Brian Koome Kinoti

CONFINDENTIAL PROPOSED RUAKA APARTMENTS GUESTCARE IDEAL HOMES LTD Report: Prepared For: Prepared By: Date: Business Plan for a Commercial and Residential Property Development Project GuestCare Ideal Homes Ltd P. O. Box- Nairobi, Kenya. GTF Consulting Ltd, P.O. Box 51561, 00200, Nairobi, Kenya. 19th Oct 2023 GuestCare Ideal Homes Ltd TABLE OF CONTENTS 1.0 BACKGROUND INFORMATION .................................................................................- INTRODUCTION....................................................................................................... 6 PROJECT CONCEPT AND DESCRIPTIONS............................................................ 6 PROJECT RATIONALE............................................................................................. 7 ADVANTAGE OF PROJECT TO THE COUNTRY ..................................................... 7 2.0 LEGAL STATUS, OWNERSHIP AND MANAGEMENT...............................................- PROJECT STRUCTURE ........................................................................................... 8 OWNERSHIP ............................................................................................................ 9 MANAGEMENT COMPANY ...................................................................................... 9 PROJECT’S PROMOTERS....................................................................................... 9 SITE PROFILE .......................................................................................................... 9 3.0 OVERVIEW OF THE PROJECT COST ...................................................................... 10 3.1 PROJECT COSTS................................................................................................... 10 3.2 FINANCING............................................................................................................. 10 3.3 COLLATERAL ......................................................................................................... 10 4.0 SITE ANALYSIS AND LEGAL FRAMEWORK ........................................................... 11 4.1 LOCATION OF SITE................................................................................................ 11 4.2 LEGAL FRAMEWORK AND APPROVALS .............................................................. 11 5.0 PROPOSED DEVELOPMENT PROJECT .................................................................. 13 5.1 INFRASTRUCTURE................................................................................................ 13 5.2 DEVELOPMENT SPECIFICATIONS ....................................................................... 13 5.3 THE PROJECT TEAM ............................................................................................. 15 6.0 INDUSTRY OUTLOOK ..............................................................................................- REAL ESTATE INDUSTRY ..................................................................................... 19 HOUSE DEMAND IN THE COUNTRY..................................................................... 19 LOANS AND ADVANCES BY COMMERCIAL BANKS............................................. 20 MARKET PRICES OF APARTMENTS..................................................................... 21 7.0 MARKETING AND MARKET ANALYSIS ................................................................... 22 7.1 DEMAND AND SUPPLY ANALYSIS........................................................................ 22 7.2 RUAKA HOUSE DEMAND AND GROWTH ............................................................. 22 7.3 MARKETING STRATEGIES.................................................................................... 23 8.0 PROJECT MANAGEMENT AND DIRECTOR’S PROFILES....................................... 24 8.1 PROJECT MANAGEMENT ..................................................................................... 24 8.2 BRIEF PROFILES OF DIRECTORS ........................................................................ 24 9.0 FINANCIAL EVALUATION......................................................................................... 26 9.1 PROPOSED PROJECT COST ................................................................................ 26 9.2 PROPOSED FINANCING PLAN.............................................................................. 26 9.3 KEY ASSUMPTIONS .............................................................................................. 27 2 GuestCare Ideal Homes Ltd 9.4 PROJECTED REVENUE......................................................................................... 27 9.5 UNITS RETAINED................................................................................................... 27 9.6 PERFORMANCE HIGHLIGHTS .............................................................................