabwa 2 – Projected revenue recognition

Revenue on Residential units and rental income Total BUA* Phase BUA**
EGP mn 2010E 2011E 2012E 2013E 2014E 2015E 2016E 2017E 2018E sq m as % of total
Total Residential 322 322 1,250 119,071 96%
Rental income 2 3 4 4 5 5 5 4,558 4%
Total 322 322 1,252 3 4 4 5 5 5 123,629

TMG’s first international project – Nasamat Al Riyadh; 5%

of the SOTP
Nasamat Al Riyadh, in Saudi TMG formed a 50:50 Joint Venture with Saudi Arabia’s Al Mehedeb, AlFwazan and
Arabia, is a first step towards Al Oula Development Co. through its Saudi based subsidiary, Areez Limited in order
geographical diversification. The
project accounts for 4% of
to pursue geographical diversification. Nasamat Al Riyadh is TMG’s first
TMG’s total landbank and 5% of community style project in Riyadh, Saudi Arabia with a total residential BUA of
the company’s SOTP value 1.4mn sq m translating into c. 2,031 villas and 2,112 apartments. The planned project
stretches over 3mn sq m of land and the company owns additional 1mn adjacent to
the project, which is yet to be designed. Apart from the above, the company also
owns a 2.8mn sq m of land plot in Jeddah put aside for future development. We
calculate TMG's share of this land bank at 1.4mn sq m based on its 50% share in the
Saudi Joint Venture though we exclude this from our valuations as development
plans on this land bank have not yet been finalized.
The company picked Saudi Arabia as the first market for geographical diversification
given its strong underlying demand dynamics with a young indigenous population.
Riyadh is Saudi Arabia’s fastest growing housing market with annual population
growth averaging at 2.2%. According to the Riyadh Development Authority, Riyadh
needs nearly 18,000 units of annual supply over the next 20 years to fill up the
housing deficit. With high pent up demand, Riyadh has been one of the few places
where residential prices and rents have remained stable in the prime residential areas.
TMG also has 2.8mn sq m of TMG recently reported that the Saudi Real Estate authority has approved release of
landbank in Jeddah, though we off-plan unit sales in the Nasamat Al Riyadh project. As per the company release,
do not include this in our
valuations, as the company is
this makes TMG the first developer in KSA to be able to sell off-plan as approved by
yet to finalize development on the real estate development committee formed in mid 2009. We expect a phased
the same launch in Nasamat Al Riyadh to start from 4Q10 with a reported construction
timeline of 3 years post launch. With TMG’s share of EGP1.3bn in project DCF,
Nasamat accounts for 5% of our TMG combined SOTP value. To calculate our DCF,
we use a WACC of 15.5% and forecast revenue contribution to start flowing in from
end-2013 onwards.
Table 21: Nasamat Al Riyadh - Projected revenue recognition (TMG’s share in the JV at 50%)
Revenue on Residential units and rental income Total BUA* Phase BUA**
EGP mn 2013E 2014E 2015E 2016E 2017E 2018E sq m as % of total
Residential 1,316 1,316 1,356 1,411,783 89%
Commercial 34 34 35 67,416 4%
Rental Income 25 87 119 121 159 202 116,006 7%
Total 1,374 1,437 1,509 121 159 202 1,595,205

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Hotels and Resorts – 20% of TMG’s SOTP

TMG has 3 operational hotels TMG currently has 3 operational hotels with 684 room keys through its hotels and
and resorts with c. 684 keys, resorts management subsidiary Arab Company for Hotels and Tourism Investment
which is likely to increase to
2,600 room keys by 2015
(ICON). The fourth hotel, Nile Hotel with 191 room keys, is due for completion by
3Q10. The company plans to raise the total number of room keys to 5,000 of which
1,725 room keys are committed and under development. For our SOTP calculation,
we include only the committed and under development hotel projects.
Figure 45: TMG - Revenue from hotel and resorts

1750 EGP Mn
1550
1350
1150
950
750
550
350
150
2010E 2011E 2012E 2013E 2014E 2015E 2016E 2017E 2018E
Four Seasons Sharm Al Sheikh Nile Plaza- 2004 San Stefano-2007

