MNHD Prices 115k sqm land sale in Taj City, implies huge upside for land NAV

08 Mar 2020

Naeem research recommends buy with target price EGP 7.17 per share

Madinet Nasr Housing and Development (MNHD) has announced signing a contract to sell a 114,537sqm residential plot of land in Taj City at EGP10,000/sqm and a total value of EGP1.145bn to MINKA Real Estate (MINKA), a Sallam family venture led by Abdallah Nabil Sallam.

The move comes as part of a management strategy meant to expedite the monetisation of its land. It is worth noting that MNHD has 2m sqm of remaining land in Taj City, 3.5m sqm in SARAI, and 437k sqm in West Assiut, still to be developed.

MINKA (which has already launched The Hoft), will launch fully finished residential units on the purchased land plot, which will be designed by Canadian commercial real estate advisors SVN.

Salah Qatamesh, a member of MNHD’s Board of Directors, said that the recent sale of the land amounting to EGP 1.15bn is to be developed within the new phases of the existing project. He pointed out that the sale was within the framework of the company’s plan to take advantage of its land portfolio, noting that the company owns 2m sqm and plans to utilise it in the coming period, either by selling, or developing it.

Naeem research views the deal as a positive development for MNHD, especially from an implied land net asset value (NAV) angle. As per Naeem’s calculations, on a present value basis, the transaction (which forms a small part of the company’s total land bank), represents close to 13% of the current share price – far exceeding Naeem’s model estimates.

According to Naeem’s calculations, the implied Net Present Value (NPV) of the transacted land, amounts to roughly EGP6k-7k per sqm, taking into account the likely terms of the down payment (which usually ranges between 5-10%) and the instalment plan (normally ranging between 5-7 years). This is well above Naeem’s estimate of the EGP4.5k per sqm running rate for land price in the vicinity (i.e Taj City).

On a present value basis, the deal implies a land NAV of EGP13bn for the remaining 2m sqm of undeveloped land in Taj City; 2.4x MNHD’s current market capitalisation which translates to EGP9.0 per share (versus the current share price of EGP3.84 per share), assuming zero-value to the rest of the land owned in SARAI (3.5m sqm) and West Assiut (437 ksqm).

The transaction, as per Naeem’s calculations, could generate immediate cash proceeds of around EGP 650m-700m in the event of securitisation, which, in its view, would provide a big boost to MNHD’s liquidity position, given its massive project pipeline which is in a EGP100bn excess for the next 5-10 years.

“We do not rule out the possibility of the company paying an interim dividend using part of the cash proceeds (assuming the event of securitisation)” according to Naeem.

Naeem maintains buy recommendation on MNHD, with a target price of EGP7.17 per share.

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