- RISK ASSESSMENT .............................................................................................. 29 OPERATION RISKS ............................................................................................ 29 PROJECT APPRAISAL ....................................................................................... 29 MATTER OF SCOPE .............................................................................................. 30 LIST OF FIGURES PAGE Figure 1: Proposed Project Structure .................................................................................... 8 Figure 2: Ruaka Development Growth Road Map ............................................................... 22 LIST OF TABLES Table 1: GuestCare’s Shareholdings..................................................................................... 9 Table 2: Project Costs......................................................................................................... 10 Table 3: Proposed Financial Plan ....................................................................................... 10 Table 4: Permits Approval Status ........................................................................................ 12 Table 5: Units Types and Size ............................................................................................ 13 Table 6: Proposed Project’s Team ...................................................................................... 15 Table 7: Apartments Sales Prices in Ruaka ........................................................................ 21 Table 8: Estimated Project Costs and Financing Plan ......................................................... 26 Table 9: Borrowing Terms ................................................................................................... 26 Table 10: Projected Revenue.............................................................................................. 27 Table 11: Sensitivity Analysis Summary.............................................................................. 29 Table 12: Project Appraisal Summary ................................................................................. 29 LIST OF CHARTS Chart 1: Commercial Banks Loans and advances to Construction Sector ........................... 20 Chart 2: Estimated Marketing Costs.................................................................................... 23 3 GuestCare Ideal Homes Ltd APPENDICIES Appendix I: Financial Projections Annexe 1: Annexe 2: Annexe 3: Annexe 4: Annexe 5: Annexe 6: Annexe 7: Annexe 8: Annexe 9: Annexe 10 Annexe 11: Appendix II: Appendix III: Appendix IV: Dashboard Key Assumptions Space Allocation Projected Income Statements Projected Cashflow Statements Projected Financial Position Monthly Income Statements Monthly Cashflow Statement Monthly Balance Sheet Loan Repayment Schedule Project Appraisal Costs Estimate by Quantity Surveys Pin Location of the Site Proposed Building Plans and Design 4 GuestCare Ideal Homes Ltd LIST OF ACRONYMS CAGR IRR KES KM LTD Compounded Annual Growth Rate Gross Domestic Product Internal Rate of Return Kenya Shilling Kilo Metre Limited NCA National Construction Authority NEMA NPV PA National Environment Management Authority Net Present Value Per Annum Pay as You Earn Return on Equity Square Metre United States Dollar Value Added Tax GDP PAYE ROE SQM USD VAT 5 GuestCare Ideal Homes Ltd 1.0 BACKGROUND INFORMATION 1.1 INTRODUCTION GuestCare Ideal Homes Ltd (hereby referred as GuestCare) intends to carry out a commercial and residential property development project at Ruaka, Kiambu County and has engaged GTF Consulting Ltd to prepare a project appraisal plan for the proposed development project. The aim of this report is to evaluate financial viability of the project. Following is a summary of the scope of our appraisal:  Market review;  Analysis of supply and demand for houses in Kiambu and its environs;  Location analysis;  Review properties prices; and  Formulate a financial module for the proposed project. 1.2 PROJECT CONCEPT AND DESCRIPTIONS GuestCare is a locally incorporated company whose main activities are properties development and management. The company current owns numerous properties in various Counties in Kenya namely; Nairobi County, Kiambu County, Mombasa County, Kajiando County etc. The directors of the company intend to redevelop the Ruaka property by demolishing the existing structures and propose to develop a thirteen storey residential and commercial building. The proposed project will be developed on two adjusted plots both measuring a total of 0.724 acres. The plots are located along Ruaka - Banana road, approximately 450 metres from Two Rivers Mall. The proposed building is of contemporary design taking into account the evolving market needs. The property has a build-up area of 28,585 sqm comprising of studio apartments, one bed-rooms units, two bedroom units and shops, (details of the apartments are provided under Appendices). The property’s other facilities will include 153 parking, club houses, laundry rooms etc. GuestCare have prepared a 4-year business plan for the proposed property, comprising projected financial results. The business plan has been prepared in both the Kenya Shilling and USD which include assumptions as to revenues, project costs, financing and other business metrics upon which the development’s plans are projected. 