(Photo Courtesy of SODIC)
Daily News Egypt sat down with Ahmed Badrawi, the managing director of leading real estate company, the Sixth of October Development and Investment Company (SODIC) to discuss the company’s future investment, expected cash flows and the future opportunities it is targeting.
SODIC announced its plans to invest EGP 2.3bn during 2015. Can you give us more details about those investments?
We had to place our budget and disclose it for the first time actually, which is interesting, as the market is becoming more involved. It is effectively divided into three parts. The first part is towards land and settlement payments, and one towards direct execution, and the final part is towards overhead and [other expenses]. What we’ve put in the budget is the investment amount towards existing projects and lands. About EGP 1bn of that amount is directly invested into contracting and actual development, and that is across the two main projects: Westown and Eastown, and also some into Villette. We expect to revise those numbers during the course of the year and take into account new opportunities. We also have a slush fund for pursuing new opportunities and that will go over and above the numbers we have declared. We expect to invest EGP 400m or EGP 500m more into new projects. This will go mostly into increasing the size of investment and acquiring new lands, as well as developing those projects.
Tell us more about SODIC’s land portfolio?
The unutilised land is about 3.5m sqm; around 600,000 sqm is Westown and some 600,000 sqm is Eastown, and around 1.3m sqm in Villette, and the Al Yosr land, which is around 1.2m sqm.
Are there any specific projects you are looking at?
We are looking at diversifying a little bit. We are concentrated a little bit into the east and west of Cairo, and we are reasonably more focused on residential rather than non-residential, but we are keen to balance a little bit and get some non-residential product out within our portfolio. We are seeking some coastal opportunities, and eventually secondary cities such as Alexandria and Mansoura.
It was previously reported that SODIC is interested in non-housing projects. What can you tell us about that?
In the last year, SODIC has adapted to market conditions when there was no real financing available; capital markets were closed, debt markets were closed and the banks weren’t lending. The only opportunity was through upland sales, so most of our projects were focused on the residential side. Even some of the projects for we were hoping to start income, such as the Polygon office park, a huge office park built on some 70,000sqm; we found that the demand for purchase was much larger than the demand for leasing and we ended up having to liquidate and sell more than we would have liked in order to make sure that the cash flows were positive during the previous period.
Going forward with a much healthier balance sheet and, with much more open capital and credit market, we are able to look at developing the non-residential side. We are looking at office parks in both on our existing land in east Cairo, and potential aside from that. We see leasing demand of shifting from west Cairo to east Cairo due to proximity to the airport and the announced Suez Canal development projects as well as other reasons. We’ve got some commercial opportunities in west Cairo and other retails and other strips of land that will produce and retail.
Aside from the fund you mentioned, are you looking into new means of financing?
At SODIC we are trying to create a company that is at the forefront of everything we do. We want to be ahead of the customer’s expectations in terms of quality and time. We are lucky because we have access to finance and debt. We are trying to capitalise our position as a market leader; we need to access capital more freely and cheaply. We are looking at all of them. Bonds were recently reintroduced to the market so we are looking at that as well.
Can you give us some details on the expected cash flow to SODIC?
For the three projects, Eastown, Westown and Villette, the cash flow for the upcoming five years is expected to be EGP 17bn. This is the value of sales, plus a percentage from the commercial. [When we discuss cash flow from sales] we are talking about Phase II from forty West, and Phase II for the Courtyard Westown. Within the each project itself, there are some details.
You mentioned cost opportunities, is there anything specific you are eyeing?
SODIC existing customer base is between 4,000 to 6,000 costumers. We believe that many of those will follow us wherever we go, but we also want to follow them. We are looking at the North Coast, Sokhna and Hurghada.
