GAUTENG PARTNERSHIP FUND:

Presented by Boni Muvevi Chief Executive Officer

PRESENTATION – SAIBPP ANNUAL CONVENTION

PRESENTATION CONTENT

• GAUTENG PROVINCE • HOUSING CHALLENGES • STRATEGIC RATIONAL FOR HOUSING • GPF BACKGROUND • GPF MANDATE, PURPOSE & ROLE • MARKET INTERVENTIONS • INVESTMENT PROCESS & CRITERIA • TYPICAL PROJECT STRUCTURE • PROPERTY EMPOWERMENT FUND • EEPF FUNDED PROJECTS • GPF PERFORMANCE • STRATEGIC PARTNERS • PRIVATE EQUITY FUND

SOUTH AFRICA

SOUTH AFRICA – GAUTENG PROVINCE

GAUTENG PROVINCE

BRIEF STATISTICS “Gauteng” – name comes from a Sesotho word meaning “Place of Gold”. This referred to a thriving gold industry in the province following the 1886 discovery of gold in Johannesburg. Total Area – 18,178 km2 (7,019sq mi) Population (2011) – 12,272,263 Capital City : (Pretoria) Tshwane 9 (nine) – Official Languages Six Districts: 1. City of Johannesburg – over 4million people 2. City of Tshwane – over 2milion people 3. Ekurhuleni – over 3million people 4. Sedibeng – below 1million people 5. Metsweding – below 1million people 6. West Rand – below 1 million people

GAUTENG PROVINCE - HOUSING CHALLENGES

GAUTENG PROVINCE – HOUSING CHALLENGE

Approx. 900 000 – LOW INCOME HOUSING BACKLOG

WHY AFFORDABLE HOUSING?

CONTRIBUTION TO ADDRESSING NATIONAL ISSUES!

• Historical housing backlog

• Redressing the Legacy of living apart – Apartheid

• Capital redistribution and empowerment

• Property ownership, as an asset and a means for creation of wealth

• Reducing unemployment /job creation

• The constitutional right to housing for all SA citizens

• Demand by people for better infrastructure and services (housing)

• Is this government responsibility only ?

GAUTENG PARTNERSHIP FUND

WHY PARTNERSHIP? AFRICAN PROVERB:

“IF YOU WANT TO GO FAST, GO ALONE. IF YOU WANT TO GO FAR, GO TOGETHER”.

STRATEGIC RATIONALE FOR HOUSING?

Government -Resources

-Control/ Standards - Power / influence

- Concern for Constituency

Private Sector - Products - Processes - Solutions - Expertise

Working together WIN-WIN

Relationship

Community -Housing - Dignity

-Family life -QOL

SOCIAL RESPONSIBILITY AND BUSINESS OPPORTUNITY

Based on C.K Prahalad: The fortune at the bottom of the Pyramid: Eradicating poverty through profits: 2005; Dr Llewellyn 2011 – presentation.

Contribution to SA Economy • Construction & Property –

jobs, tax revenue • Mining sector – cement,

stones etc. • Manufacturing – doors,

lintels etc. • Small business – plumbers,

elect etc. • Finance industry –

mortgage, microfinance • Social investment –

sustainable society

Realities of limitations and challenges: • Not enough capital available

in govt treasury. • Pace of delivery needs to be

improved. • Insufficient skilled human

capital in govt. • Limited innovation. • Driven by FSC, Property

charter than opportunities • Gate keeper in companies • Decisions on perception

rather than facts. • Lack of investment in under -

developed areas. • Limited investment in skills

and enterprise development.

GPF BACKGROUND • GPF: A Schedule 3C Provincial Public Entity (PPE) that was founded in 2002 as a

Benevolent Trust under the Trust Properties Control Act 57 (1988). • Shareholder/ Executive Authority: Gauteng Department of Human Settlements

(GDHS). • Independent and diverse Board of Trustees whose non-executive members are

appointed by the Executive Authority; striving at all times to comply with the principles contained in the King Code on Corporate Governance in South Africa (King 3, 2009).

• The Board is the Accounting Authority in terms of the PFMA and provides strategic direction and leadership to enhance shareholder value and ensure the GPF’s long-term sustainable development and growth.