6 GuestCare Ideal Homes Ltd 1.3 PROJECT RATIONALE Kiambu County being one of the County neighbouring Nairobi the Capital City of Kenya has the biggest share of real estate developments in Country compared to other Counties. Over the last two decades it has been boom period for developers in the County and its neighbourhoods with high rises and apartments being built at a very fast rate. 1.3.1 Market Demand Demand for residential houses in the County has always outstripped supply. The government has pledged to provide at least 200,000 new housing units every year in partnership with private investors. Even with this kind of development it will take many years before the deficit is eliminated due to the high rural-urban migration. 1.3.2 Real Estate Tread in the Country In the last two decades, the Kenyan real estate market has grown exponentially as evidenced by its contribution to the country’s GDP at 7.1% in 2022. The growth is driven by;  Infrastructural developments such as improved roads, utility connections etc;  Demographic trends such as rapid urbanization at 4.4% p.a. against the world’s 2.5%;  Country population growth averaging at 2.6% p.a.; and  High total returns averaging at 25.0% against 12.4% in the traditional asset classes1. These factors have therefore led to the development of unique trends across the various real estate products, as investors sought to gain high returns and buyers sought aspirational lifestyles and quality products. 1.4 ADVANTAGE OF PROJECT TO THE COUNTRY The proposed project will have a positive impact to Ruaka Town. The project is expected to bring numerous direct and indirect benefits to both the residents of the town as well as to the country. The project will:  Contribute to addressing the housing deficits in the country;  Create direct and indirect employment;  Develop a modern shopping centre in the region;  Create indirect income generation for other economic sectors thereby promoting economic development; and  Revenue generation for the government in form of taxation e.g. Corporate tax, VAT, PAYE etc. 1 Real Estate Tread by Cytonn 7 GuestCare Ideal Homes Ltd 2.0 LEGAL STATUS, OWNERSHIP AND MANAGEMENT 2.1 PROJECT STRUCTURE The project comprises of three structure as illustrated below Figure 1: Proposed Project Structure Proposed Development Project at Ruaka Developers Unit’s Owners Management Company GuestCare Ideal Homes Ltd Individual/ companies GuestCare Management Company   Managing and maintenance of the property Own the common areas 8 GuestCare Ideal Homes Ltd 2.2 OWNERSHIP GuestCare is a private company incorporated in May 2001 under Certificate of Incorporation Number C. 93804. The shareholding structure of the company is as follows: Table 1: GuestCare’s Shareholdings Name Mr. James Michael Ndungu Kigathi Mrs. Emmah Wangu Kigathi Total No. Shares-,000 % 51% 49% 100% Source: CR12, dated 22nd Aug 2023 2.3 MANAGEMENT COMPANY A property management company would be incorporated to managed the common area of the proposed property. The shareholding and ownerships of the management company is expected to be the owners of the units. More detailed of the proposed management company will be determined later taking into accounts opinions of other professionals e.g. lawyers. 2.4 PROJECT’S PROMOTERS The proposed development project is sponsored by GuestCare whose shareholders and directors are Mr. James Ndungu Kigathi and Mrs. Emmah Wangu Kigathi. Brief profiles of the promotors/directors are provided under section 8 of the Projects Business Plan. 2.5 SITE PROFILE The site where the proposed project is a developed neighbour other multi-storey buildings. GuestCare plans to develop the two adjusted plots by building multi-purpose building for sale under the name, “GuestCare Apartments and Shopping Centre”. Following is the site profile: a) Details of Plot 1 Title number: Kiambaa/ Thimbigua/ 3688 Plot size: 0.17 hectare Nature of title: Absolute b) Details of Plot 2 Title number: Kiambaa/ Thimbigua/ 5856 Plot size: 0.123 hectare Nature of title: Absolute 9 GuestCare Ideal Homes Ltd 3.0 OVERVIEW OF THE PROJECT COST 3.1 PROJECT COSTS The total cost of the proposed development project is estimated to be KES 1.44 Billion as illustrated below. The construction costs are based on quantity