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Adowa Infrastructure Fund Managers (AIFM)

• A private equity fund manager

• Specializing in SRI oriented investments in infrastructure and

related businesses located in Sub-Saharan Africa

• “Our ethos advocates equity and debt financing of projects for

the benefit of the community.”

Introduction

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Student housing challengeDemand side

• Shortage in available housing

• Accommodation available for 20% of University enrolled students (Excluding other higher education institutions)

• Global average is 50%

• Shortage amounts to >R100bn

• Opportunities extend into Sub-Saharan Africa

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CUT UJ DUT NMMUMUT VUT WITS CPUT UP UFS UV UWC UKZN UCT WSU US UNW TUT UZ UL UFH RU UL 0%

10%

20%

30%

40%

50%

60%

70%

80%

Student Accommodation coverageBy University

%be

ds/s

tude

nts e

nrol

led

Majority significantly below the global average of 50%

Student housing challenge

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Student housing challengeSupply Side

• The economics of the industry are challenging

– Fiscus can’t support the required investment

– Traditional funding institutions have little appetite (although there is a growing interest)

– Most tertiary institutions are dependent on government subsidies

– Bulk of learners are indigent • of students housed in residences, 71% received some

form of financial aid

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Student housing solution

Pooled capital; investment management

• The challenge has significant capital

requirements

– Government alone cannot provide the capital

– Private sector pooled capital solutions have a

role to play

• The challenge presents investment opportunity

for long-term investors

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Student housing solutionAdowa Infrastructure Fund

• A closed-ended infrastructure fund focused on developing high quality student accommodation opportunities in Sub-Saharan Africa

• The fund will provide financing for the acquisition and development of student accommodation properties

• The aim is to provide a pooled-capital vehicle that • Addresses the identified challenges in this sector• Creates an investment asset class for social impact

driven investors

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Student housing solution

Government

StudentsTertiary institutions

INVESTORS

Adowa provides a solution beneficial to all key stakeholders

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GOVERNMENT

Pooled capital vehicles address the significant challenge

identified by Government

• Identified required levels of accommodation coverage

– Current coverage – 1 bed per 5 registered students

– Short term target – 1 bed per 2 registered students

– Long term target – 1 bed per 1.25 registered students

• Capital investment of >R100bn is too much for the state alone

The significant capital requirements offer an opportunity for private sector to assist; full support would be offered to investors who can

fulfil the need

Student housing solution

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UNIVERSITIES

Private sector involvement has

high social impact on universities and

students

• Accommodation creates an enabling educational environment

• Private sector solution allows university to direct more funds towards curriculum development

• The Build-Own-Transfer model creates capital for the institution for the future

A private solution allows institutions to focus on curriculum development

Student housing solution

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Student housing solutionUniversity funding model

• Significant portion of government subsidies are

allocated for teaching inputs (e.g. Curriculum

provided)

• Universities are ranked based on

– Student numbers – Full-Time Equivalent (FTE)

Enrollments

– Courses offered, ranked based on categories (see Table

below)

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Tertiary input funding weights

Hard-skilled curricula receive higher weighting

Socially impactful curricula receive high weighting

Student housing solution

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Student housing solutionTeaching input scores

Historically disadvantaged institutions need the most boost

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Student housing solution

Results of private sector solution Impact

Housing creates an enabling

environment

• Living on-campus housing during a

student’s 1st year increases the

chances they’ll finish college by

12%

MORE GRADUATES

BETTER GRADUATES

INCREASED SKILLS LEVELS

Universities focus on

curriculum developmen

t

• Teaching inputs – i.e. Courses

offered – have the biggest

weighting for allocation of funds

MORE COURSES

BETTER QUALITY COURSES

DIVERSITY OF COURSES

INCREASED SKILLS LEVELS

Student housing provision has high social impact points

HIGH

HIGH

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INVESTORS

Student accommodation is a viable asset class

• Significant demand in the South African context– 200 000 bed shortage plus future

requirements approximates a R100bn Capital requirement to 2030

– Maintenance backlog increases this further

• Globally, student accommodation is a unique asset class attracting yield seekers

• The concession model allows for improving long term yields

• Funding models from the US can be adopted

– E.g. Student revenue housing bonds

Student accommodation presents a good asset class for yield seeking investors

Student housing solution

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Student housing solutionThe world student housing sector reached $7.2bn investments in

2013

Source: Savills World Research, Spotlight: World Student Housing 2014

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Student housing solutionUS listed student housing REITS*

*Note: Campus Crest Communities, a third listed student housing REIT has decreased significantly since its listing in 2004, with a CAGR of (7%).Source: Google finance and company websites

Yields compare favourably to US 10yr bond yields currently around 2.38%

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Adowa’s approachInfrastructure Equity Fund• Equity investment into student housing projects

• Procures projects from tertiary institutions and independent

property developers

– Equity funding of construction and development costs

– Procures lease agreements with tertiary institutions

• 15-20 year investment horizon

• Hurdle rate: 15% IRR over the investment horizon• Exit strategy: Transfer of building for free to institution at the end

of the lease

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Fund business modelOperating structure:

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Example based on budget for Stellenbosch Tygerberg

Fund business model

Fund assets: CAPEX

• Construction costs are estimated at ~R200 000 per unit

• Technology improvements in building materials in methods will reduce this cost

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Fund business model

Innovative Building Technologies (IBT)

• Adowa aims to focus on IBT development so as to reduce the per-bed construction costs– The fund has partnered with a property developer

pioneering IBT in Southern Africa

• Technology improvements in building materials in methods will reduce capital costs and construction times– Costs – up to 13% reduction– Time – up to 40% reduction in construction time– Waste – almost 0% of construction waste

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Financial model

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Financial modelEQUITY IRR ~16%

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Adowa’s investment strategy overview

FUND INVESTMENT STRATEGY AND CRITERIAFund size R3bn

Fund term 15 years

Commitment period 8 years

Geographies Sub-Sahara Africa

Sectors Student & Social housing

Development stage Greenfields and selective acquisitions

Investment size R50m and above

Control Development execution, property management, exit

Leverage Typically 60-70% of development costs

Development partners Associated development platforms or independent providers

Currency risk US$ leases (where counterparty is outside of South Africa)

Concession 20 – 30 year leases

Fund manager Adowa Infrastructure Fund Managers

Exit Transfer of properties to tertiary institution

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Thank you

Sisa Rafuza

Adowa Infrastructure Fund Managers

Third Floor, Block B Park LaneCnr. Park and Alexandra RoadPinelands7405

Tel +27 21 514 5420

Cell +27 83 454 2598

E-mail srafuza@adowa.co.za