Nile Hotel -2010 Others
TMG’s hotel and resort portfolio benefits from reasonable occupancy levels and
healthy operating margins given robust visitor traffic into Egypt annually. The
existing portfolio allows TMG to tap the business and tourism traffic flow
particularly into Cairo and Sharm el-Sheikh – Egypt’s major tourist destination.
Table 22: TMG - Hotels and Resorts portfolio

Four Seasons Four Sharm el Four TMG Four
Sharm el- Seasons San Stefano Sheikh Seasons Four Seasons Building Seasons
Sheikh Nile Plaza Grand Plaza Nile Hotel extension Luxor Marsa Alam Hotel Madinaty
Ownership 100% 56% 85% 100% 100% 100% 100% 100% 100%
Location Sharm el-Sheikh Cairo Alexandria Cairo Sharm el-Sheikh Luxor Marsa Alam Cairo Cairo
Room Keys 200 365 127 118 96 191 250 198 230
CBRE Valuation* 2000 2440 2360 524 N.A. N.A. N.A. N.A. N.A.
Completion May-02 Aug-04 Jul-07 2010 2012 2013 2013 2014 2014
Source: Company reports and J.P. Morgan estimates.* (EGP mn Jun 2008)
Banking on annual visitor traffic As per 1Q10 reports, average occupancy levels of 66% at Four Seasons Cairo and
of 13mn into Egypt, TMG enjoys Sharm el-Sheikh are slowly recovering from pre 2009, where they had slipped to
reasonable occupancy levels
and healthy margins on its
58% down from 67% in 2008. During the same period, Average Room Rate (ARR)
hotels in Cairo and Sharm el- for the Four Seasons Nile Plaza and Sharm el-Sheikh slipped to US$338/day and
Sheikh US$460/day during 1Q10 vs. 2009 average of US$366/day and US$437/day.
However, better QoQ occupancy levels and higher revenue from the F&B (food and
beverages) business led to slightly improvement in Net Operating Margins, where
they averaged 49%, up from 47% in 4Q09. Occupancy levels and margins at Four
Seasons and San Stefano have been low at 43% and 12%, respectively, at end 1Q10.
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Feeling the pressure from the global financial crisis, Egypt's visitor volumes inched
up by only 1%Y/Y in 2009,but visitor volumes into Egypt have remained robust with
5-year average (2005-08) growth of 15%. Hence with a slow yet gradual recovery in
global dynamics, we expect tourism flows to improve further in 2010, where
occupancy levels for TMG's two key hotels in Cairo and Sharm el-Sheikh have
already started trending upwards closing at average 66% vs. 9MCY09 average of
54%.
Figure 46: Net Margins for Four Seasons Cairo and Sharm el-Sheikh Figure 47: Occupancy levels at TMG’s operating hotels
60% 85%
55% 75%
50% 65%
45% 55%
40% 45%
35%
35%
30%
25%
25%
1H08 9M08 2008 1Q09 1H09 9M09 2009 1Q10
4Q08 1Q09 2Q09 3Q09 4Q09 1Q10
Four Seasons Nile Plaza Four Sesons Sharm el Sheikh
Four Seasons Nile Plaza Four Sesons Sharm el Sheikh Four Seasons San Stefano
Source: Company reports Source: Company reports
The hotel construction and development costs are partially financed through upfront
sale of high end luxury residential units attached to the hotel or resort. The difference
is funded via debt or equity. This effectively allows TMG to enhance net cashflow at
the start of the project and achieve target IRR of 18% on hotel complexes. The high
end luxury units are limited in number and grab significantly higher selling prices
The hotels and resorts portfolio and margin relative to average residential prices for development projects. Nile
represents 20% of the
Plaza Hotel, which was completed in 2004, had 131 residential units apart from 365
company's SOTP value
room keys. At end 2009, TMG had 5 remaining units in Nile Plaza Hotel, where
asking prices range between US$1.5-3mn with average margins in the range of 68-
75%. Within TMG’s hotel development pipeline, three out of its planned five hotel
projects have a residential component apart from room keys. The hotels and resorts
component within TMG's portfolio accounts for 20% of the company's combined
SOTP, where we use a WACC of 15.5% and a terminal growth rate of 2%.
Table 23: TMG - Hotel and resorts revenue recognition schedule