surveyors cost estimates while the land value is based on market value of land in the region and director’s estimates. Table 2: Project Costs Total Costs (Excl. Vat) Land value Construction costs Professional fees Interest Pre-operating expenses KES 146,300,000 1,150,011,437 69,000,686 75,469,634 7,350,011 1,448,131,769 % 10.1% 79.4% 4.8% 5.2% 0.5% 100% Cost estimates have been prepared by a Quantity Surveyor based on recent tenders in the market. Summary of Bill of Quantity is provided under Appendix II. 3.2 FINANCING To facilitate implementation of the project, the project’s promoters plans to use various strategies to finance the project including shareholder’s equity, term loan and pre sales as outlined below. Table 3: Proposed Financial Plan Proposed Financing Plan Equity (Land) Equity (Cash injection) Equity (Internal - pre sales) Debt Total 3.3 KES 146,300,000 191,350,011 75,469,634 1,035,012,124 1,448,131,769 % 10.1% 13.2% 5.2% 71.5% 100.0% COLLATERAL The borrowing will be secured with the land and construction thereon. Land’s details are provided under section 2.5 above. 10 GuestCare Ideal Homes Ltd 4.0 SITE ANALYSIS AND LEGAL FRAMEWORK 4.1 LOCATION OF SITE The proposed development project is located along Ruaka – Banana road approximately 400 metres from Ruaka Shopping Centre and 450 metres from the Two Rivers Shopping Mall. Ruaka – Banana road is linked to other major roads which include Limuru road, Northern Bypass and newly completed Western Bypass. The proposed development project is within the Ruaka development hub and in the neighbourhood of Two Rivers Shopping Mall. The Site Location Pin is provided under Appendix III of the Report. 4.1.1 Ruaka Shopping Strategic Location Ruaka Shopping Centre is strategically located within the Nairobi Metropolitan Area (NMA), neighbouring prime and affluent neighbourhoods such as Runda (approx. 4.3km), Rossyln (approx. 4.2 km), Gigiri (appro. 6.0 km), and Nyari Estate (approx. 5.5 km). Additionally, it is situated near the United Nations Approved Diplomatic Blue Zone. Ruaka has become one of the fastest growing satellite towns in the NMA, and has become a major centre for Real Estate investment and development in the recent past. Over the years, Ruaka has recorded remarkable growth in terms of the Real Estate sector, with increased activity in the residential, commercial office and retail sectors. This is as a result of improved accessibility to the area on the back of improved infrastructural development, owing to the construction of the Northern and Western Bypasses. This makes the area attractive for investment. 4.2 LEGAL FRAMEWORK AND APPROVALS The proposed development project will be guided by various laws, and regulations related to land use planning including:  Physical Planning and Land Use Act of 2019;  Environmental Management and Coordination Act, Cap 387;  National Construction Authority Act, No. 41 of 2011;  National Construction Authority (NCA) Regulations of 2014;  Architects and Quantity Surveyors Act, Cap 525, Laws of Kenya;  Engineers Registration Act 2011;  County Government Act;  Kiambu County Building Laws; etc. The project’s promoters are in the process of obtaining the appropriate approvals from relevant institutions. The table below provides the approval status. 11 GuestCare Ideal Homes Ltd Table 4: Permits Approval Status Item Kiambu County (Architectural drawing approvals) Physical Planning (development permit) National Environment Management Authority (NEMA) Change of use to residential Change of use to multi use residential and commercial Registration of Titles Act KERRA Approval of access to plots Status Pending Pending Pending Done, 2015 Pending Approved Done, 2015 Previously, the promoters have applied for a change of use from agricultural to residential which was approved in 2015. However, the promoters are planning to apply for a change of use from residential to multi-purposes (residential and commercial). 12 GuestCare Ideal Homes Ltd 5.0 PROPOSED DEVELOPMENT PROJECT 5.1 5.1.1 INFRASTRUCTURE Water and Electricity The site is connected to Karuri Sub-County water supply line that serves many residents of the area, the water will be supplemented with a borehole which is already drilled with a tested yield of 15.4 cubic metres per hour. The area is well-served by the national grid; the proposed project site is well-served by 3phase electricity. 5.1.2 Solid Waste and Drainage The area will be served by a sewer line which is under construction and is expected to be completed and commissioned this year (2023). The proposed property will be connected to the sewer line. According to our discussions with relevant authority, the sewer line capacity will comfortably accommodate the proposed development. 