• In fulfilling its responsibilities, the Board is supported by the Chief Executive Officer and Executive Management Team in implementing the approved strategic and corporate plans and policies.

• At the time of its establishment the GPF was given the specific mandate to normalise the social housing market in Gauteng through innovative funding interventions that would provide better gearing for private commercial funding, thus attracting private bank capital into this market.

GPF BACKGROUND • In 2008, the interpretation of the mandate was expanded from the narrower focus on

“social housing” to a definition that better enabled the GPF to operate across the whole affordable housing value-chain in Gauteng.

• In defining “affordable housing”, the GPF is governed by its trust deed - which defines its target beneficiary group as households earning monthly incomes of: o Between R3 500 to R7 500 for social housing interventions o Between R7 500 to R15 000 per month for other target rental beneficiaries.

• The fundamental business of the GPF is to leverage funding from external senior funders. This translates into a value proposition that has and continues to seek to offer the market innovative funding products designed to provide the first layer of capital, very favourably priced relative to market, to enable senior funders, particularly commercial banks and Development Finance Institutions (DFI’s), to mitigate their financing risk.

• The GPF’s targeted gearing ratio is 30: 70 (GPF Funding: Leveraged Funding), although this ratio is extended to 40% GPF funding for certain products and up to 100% funding for projects of R10 million or less.

GPF BACKGROUND • With a management track record exceeding 10-years, as at end 2013/14:

o Over R1billion in public risk capital to leverage in excess of R2 billion of external funding from the private sector and other public sector institutions.

o Cumulative output of 16,038 rental accommodation units delivered to target beneficiaries

o A further pipeline of 1,214 housing units under construction. o The GPF attained its 9th consecutive clean audit report.

• GPF Alignment to key national and provincial policies and strategic frameworks: o The National Development Plan, Vision 2030, the long term visionary roadmap

towards a better South Africa. Particularly, alignment to Chapter 8 which relates to sustainable human settlements and improved quality of household life.

o The GPG MTSF 2014–2019, formulated under 10-pillars and 3-themes of radical transformation, modernisation and re-industrialisation. The programme calls for all of government in Gauteng, across all spheres and entities to adopt radically new approaches to conducting business for significantly improved outcomes.

o The 8 strategic outcome goals of the Executive Authority, the GDHS.

GPF BACKGROUND

GPF Mandate Evolution Timeline: 20

02 M

anda

te

Social Housing

2008

Man

date

Affordable Housing

2016

Man

date

All Human Settlements

1. GPF MANDATE & ROLE Revised Mandate The GPF is to Serve as the financing vehicle of the GDHS to leverage additional revenue for all human settlement developments (not just social and affordable housing). Revised Role • Project funding packaging, through the development of bankable feasibility studies

and innovative funding interventions as a mechanism to entice capital market investment;

• Fund raising and Investment facilitation, through the formation of partnerships with local and international donors and development finance institutions to address funding shortfalls for the massification of the sustainable humans settlements development programme;

• Project financing, through an equitable risk sharing model. Serving as a catalyst to ensure that other funding sources are enticed to participate in funding;

• Project Management, to provide an oversight and monitoring role for mega projects. This is to ensure delivery of housing units in an integrated approach;

GAUTENG PARTNERSHIP FUND ROLE

Government

GPF

Finance Institutions/

Private sector

• DLGH • Municipalities • Agencies/ public

institutions

• Facilitation / Packaging • Mobilizing Funding • Funding

• Banks • DFI’s • Developers – contractors,

professionals etc.

HUMAN SETTLEMENT MEGA PROJECT

Human Settlement

Mega Project

FUNDING Housing Water &

Sanitation

Electricity

Transport

Environment Social

Land

Economic

KEY COMPONENTS OF MEGA PROJECT FOR THE CITY REGION • Public Housing • Open Public Spaces & Landscaping • Trader Stalls • Transport • Taxi Ranks, Bus and Train Stations • Bulk Infrastructure • Energy and Electrifications • Roads • Business • Filling Stations • Commercial Enterprises • Light Industries • Funding – Infrastructure, housing and business

GPF MARKET INTERVENTIONS

Financial product Purpose

Rental Housing Fund To enhance the viability of investment into affordable housing by rental developers/ entrepreneurs.