Recurring revenue from hotel operations Residential Room
EGP mn 2010E 2011E 2012E 2013E 2014E 2015E 2016E 2017E 2018E Units Keys
Nile Hotel 36 96 112 129 131 133 135 137 139 191
Four Season Sharm Extension 0 0 0 342 1034 35 52 61 62 114 96
Marsa Alam Ph 1 0 0 0 3742 4598 92 135 158 160 750 250
Luxor 0 0 0 0 73 99 108 127 129 201
Madinaty 0 0 0 0 0 900 346 59 64 100 240
Existing hotel revenue 538 546 561 614 663 713 765 776 788 684
Total 574 641 673 4,827 6,498 1,972 1,541 1,318 1,342 964 1,662
Source: Company reports and J.P. Morgan estimates;
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Revenue outlook – 3-yr revenue CAGR of

31%
We estimate 3-year revenue With phased construction and handover spanning over the next 10 years, we expect
CAGR of 31% with a sizable 75% of TMG’s cumulative (2010E-2019E) revenue to come from Madinaty. This is
contribution coming from
revenue recognition on planned
followed by Al Rehab, which is expected to account for 12% of TMG's cumulative
handovers in Madinaty and Al revenue during the same period. Starting 2010, TMG will recognize revenue on the
Rehab first set of residential handovers in Madinaty, where we estimate a 3-year (2010-
2012) revenue CAGR of 31%. The current sales backlog of EGP24bn should cover
for revenues coming through over the next 3 years. However, sales projections
beyond 2012 assume revenue recognition from any future sales primarily within
Madinaty and Al Rehab's residential and commercial (mega developers) components.
We estimate 66% of the cumulative revenue during 2010E-2019E period to come
from property sales, followed by 26% contribution from land sales to mega
developers and 7% contribution from recurring revenue generated from hotel and
resort operations.
Figure 48: TMG - Sales breakup by project Figure 49: TMG - Sales breakup by project %
40,000 EGP Mn 100% 6% 4% 3% 5% 6% 6% 7%
8% 7%
30,000 80%
56% 62% 49%
20,000 60% 73% 62% 66%
79% 84%
83%
10,000 40%
- 20% 36% 43%

32% 31% 27%
22% 12%
5% 11%
2010E 2011E 2012E 2013E 2014E 2015E 2016E 2017E 2018E 0%
Al Rehab 1& 2 Al Rabwa 2010E 2011E 2012E 2013E 2014E 2015E 2016E 2017E 2018E
Madinaty Residential (Hotel & resorts) Land Residential Hospitality revenue Others
Source: Company reports and J.P. Morgan estimates Source: Source: Company reports and J.P. Morgan estimates
EBITDA and net profit outlook

3-yr net profit CAGR is estimated Gross margin should improve moving forward with cheaper construction costs and
at 35% with better margins stable pricing mix, where we estimate TMG to record average gross margin of 34%
expected on sales in Madinaty
and Al Rehab
(2010E-12E); an improvement of 100bps vs. average for 2008-09 at 31%. Unlike
some high-end residential focused developers, TMG raised its prices by 3% in 2009
and has already raised prices by 6%YTD for sales in the remaining inventory on
launched phases within Madinaty and Al Rehab.
The tax holiday which TMG has enjoyed on some of its earlier projects, does not
apply to Madinaty and Al Rehab 2. As a result, with Madinaty handovers starting in
2010, we estimate net margin to reduce by 400bps to 24% vs. average 28% in 2008-
09 with the company’s effective tax rate forecast to go up from average 10% in
2008-09 to average 20% for 2010E-12E period. Despite higher tax expense, we
estimate TMG to report a 3-year Net Income CAGR of 35% for 2010-2012.
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Figure 50: TMG - Gross margins likely to improve moving forward

15000 Mn 40%
35%
10000
30%
25%
5000
20%
0 15%
2008 2009 2010E 2011E 2012E 2013E 2014E 2015E 2016E 2017E 2018E
Property sales Hotel operations
Services Revenue Gross Margin
Table 24: TMG - Profit and Loss statement

EGP mn, year-end December 2008 2009 2010E 2011E 2012E
Property sales 4,763 4,074 6,316 8,153 10,000

Rental Income 584 540 574 641 673
Service revenue 74 208 219 230 241
Total consolidated revenues 5,421 4,822 7,109 9,024 10,914
Property sales cost -3,143 -2,898 -4,293 -5,780 -6,193