5.2 5.2.1 DEVELOPMENT SPECIFICATIONS Overview The proposed development will be a 13 storey building consisting of 345 residential units and 1,282 square metres of shops space. The residential units include mix of studios, one bedroom units and two bedrooms’ units. The table below summarise the scope of the proposed development. Table 5: Units Types and Size Units Type Studio apartment One bedroom apartment Two bedroom apartments Total Number- Average Area Per Unit (Sqm) 32 56 80 In addition, the proposed development property will have a total of 153 parking to cater for the shoppers and residents. 13 GuestCare Ideal Homes Ltd Other common facilities provision includes:  Common entrances to the property, this will comprise a gatehouse;  Generator house;  Transformer house;  Store;  Management office;  Shops washrooms;  Two club houses;  Laundry rooms; and  Common services to be provided within the building include security and garbage collection/disposal. 5.2.2 Unit Specifications a) Studio Studio units consists spacious bedsitter with a kitchen, bathroom and balcony for individual looking for privacy, ideal location and space. b) 2 or 1 bedrooms Units The units have the following features:  Extensive and spacious rooms and lounge;  2 or 1 bedrooms with modern built-in wardrobes; and  Kitchen with built-in cupboards. Appendix IV provide the Typical Floor Plan and Designs As listed in above, the proposed development property will have a mix of diverse units aimed to attract different ranges of demand depending on taste and resources. The property is expected to be among the leader in the built purposes building in the region in terms of modern design, quality by positioning itself in the market targeting diverge range of clients. 5.2.3 Commercial Outlets The property comprises commercial section to be sold to diverse range of interested clients for commercial purposes. The outlets can be used for a small supermarket, coffee shops, retails shops and gift shop etc. 14 GuestCare Ideal Homes Ltd 5.3 THE PROJECT TEAM Guestcare have engaged a team of qualified consultants and service providers who have experience in their respective field as shown below. Table 6: Proposed Project’s Team Services Provider Private Tendering Octa Architects Ltd Esskay Engineering Services Ltd Integra Consulting Limited Sensei Capital Limited Type of Services Contractor  Architecture  Project manager/ Consultant  Electric & mechanical engineering  Plumbing & drainage. Quantity surveyors Structural engineers Below are brief profiles of the team that will be involved in the project. a) Octa Architects Ltd Octa Architects Ltd is a medium size firm duly registered in Kenya to provide architectural and interior design services. The company services mainly include site analysis, production of outline designs, production of working drawings and detailed drawings, procurement and co-ordination of Engineering and Quantity surveying services during design, obtaining local authority approvals, supervision of works to ensure strict adherence to the drawings and quality execution of work etc. The company has extensive experience offering diverse services having been involved in numerous projects including 2029 Office Suites - Westlands, Twin Towers - Githunguri, Ruiru Apartments, Coco Bahari - Mombasa, Tamasha Apartments - Mombasa, Bliss Apartments - Ruaka, Belisimo Apartments - Ruaka, Proposed Hamptons Apartment - Phase Two, The Proposed Muthithi Gardens Shopping Complex, Magnate Centre, Allamano Centre - Consolata Catholic Church, Proposed St. Andrews Catholic Church - Rironi etc b) Esskay Engineering Services Ltd Esskay Engineering Services Ltd is an engineering firm dealing in design, supervision and project management of mechanical & electrical engineering services. Highlights of our services Mechanical Engineering Services  Plumbing & drainage services  Air conditioning and mechanical ventilation systems.  Medical vacuum systems. Electrical Engineering Services  Electrical sub stations  H.V, M.V & L.V power supply  Electrical power transmission distribution & 15 GuestCare Ideal Homes Ltd Mechanical Engineering Services  Air compressors and compressed air services.  Refrigeration installation and cold stores.  Medical gases services.  Fire protection services.  Boiler plants, steam services condensate and return systems.  Food preparation, cooking and conveying.  Calorifier plants and hot water services.  Refuse collection and/or disposal.  Thermal preparation.  Mechanical vibrations and isolation. Electrical Engineering Services      Security & street lighting. Electrical lighting & power installation. Lifts, hoists & escalators. Lightning protection. Fire detection, alarm systems & voice evacuation.  Uninterruptible power supply installation.  Patient management / nurse call systems.  IT medical wiring installations. Following is summary of some of the key projects undertaken by the company. 