1. Adowa Infrastructure Fund Managers (AIFM) A private equity fund manager Specializing in SRI...
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Transcript of 1. Adowa Infrastructure Fund Managers (AIFM) A private equity fund manager Specializing in SRI...
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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 [email protected]