Rental costs -327 -317 -314 -354 -373
Services cost -24 -121 -127 -134 -140
Total costs -3,494 -3,336 -4,735 -6,268 -6,706
Gross profit 1,927 1,486 2,374 2,757 4,208

Gross Margin 36% 31% 33% 31% 39%
Admin & General Expenses -157 -233 -355 -451 -546

Other income 35 32 33 35 37
Others 2 56 1 1 1
EBITDA 1,807 1,342 2,052 2,341 3,700
Depreciation & Amortisation -92 -101 -103 -115 -129
EBIT 1,715 1,240 1,949 2,226 3,571
Net financing income/cost 141 72 50 101 179
EBT 1,856 1,313 1,999 2,327 3,750

Tax -196 -113 -340 -459 -909
Net income ex. Minorities 1,442 1,106 1,566 1,775 2,748
EPS (EGP) 0.71 0.53 0.77 0.87 1.35

DPS (EGP) 0.00 0.00 0.00 0.00 0.20
Payout ratio 0% 0% 0% 0% 15%
Shares outstanding (MM) 2,030 2,030 2,030 2,030 2,030
Growth (%)
Revenues 153% -11% 47% 27% 21%
EBITDA 3% 10% 2% 12% 13%
EPS 8% -25% 46% 13% 55%
DPS n.a n.a n.a n.a n.a
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Cash flows and balance sheet

Low gearing with liquidity likely to improve going forward
Cashflow position is likely to TMG's balance sheet remains underleveraged with a net debt/equity of 25% mainly
improve moving forward, as due to the company’s self-funded business model. This is unlikely to change over the
planned handovers allow MTG to
receive final down payments on
medium term, given strong underlying fundamentals of the Egyptian real estate
sold units over the next 3 years market, where 1) strong local population driven demand for housing and 2) high
proportion of cash based transactions given tight banking regulations should continue
to support TMG’s off-plan funding model, in our view. Following a slow 2009, the
company has already achieved EGP1.2bn (up 172%Y/Y) in new off-plan sales
during the first three months of 2010 with total sales backlog at EGP24bn. Moreover,
customer default risks remain low given stringent repayment policies followed by the
company, where customer contract cancellations that peaked in 1H09 remain less
than 5% of the total sales backlog. As the pace of handover in Madinaty and Al
Rehab picks up, we expect account receivables against the current backlog to
materialize into cash enabling TMG to pursue further land acquisitions inline with its
expansion strategy and accelerate pace of construction to take advantage of cheaper
construction costs.
Table 25: TMG - Cash flow statement

Pre-tax profit 2017 1313 1999 2327 3750
Depreciation 103 101 103 115 129
Others adjustments (259) (241) (93) (93) (93)
Working capital changes (3,402) (1,474) (458) 307 (33)
Cash flow from operations (1,542) (301) 1,551 2,656 3,753
Purchase of property & equipment & Projects Under construction (4,285) (225) (750) (1,221) (1,324)
Other investing cash flows -1731 24 0 0 0
Cash flows from investing activities (6,016) (202) (750) (1,221) (1,324)
Free cash flows (5,568) (285) 895 1,528 2,523
Equity raised 5,568 - - - -

Debt raised/repaid 1,296 (56) - - -
Dividends paid - - - - (412)
Others adjustments 1,995 (410) (340) (459) (909)
Cash flow from financing activities 8,859 (466) (340) (459) (1,321)
Foreign Exchange Impact 13 4 0 0 0

Change in cash 1,314 (964) 461 976 1,108
Beginning cash 0 1,314 350 811 1,787
Closing cash 1,314 350 811 1,787 2,895
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Table 26: TMG - Balance sheet

Cash 1,425 399 860 1,836 2,944
Accounts and Notes Receivables 18,152 17,061 17,203 16,695 18,009
Development work in progress 10,306 11,718 12,628 13,809 18,689
Prepayments and Other debit balances 2,636 3,073 3,073 3,073 3,073
Investment debtors 1,320 1,305 1,305 1,305 1,305
Others 481 497 497 497 497
Current Assets 34,320 34,053 35,566 37,215 44,517
Property, plant and equipment 3,774 3,729 4,105 4,566 5,472