16 GuestCare Ideal Homes Ltd c) Integra Consulting Limited Integra Consulting Ltd is a registered quantity surveying practice with the government of Kenya offering quantity surveying and project management in both building and civil engineering works. The firm also has qualified technical and support staff, who have the capability, competence and experience in all aspects of consultancy and construction work from inception of a project to its completion. The company takes pride in the clients, both large and small, who have gained confidence and entrusted us to provide design, construction and/or management solutions. The company offer the following services:  Feasibility studies, cost planning & estimating.  Quantity surveying.  Project management.  Miscellaneous services:  Surveying and drawing up schedules of defects for repair and maintenance works and advising on routine maintenance;  Surveying and advising on renovations, alterations and extensions and their cost;  Advising on resolution of contractual disputes and their avoidance;  Preparation of contractual claims and negotiating settlements;  Pricing of tender documents;  Advising on legal and technical aspects of contract documents;  Advising on mediation, conciliation and arbitration; etc d) Sensei Capital Limited Sensei Capital Limited is an established firm specializing in civil and structural engineering design and construction management. The firm is registered as a private limited company and has been in operation since October 2016. Our services include:  Structural and Civil Engineering design and detailing, computer aided to achieve greater accuracy, functionally sufficient and safe yet economical systems to meet specified deadlines.  Construction supervision to ensure that only construction materials that comply with specified standards are used and workmanship quality is of high standards; special emphasis placed on site safety through ensuring that correct and safe construction methods and procedures are used.  Geotechnical and site investigations to provide information necessary in designing required structures and systems.  Structural assessments of existing buildings to determine their suitability or otherwise for change of use, refurbishments or extensions and to design the methods and procedures for underpinning, strengthening or alterations as necessary. This includes overseeing the testing by non-destructive methods or otherwise of the existing structural elements. 17 GuestCare Ideal Homes Ltd  Stability assessment of structures to determine weaknesses arising from partial failures/collapse, fire damage or blast damage and to recommend remedial measures or rebuilding procedures.  Construction Project Management.  Engineering Contracts Management. The range of projects that we undertake include:  All types of buildings (including high-rise buildings, large-span structures, recreational facilities) and associated civil works.  Roads projects of all classes.  Water supply & waste water management projects.  Storm water drainage and management projects.  Bridges (including bailey bridges) and culverts.  Masts and Towers for electricity transmission, communication, elevated tanks.  Storage Tanks and Silos.  Swimming pools, water ponds and other water retaining structures.  Earth retaining walls  Underpinning, structure modification, strengthening and extension.  Boundary walls.  Stability of hydraulic structures (including structures in irrigation systems and power generation plants).  Parking lots, access roads and car park sheds.  Billboard structures.  Monopole structures. 18 GuestCare Ideal Homes Ltd 6.0 INDUSTRY OUTLOOK 6.1 REAL ESTATE INDUSTRY The real estate industry in Kenya experienced highs and lows. The country witnessed high mortgage rates averaging between 12% and 15% and there was demand for affordable housing. The affordable housing project aims to reduce construction costs, unlock land for development and grow the mortgage finance market. Because of the government’s support, investors are happy that this will give them more assurance in putting their resources behind the low-cost housing projects. Kenya’s real estate market has grown exponentially, as evidenced by its contribution to GDP. This growth is being driven by Infrastructure improvements, utility connections, demographic trends such as rapid urbanization, and population growth. 