Entrepreneur Empowerment Property Fund Programme

This is an incubator programme designed to enable sustainable entrance of HDI owned companies in the affordable rental property market. (The programme is limited to prospective participants invited on public tender annually).

Social Housing Fund

To enhance the viability of investment into affordable housing by Social Housing Institutions. This is linked to government institutional subsidy funding.

Student Housing Fund To enhance the viability of investment into affordable housing for students by rental developers/ entrepreneurs.

Facilitation of Mixed Income Housing Developments (opportunity)

To develop optimal funding structure and raise appropriate funding for human settlements projects.

Strategic partnerships with finance institutions

Affordable Housing Rental Accomodation

Mixed

Housing

19

GPF INVESTMENT PROCESS

Project Investment Process

Deal origination -New business development

-Client relationship management

-Deal flow management

Project Assessment

-Investment evaluation - Viability & Feasibility

analysis -Technical assessment

-Investment criteria -Credit analysis

Risk Management & Controls

-Credit risk pricing -Liquidity risk

-Concentration risk Other risks

Investment Administration

-Reporting on Investments

-Investment monitoring -Contract monitoring

Board Investment Committee – meets every fortnight or adhoc Board of Trustees – meets every 6 weeks

GPF INVESTMENT CRITERIA

Mandate fit – the affordable housing project should cater for households with income <R15 000 Strategic fit – does the project fit or contribute to GPF strategic direction Policy fit – maximum 30% contribution by GPF and balance from a senior funder Alignment to government planning or funded projects – i.e. IDP’s and urban renewal initiatives. Socio economic development – does the project have developmental impact

– Job creation – Poverty alleviation – Increase procurement of goods & services for SMME’s

Technical aspects – design, costs etc. Financial Sustainability – cashflows, financial ratios etc.

TYPICAL PROJECT FUNDING STRUCTURE EXAMPLE

Project located in Kempton park Erf 223, land zoned residential 4 and can yield 35 housing units. Project Cost Funding Structure

Item Rand

Land 1,000,000.00

Construction Cost 10,000,000.00

Professional Fees 1,500,000.00

Contingencies 500,000.00

Other 1,000,000.00

Sub-total 14,000,000.00

VAT 1,960,000.00

Total Project Cost 15,960,000.00

Item Rand % Funding

Equity Contribution 1,596,000.00 10%

GPF Debt 3,192,000.00 20%

Senior Debt 11,172,000.00 70%

Total 15,960,000.00 100%

Financial Ratios IRR on Cash flow after tax for 20 years 9% NPV on Cash flow after tax at WACC of: 5% R 19,000,000 ROI on Op's surplus ROI on EAIT Return on Total investment year 3 10% 7% Return on Total investment year 5 13% 8% Debt Cover ratio year 3 1.3 Debt Cover ratio year 5 1.4 Debt equity ratio 90% Loan to value ratio 80% Cost : income ratio 25%

OTHER KEY PROJECT CONSIDERATIONS

• Contribution to building sustainable communities • Catalytic role or developmental impact • Part of municipal IDP’s (under-developed areas) • Precinct approach, alignment to others investments • Target market (households earning <R15 000 income) • Proximity to amenities and transport nodes • Design (secure environment, functionality and unit layout etc.) • Quality of construction, NHBRC and CIDB rating of contractor. Professional team experience. • Local SMME’s development • Project and property management • Future (green issues!) PROJECT EXAMPLE • Brickfields (2005) - Newtown • Mixed use – Commercial retail & Housing 809 units: • GPF Funding: R24million • Total Cost: R120million

WHY EMPOWERMENT FUND?

• Constraints to entrance by BEE entities: • Understanding opportunities in the sector – careers, business and job

creation opportunities in the property sector are not well understood by HDI’s. Most HDI’s are passive investors as individuals or BEE companies.

• Exposure – a few people are in the property or building industry that are willing to take the risk in the affordable rental market.