Projects under development 409 582 853 1,498 1,787
Goodwill 14,918 15,135 15,135 15,135 15,135
Others 380 388 388 388 388
Total fixed assets 19,480 19,835 20,482 21,588 22,783
Total assets 53,800 53,889 56,048 58,803 67,299
Trade and other payables 506 604 924 1,805 1,091

Current portion of loans and facilities 481 752 752 752 752
Customer advances 21,726 20,447 20,672 20,771 27,645
Accrued expense and Other credit balance 1,475 1,702 1,702 1,702 1,702
Others 146 117 165 165 165
Current liabilities 24,333 23,621 24,215 25,195 31,356
Loans and facilities 1,296 1,240 1,240 1,240 1,240

Long term liabilities 4,210 4,178 4,178 4,178 4,178
Deferred Tax liabilities 12 21 21 21 21
Long term liabilities 5,518 5,439 5,439 5,439 5,439
Minority Interest 1,994 1,685 1,685 1,685 1,685
Share capital 20,302 20,302 20,302 20,302 20,302

Legal and general reserves 184 188 188 188 188
Retained earnings 1,638 2,788 4,353 6,128 8,464
Treasury stock (170) (134) (134) (134) (134)
Shareholders Equity 21,954 23,144 24,710 26,485 28,820
Total liabilities & shareholders' equity 53,800 53,889 56,048 58,803 67,299
Ratios and other data

Book value/ Sh 10.81 11.40 12.17 13.05 14.20
ST debt 624 866 915 915 915
LT debt 5,506 5,418 5,418 5,418 5,418
Total debt 6,131 6,284 6,333 6,333 6,333
Interest bearing debt / Capital (%) 11% 12% 11% 11% 9%

Net (debt) or cash to equity (%) 21% 25% 22% 17% 12%
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Valuation Methodology and Risks

Talaat Mostafa Group (Overweight; Price Target £E10.70)
Valuation Methodology
Our end Dec 2010 target price of EGP10.7 is based on sum-of-the-parts valuation
analysis and includes discounted cash flows from TMG's ongoing mixed-used
residential development and hotel projects. TMG's largest project, Madinaty,
accounts for 62% of its combined SOTP, followed by Al Rehab (1 & 2) accounting
for c. 12% of the company’s SOTP value. We exclude TMG’s landbank from our
SOTP calculation, as we forecast cash flows from all of TMG projects including
Madinaty and Al Rehab for their entire construction period. We also exclude TMG’s
land plot in Jeddah (1.4mn sq m – 50% of the total of 2.8mn sq m), where
construction plans have not yet been finalized. We do not apply a discount to our
SOTP, as we find Egyptian property market dynamics rather robust with the
residential demand largely driven by domestic population rather than expats.
However, we use a high WACC of 14.8% to reflect low affordability levels and the
high interest & inflation rate environment in the country.
Risks to Our View

The downside risks to our OW rating could come from weaker than forecast revenue
from planned handovers in 2010-2012, weaker than forecast margins on residential
units, lower than forecast demand for housing, and a poor response from the off-plan
sales launch in Saudi Arabia.
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Talaat Mostafa Group: Summary of Financials