6.2 HOUSE DEMAND IN THE COUNTRY In the last two decades, there is an increase of population in Nairobi and its environs, Ruaka being one of the fastest growing town, the demand of residential houses has been increasing each year. According to the Kenya Economic Survey 2023, construction industry registered a growth of 4.1% in 2022 compared to a growth of 6.7% in 2021. The sector is expected to maintain a growth rate of 6% in the near term as it shakes off the effects of the COVID-19 pandemic. The country construction sector will continue to be supported by the growing real estate sector, particularly residential and commercial development, offices, and retail developments, as investors continue to enter east Africa through Kenya. Cement consumption being one of the key indicators of performance of construction sector recorded an increase of 4.3% from 9.07 million metric tonnes in 2021 to 9.5 million metric tonnes in- Residential Property The country population stand at approximately 50+ million, with a rapidly growing population and more so, an increasing middle class, the residential sector has recorded the highest demand with the nationwide housing deficit standing at 200,000 units annually and an accumulated deficit of over 2 million units. However, the largest demand has been for affordable housing to cater for the 61% of urban dwellers who live in slums and shortage in student accommodation accounting for 40% of the deficit. 19 GuestCare Ideal Homes Ltd 6.2.2 Retail Sector The retail sector has grown tremendously, characterized mainly by a continued rise in mall space. With a growing middle class, and thus more disposable income, international and local developers have quickly grabbed the opportunity to tap into the ready market with the mall concept which has seen Kenya become the second largest in mall space in Africa, after South Africa, with 391,000 square meters. The most notable developments include the Two Rivers Mall, Garden City, and The Hub. 6.3 LOANS AND ADVANCES BY COMMERCIAL BANKS Commercial banks have shown a keen interest in the building and construction sector as reflected with the increase of loans and advances offered to this sector over the years. Chart 1: Commercial Banks Loans and advances to Construction Sector Loans and Advances from Commercial Banks to Construction Sector KES 'Billion 561.97 486.03 2018 534.74 539.24 2020 2021 493.16 2019 As illustrated in the Chart, commercial banks’ advances to the building and construction sector has increased from KES 486.03 billion in 2018 to KES. 561.97 billion in 2022, recording a CAGR of 3.7%. 2022 Source: Economic Survey 2023 20 GuestCare Ideal Homes Ltd 6.4 MARKET PRICES OF APARTMENTS The table below outlined market prices of units in Ruaka town: Table 7: Apartments Sales Prices in Ruaka Name Studio The Loftel Kenya Property Centre Property24 1 Bed room Apartments The Loftel Kenya Property Centre Property24 Cascadia apartments 2 bedroom Apartments Good Home Mortgage The Loftel Kenya Property Centre Property24 Cascadia apartments 3 bedroom Apartments Good Home Mortgage The Loftel Property24 Cascadia apartments Location Measurement KES Ruaka Ruaka Ruaka 43 sqm 43 sqm 43 sqm 3.5 million 3.0 million 3.0 - 3.4 million Ruaka Ruaka Ruaka Ruaka (Two Rivers) 68 sqm 68 sqm 68 sqm 57 sqm 5.3 million 4.7 million 4.7 - 5.3 million 8.5 million Ruaka Ruaka Ruaka Ruaka Ruaka (Two Rivers) 82 sqm 102 sqm 102 sqm 102 sqm 90 sqm 6.6 million 7.2 – 8.0 million 7.8 million 7.2 – 8.0 million 12.3 million Ruaka Ruaka Ruaka Ruaka (Two Rivers) 104 sqm 150 sqm 150 sqm 102 sqm 8.6 million 10.8 million 10.8 million 14.4 million Source: Property and Agents Web sites Our proposed prices are within the market rate. More detail on prices is provided under section 9. 21 GuestCare Ideal Homes Ltd 7.0 MARKETING AND MARKET ANALYSIS 7.1 DEMAND AND SUPPLY ANALYSIS The promoters of the project have carried out a market analysis in the region to determine the properties supply and demand. The survey shows that; they are high demand of units in Ruaka as reflected by the high establishment of new developments. According to the Kenya National Bureau of Statistics, three and four-bedroom homes dominated the Kenyan real estate market from 2010 to 2015. However, demand for larger units has decreased compared to studios, one and two bedrooms, as of 2019. With a rapidly growing population and, more importantly, an expanding middle class, the residential sector has seen the most significant demand, with a national housing deficit of 200,000 units per year and an accumulated deficit of over 2 million units. The housing market in Kenya is primarily a rental market. Affordability is critical. Access to decent housing is difficult. As a result, only about 20% of Kenyans living in cities own their home. 7.2 RUAKA HOUSE DEMAND AND GROWTH Over the year, Ruaka has grown from a bare land with no real estate to a property boom with improved infrastructure as illustrated in the figure below. Figure 2: Ruaka Development Growth Road Map Source: BuyRent Kenya 22 GuestCare Ideal Homes Ltd The growth of the Ruaka was attributed too various factors as summarized below  Improved infrastructure with the Northern Bypass linking to Kiambu Road connecting to other neighbourhoods such as Westlands, Runda, Waiyaki Way and Limuru;  Presence of recreational facilities such as Two Rivers Malls, Village Market, Riviera Mall, the Tribe Hotel and Trademark Hotel;  Enhanced security from the presence of international organizations like the American Embassy, the United Nations;  Availability of unused bare land along the main road which creates an opportunity for developers and agents to supply more properties to meet the ever-growing demand. Most of the demand in Ruaka comes from young families who want to purchase their first home which in most cases is a 1 bedroom or 2-bedroom apartment. 