• Equity - Lack of equity to contribute towards a project or assets as security of loan

• Competition for stock – they cannot compete for buildings as they have no capital (equity for deposit) and are outside the network

• Capacity – to negotiate price, evaluate (feasibility), packaging projects for financing

• Financing – banks are wary of first time property developers • Commitment – it takes a long time to prepare and tie up required project

finance and realise returns. • 94 companies under the incubation programme. %43 are owned by

women and youth. Over R552 million funding committed.

EEPF GENDER DISTRIBUTION

EEPF CHALLENGES & SOLUTIONS

CHALLENGES EXPERIENCED • Lack of senior funding • Delays in obtaining municipal approval to commence with construction resulted in

delayed construction and an increase in moratoriums on debt repayments. • Inability to raise equity • Non availability of affordable stock

PROPOSED SOLUTIONS • The GPF is continuously looking for co-funding partners. • The GPF have enhanced our minimum pre-investment criteria across all programmes

to ensure that funds are committed to projects that are ready to be implemented.

EEPF PROJECTS

Castle Crest Properties 80 (Pty) Ltd Erf 233 Kempton Park 26 Units Cape Gannet Properties (Pty) Ltd Erf 42 Kempton Park 24 Units

EEPF PROJECTS CONTINUED

MUMA Property Investments (Pty) Ltd Erf 978 PTA North 53 Units Valotorque 199 CC Erf 757 PTA North 40 Units

EEPF AWARDS

GPF PERFORMANCE 2003–2014 (MARCH YEAR END)

• Over the past 11 years GPF has committed funding for projects to a value close to R1billion leveraging over R2 billion of private and public sector funding in social rental housing projects.

• This has facilitated approximately 22 000 housing units and funded over 16 000 completed units.

R 0R 50,000,000

R 100,000,000R 150,000,000R 200,000,000R 250,000,000R 300,000,000R 350,000,000R 400,000,000

2003/4 2004/5 2005/6 2006/7 2007/8 2008/9 2009/10 2010/11 2011/12 2012/13 2013/14 2014/15 2015/16

R 0 R 54

R 68, R 66,000,000 R 76

R 54 R 40 R 42 R 80

R 185

R 252 R 290

R 140

R 11,7 R 52

R 109 R 103 R 84 R 87

R 5,9

R 68

R 161

R 177

R 283

R 385

R 195

GPF Performance 2003 - 2015

Series1 Series2

RENTAL HOUSING ECONOMIC IMPACT

The Economic Impact of providing rental housing

Capital Expenditure Operational Expenditure

DIRECT Construction

INDIRECT Construction

Manufacturing Finance Business Services

DIRECT Maintenance Management

INDIRECT Manufacturing

Finance Business Services

Classifying the economic impact of developing housing [Francois Viruly 2014]

Construction related employment opportunities estimated over the period at Approx. 37 000 people (15 000 completed housing units)

On – going operational employment opportunities estimated over the period at Approx. 2 700 people (15 000 completed housing units)

LOCATION OF GPF APPROVED PROJECTS

Gauteng Map

GPF FUNDED PROJECTS EXAMPLES

Brickfields – JHB CBD JOSCHO – Krugersdorp

Tau Village – Tshwane JOSCHO – Rooderport

Kliptown – SOWETO

Hlanganani – Cosmo City

Jabulani CBD – Soweto (Bolani Road – Soweto, Johannesburg)

GREEN AND ALTERNATIVE MATERIAL OPPORTUNITIES

GPF CURRENT STRATEGIC PARTNERS

36

Overview of the Fund

• The Fund will be structured as a limited

partnership fund.

• The targeted Fund size is R1 billion, with a first closing target of R500m.

• The Fund shall be managed by GPF/SPV Fund Manco, in accordance with an agreed SLA.

• The investors will provide the investment funding for the Fund, from which the Fund Manager will make investments.

• The Fund will provide debt and equity capital to greenfield and brownfield affordable housing projects.

Fund Structure

PRIVATE EQUITY FUND - EMPOWERMENT

BUILDING SUSTAINABLE PARTNERSHIPS

Our slogan: “Leveraging Affordable Housing Finance”

Thank you !