Profit and Loss statement FY08A FY09A FY10E FY11E FY12E Cash flow statement FY08A FY09A FY10E FY11E FY12E
£E in millions, year-end Dec £E in millions, year-end Dec
Sales 5,421 4,822 7,109 9,024 10,914 EBIT 2,017 1,313 1,999 2,327 3,750
% change Y/Y - -11% 47% 27% 21% Depreciation & amortisation 103 101 103 115 129
Gross Profit 1,927 1,486 2,374 2,757 4,208 Change in working capital (3,402) (1,474) (458) 307 (33)
% change Y/Y - -23% 60% 16% 53% Other (259) (241) (93) (93) (93)
EBITDA 1,807 1,342 2,052 2,341 3,700 Cash flow from operations (1,542) (301) 1,551 2,656 3,753
% change Y/Y - -26% 53% 14% 58%
EBIT 1,715 1,240 1,949 2,226 3,571 Purchase of property plant and equipment (4,285) (225) (750) (1,221) (1,324)
% change Y/Y - -28% 57% 14% 60% Gain from sale of assets 1 2 - - -
Net Interest 141 72 50 101 179 Other (1,732) 22 0 0 0
Earning before tax 1,856 1,313 1,999 2,327 3,750 Cash flow from investments (6,016) (202) (750) (1,221) (1,324)
% change Y/Y - -29% 52% 16% 61%
Equity raised 5,568 - - - -
After Tax Income ex Minorities 1,442 1,106 1,566 1,775 2,748 Debt raised/(repaid) 1,296 (56) 0 0 0
% change Y/Y - -23% 42% 13% 55% Others 1,995 (410) (340) (459) (1,321)
Cashflow from Financing 8,859 (466) (340) (459) (1,321)
Shares Outstanding 2,030 2,030 2,030 2,030 2,030
Change in Cash 1,314 (964) 461 976 1,108
EPS (reported) 0.71 0.53 0.77 0.87 1.35 Beginning cash - 1,314 350 811 1,787
% change Y/Y - (25.4%) 45.5% 13.4% 54.8% Ending cash 1,314 350 811 1,787 2,895
Balance sheet FY08A FY09A FY10E FY11E FY12E Ratio Analysis FY08A FY09A FY10E FY11E FY12E
£E in millions, year-end Dec
Cash and cash equivalents 1,425 399 860 1,836 2,944 Gross Margin 35.5% 30.8% 33.4% 30.5% 38.6%
Accounts receivable 18,152 17,061 17,203 16,695 18,009 EBITDA Margin 33% 28% 29% 26% 34%
Development work udner progress 10,306 11,718 12,628 13,809 18,689 EBIT margin 31.6% 25.7% 27.4% 24.7% 32.7%
Other 4,437 4,875 4,875 4,875 4,875 Net profit margin 26.6% 22.9% 22.0% 19.7% 25.2%
Current assets 34,320 34,053 35,566 37,215 44,517 SG&A/Sales 2.9% 4.8% 5.0% 5.0% 5.0%
Property plant and equipment 3,774 3,729 4,105 4,566 5,472
Projects under development 409 582 853 1,498 1,787 Sales growth - -11% 47% 27% 21%
Others 15,298 15,524 15,524 15,524 15,524 EBITDA growth - -26% 53% 14% 58%
Total assets 53,800 53,889 56,048 58,803 67,299 Adjusted EPS growth - (25.4%) 45.5% 13.4% 54.8%
ST loans 624 866 915 915 915
Payables 506 604 924 1,805 1,091 Net debt to Total Capital 11.4% 11.7% 11.3% 10.8% 9.4%
Others 2,101 2,571 2,620 2,620 2,620 Net debt to Equity 19.6% 23.7% 20.7% 16.0% 11.1%
Total current liabilities 24,333 23,621 24,215 25,195 31,356
Long term debt 5,506 5,418 5,418 5,418 5,418 Sales/assets 10.1 8.9 12.7 15.3 16.2
Other liabilities 12 21 21 21 21 Assets/equity 2.5 2.3 2.3 2.2 2.3
Total liabilities 29,852 29,060 29,654 30,634 36,794 ROE 6.6% 4.8% 6.3% 6.7% 9.5%
Minorities 1,994 1,685 1,685 1,685 1,685 ROCE 5.8% 4.1% 6.1% 6.6% 9.9%
Shareholders' equity 21,955 23,144 24,710 26,485 28,820
Total Liabilities & Shareholders Equity 53,800 53,889 56,048 58,803 67,299
Source: Company reports and J.P. Morgan estimates.
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Analyst Certification:
The research analyst(s) denoted by an “AC” on the cover of this report certifies (or, where multiple research analysts are primarily
responsible for this report, the research analyst denoted by an “AC” on the cover or within the document individually certifies, with
respect to each security or issuer that the research analyst covers in this research) that: (1) all of the views expressed in this report
accurately reflect his or her personal views about any and all of the subject securities or issuers; and (2) no part of any of the research
analyst’s compensation was, is, or will be directly or indirectly related to the specific recommendations or views expressed by the
research analyst(s) in this report.
Important Disclosures
• Market Maker/ Liquidity Provider: JPMSL and/or an affiliate is a market maker and/or liquidity provider in Talaat Mostafa
Group.
Talaat Mostafa Group (TMGH.CA) Price Chart
21
Price(£E) 14
0
Nov Feb May Aug Nov Feb May Aug Nov Feb May
07 08 08 08 08 09 09 09 09 10 10
Source: Bloomberg and J.P. Morgan; price data adjusted for stock splits and dividends.
This chart shows J.P. Morgan's continuing coverage of this stock; the current analyst may or may not have covered it
over the entire period.
J.P. Morgan ratings: OW = Overweight, N = Neutral, UW = Underweight.
Explanation of Equity Research Ratings and Analyst(s) Coverage Universe:

J.P. Morgan uses the following rating system: Overweight [Over the next six to twelve months, we expect this stock will outperform the
average total return of the stocks in the analyst’s (or the analyst’s team’s) coverage universe.] Neutral [Over the next six to twelve
months, we expect this stock will perform in line with the average total return of the stocks in the analyst’s (or the analyst’s team’s)
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the stocks in the analyst’s (or the analyst’s team’s) coverage universe.] J.P. Morgan Cazenove’s UK Small/Mid-Cap dedicated research
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analyst(s) coverage universe.
Coverage Universe: Muneeza Hasan: Aldar Properties (ALDR.AD), Emaar Properties (EMAR.DU), RAK Properties
(RPRO.AD), Sorouh Real Estate (SOR.AD), Union Properties (UPRO.DU)
50
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J.P. Morgan Equity Research Ratings Distribution, as of March 31, 2010

Overweight Neutral Underweight
(buy) (hold) (sell)
JPM Global Equity Research Coverage 45% 42% 13%
IB clients* 48% 46% 32%
JPMSI Equity Research Coverage 42% 49% 10%
IB clients* 70% 58% 48%
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rating category; and our Underweight rating falls into a sell rating category.
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MENA Equity Research

• We initiate coverage of Talaat Mostafa Group Holding (TMG) with an Property

• Strong sales backlog at EGP24bn and self-funded business model: 4.5

yr earnings – the highest within our MENA coverage universe. The

Talaat Mostafa Group Holding Company (TMGH.CA;TMGH EY)

Play Cairo RE the TMG way

Strong domestic driven housing demand benefits TMG's

Strong sales backlog at EGP24bn (1Q10)

Figure 3: TMG - Landbank by project and location

Madinaty (Cairo) Al Rehab (Cairo) Al Rabw a (Cairo)

Self-funded business model; low gearing

Net Debt / Equity

Strong valuations underpinned by robust underlying

TMG EGX 30 Index

Figure 6: MENA Large Cap Real Estate developers on P/B 2010E

TMG in Saudi Arabia – Off-plan sales to be launched in

Recurring revenue to account for c. 7% cumulative revenue

Key downside risks to our rating and PT

Poor response and potential delay in launch of off-plan sales in Riyadh

Slowdown in residential demand in Cairo

Valuations – OW TMG with Dec 2010

Table 2: TMG - SOTP valuation summary

(+) Other assets 23,326 11.5

Shares outstanding (mn) 2,030

Target NAV 10.7

Master developments Investment portfolio 1.7%

Key drivers of TMG’s SOTP fair value

Table 3: TMG — J.P. Morgan WACC calculation

Current Cost of Debt 12.0%

Debt to Total Capital (Target) 25.0%

Weighted Average Cost of Capital 14.8%

Project and tenure wise discounting guide

Yielding properties 14.8%

Source: J.P. Morgan estimates

Table 4: TMG - WACC range across projects

TMG – Strong valuations with 34% price to NAV discount

DLF Ltd India 10.2 1.66 -25

Source: Bloomberg Source: Bloomberg

Egypt Property Market

Egypt – 11% of MENA GDP; 28% of

Saudi Arabia Egy pt

11% 14% Kuw ait

Source: CIA factbook Source: CIA factbook

Egypt – MENA’s most populated country

45-75 y ears Less than 5

Source: CAPMAS Source: Ministry of Investments Egypt

Source: : Ministry of Investments Source: CAPMAS

Egypt property market

Figure 21: Cairo's informal settlements

Source: Egyptian-German Participatory Development Programme in Urban Areas (PDP)

Housing deficit in upper middle, middle & low income

We expect Egypt’s housing deficit to reach 800K in 2010

Table 6: Egypt residential market forecast

Household/unit 4.5 4.5 4.5 4.5 4.5

Required units (000') 16,388 16,715 17,050 17,391 17,739

Demand (000') 366 328 334 341 347

Surplus/ (Deficit) (000') -513 -656 -800 -951 -1,109

…but affordability levels remain low

Table 7: Egypt - Housing affordability levels across various income segments