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IHS EXPERIENCE IN HOUSING IN AFRICA

Africa Union For Housing FinancePresented by : S Mboweni

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Housing shortage & Urbanization. By 2050, more than half of Africa’s 2.2billion people will live in cities.

Need to deliver housing at scale. Creating replicable models to scaledelivery of affordable housing in Africa is critical to reduce the expansionof slums and provide safe and adequate homes for the expansion ofrapidly growing cities.

African cities are predominantly rental, yet there are very few precedentsfor large-scale and institutional providers of housing, or quality propertymanagement.

From 2014 to 2016, REIT holdings of residential assets more thandoubled, in just two years, from R3.7bn to R8.7bn.

Transforming rental into an institutional asset class will attract long-terminstitutional investors into the affordable housing sector and provide theopportunity to diversify investments into the affordable housing segment.

Addressing the Housing Crisis in Africa

Implications for Housing in Africa

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As of end 4Q 2014

1. IHS’s Current & Future Business and Track Record

2. Capital Raising for AFH

4. Fund’s Development Impact

Presentation Summary

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Key Accomplishments

Track Record

Fund Investors

sonencapital

First fund raised in 2008. Now three funds, a REITand a separate account under management. In total:

Over $550m raised from institutional investors.

20,000 units completed or under construction,plus land for 7,700 units.

11,000 units sold.

85%+ of our units are affordable to low- andmoderate-income households.

9,000 units in our rental portfolio. Occupancytypically in mid 90’s with minimal bad debt &strong income growth.

Currently manage 4 funds including the REIT

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2. CAPITAL RAISING

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Business Case for AFH –Investors Pitch

Extensive Research to identify the Market Opportunity – this can take at least 2 years

Track record and examples of success

Target Investment Areas- (Infrastructure is Key, Transport , Jobs)

Target Sources of Pipeline – Developers /Investors

Fund Parameters (Term, IRRs etc) and Model

Deal Parameters (size , no of units , Exit etc)

Provide Case Studies (2 /3) to prove that the opportunity is real

Current Pipeline

Use of live examples

Summary of the Fund’s target timeline ( capital raise can take 2 to 4 years)

Impact – Social, Environmental and Developmental

INVESTORS ARE LOOKING FOR IMPACT AND RETURNS

A Typical Business Case

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1. Target. An unlevered housing fund to unlock supply of energy efficient and affordable rental units to low and middle income households, primarily in and around Nairobi.

2. Development Impact. The Fund will create a precedent for well-managed, quality affordable rental housing in Kenya and make this into an institutional asset class.

3. Fund size. Minimum initial capital of US$100m and can absorb up to US$250m

4. Fund investments. Turnkey acquisition of around 10 residential properties of 150-300 units each, targeting delivery of at least 2,500 units and up to 7,000 units, depending on the fund size. NB . Investors are looking for “Tenant Purchase Scheme” as an alternative exit mechanism

5. Fund Term. 10 year term

6. Exit. 5-7 year holding period, exit to REITs or pension funds on a yield basis.

7. Returns. Target pre-tax deal-level IRR of XX , unlevered returns, based on turnkey deals (lower-risk approach). Limited Partner returns of XX, with MOIC of XX times

8. Local operations. Local IHS Kenyan team, focused on deal sourcing, asset management, and in-house property management. Back office support provided by existing IHS infrastructure in South Africa.

9. Expansion. Potential to extend to additional East Africa countries, once Kenyan operation is well-established.

IHS Kenya Housing Fund Proposal in Brief

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2. Identifying Opportunities

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On the ground presence. Build out a local team of Specialists

Pipeline development : direct through deal team and development partners.

Focus solely on rentals. Scale is critical to investor returns and to social impact. Other fund managershave had difficulty getting to scale because the for-sale market is dependent on debt that is tooexpensive for the target population, resulting in long sales times and smaller developments. Rentalavoids these risks and meets a critical need.

Prioritize turnkey deals, where we enter into forward purchase agreements and pay only upon transferof completed,

Prioritize infill developments. Projects that cooperate with larger for-sale developments (whereservices and land title are already in place), and residents can benefit from access to work opportunitiesand existing social amenities.

In-house property management. Control lease-up, tenant vetting, and operations in-house to assurehigh quality management

Fundamentals of Sustainable Rental Housing

Key Components for Success

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Fundamentals of Sustainable Rental Housing

Key Drivers Successful Housing Development

Availability of Bulk services – All bulk services must be available or will be available as andwhen required according to the project programme.

Development Rights – Is the Development Partner the owner of the land or has theDevelopment Partner or agent secured the right to purchase the land by entering into a bindingsales agreement with the land owner.

Products to be Provided – The type and price of products to be provided and whether there is ademand for these products must be established to determine whether the IHS target market willbe addressed.

Market Demand – Will the market take up all the units at a reasonable rate over a limitedperiod in time? The size of the project may exceed the market demand in the area for the typeof units on offer.

Experience and Capacity of Development Partner/Development Manager – Have the DPand/or DM completed similar projects previously? Do they have the capacity to undertake theproject at this stage?

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Typical Market Challenges

Challenges Solutions

Existence of a gap market. Supply is focused on higher-income markets, while high numbers of households live in informality (56% of the urban population, World Bank)

Targeting affordable housing supply. Hands-on structuring of projects and bulk purchase will draw formal developers into the low-cost and affordable market.

Development risks. Securing land with clear title, planning approvals, risk of cost-overruns or other sorts of time delays are all development risks.

Fund will buy turnkey on fixed price contracts. Transfer only takes place once units are completed and snagged to our standards. This reduces overall exposure to development risks.

Availability of Bulk services; water , sewer , electricity etc

Infill development is prioritised. Where necessary, developments will have on-site services, such as boreholes, sewer treatment as well as holding tanks to ensure uninterrupted water supply.

Lack of experience in large-scale property or facilities management. There are no professional providers of property management at scale in the residential sector.

Bring IHS Property Management in Country. IHS is experienced in property management. Inhouse management is a critical part of the strategy.

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3. FUND’S DEVELOPMENT IMPACT

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Unlocking investment. Establishing affordable rental asan investment-grade asset class, with track-record ofstable income, to attract institutional investors withlong-term capital in COUNTRY to invest in the sector.

Stimulating supply of formal low-cost housing at scale.By buying bulk, we take out market risk fromdevelopers, allowing them to reach scale more quickly.

Lowering the cost of formal housing. Housing built bydevelopers is targeted at an investor market. IHS willdrive developers toward low-cost housing.

Improving quality of homes for low and lower-middleincome Market. Most RESIDENTS in middle classhouseholds still live in informal housing or slum areaswith poor access to services. We are providing anaffordable, safe and quality alternative.

Catalysing a market for green housing bydemonstrating, measuring and publicizing benefits,where families save money on utilities and new housingis measured for its environmental benefits.

Security of tenure. As a Landlord, we will focus onbest practice in terms of property management andthe rights of tenants, who are not well-protected byCOUNTRY law.

Job creation. Housing construction createsapproximately 6300 jobs

Economic growth and development.

We made affordable housing into aninstitutional asset class in South Africa, bringingin large investors, strong developers, muchbetter bank lending and new greentechnologies..

We focus on locations close to schools,transport, work opportunities and shopping,helping to improve the lives of its residents andbringing large investments to low-income areas.

Environment. Electricity saving 3,300,000kWh, WaterSaving 138,000kL, CO2 emissions savings 3,052

Housing Sector Impact Social, Economic and Environmental Impact

Key Development Impact Areas

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More information available at:

www.ihsinvestments.co.zawww.ihspm.co.za

www.transcendproperty.co.za

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