7.3 MARKETING STRATEGIES To ensure high intake of units, the management plan to apply a blend of marketing strategies namely engage sale agents, work in partnership with financial institutions e.g. SACCO, direct engagement with prospective customers etc. The promoters expect to engage agents at a 3% sales commissions. A total of approximately KES 27.97 million is expected to be spend in marketing and promotion as outlined in the chart below. Chart 2: Estimated Marketing Costs Marketing Costs 30,000,000 27,977,250 25,000,000 20,000,000 KES 15,737,203 15,000,000 10,000,000 9,022,663 3,217,384 5,000,000 - Year 1 Year 2 Year 3 Total 23 GuestCare Ideal Homes Ltd 8.0 PROJECT MANAGEMENT AND DIRECTOR’S PROFILES 8.1 PROJECT MANAGEMENT The directors of the company value professionals and there plan to engage a Project Manager who will assist in the implementation of the project. The duties and responsibilities of the Project Manager will entail the following:  Assist in planning and monitoring the project;  Deliver the project within the defined time;  Ensure the project is delivered within the budget;  Supervise the project implementation;  Update the promoters on the project progress; etc Octa Architects Ltd will be the Project Manager of the project. 8.2 BRIEF PROFILES OF DIRECTORS Eng. James M.N. Kigathi Mr. Kigathi is currently the Chief Executive of Guestcare Ideal Homes Ltd. He has gained valuable hands on experience of property development and management having already developed several blocks of rental premises. Mr. James M.N. Kigathi is an MBA Civil Engineer with substantial experience in the general fields of leadership, management, infrastructure, program and project design, monitoring and evaluation. He has an MBA, a M.Sc., and a B.Sc. degree in Civil engineering. He is a Registered Engineer and a Member of the Institution of Engineers of Kenya. He has attended several management and business skills, infrastructure, financial management, project implementation, and computer courses, seminars and workshops. Mr. Kigathi previously worked with the United States Agency for International Development Mission to Kenya (USAID/Kenya) as the Mission's Principal Technical Officer in charge of all engineering and technical aspects of USAID's building and infrastructure programs and projects. Previously he worked with USAID's Regional Office for Eastern and Southern Africa (REDSO/ESA) as an engineering advisor to the respective Country Missions. By the time he left he had worked with USAID for over 16 years. Prior to that, he had over 10 years’ experience working with engineering consulting and construction firms. Both at USAID and with consulting firms, Mr. Kigathi has, over the years, managed most aspects of buildings and infrastructure projects. He has carried out both technical and financial feasibility studies, designed and costed projects, prepared technical proposals for consultancy services and tender documents for construction projects, supervised construction as a resident engineer, and managed both technical and construction contracts. He has also done over-all management, monitoring, and evaluation of several projects and programs. 24 GuestCare Ideal Homes Ltd Mrs. Emmah W. Kigathi: Mrs. Emmah W. Kigathi has an MBA, and a B. Ed. Degree. Mrs. Kigathi resigned her employment with the University of Nairobi in 1998 to start and manage Guestcare business on full time basis. She has successfully managed the rental properties since the inception of the Company. Mrs. Kigathi started her career teaching in secondary schools for three years after graduation (1981 -1983). She was, thereafter, employed by the University of Nairobi as the Residence Administrator for student’s halls of residence. Over the years she was promoted through several ranks to become the Acting Chief Administrator, Student Welfare Authority (SWA) in charge of students’ accommodation management, paying guests’ accommodation, and personnel management of the SWA staff. Mrs. Kigathi was instrumental in the commercialization of the University Halls of Residence. She gained a lot of personnel management experience managing both the students and the staff of SWA. 25 GuestCare Ideal Homes Ltd 9.0 FINANCIAL EVALUATION 9.1 PROPOSED PROJECT COST The estimated project cost amount to KES 1.44 billion as illustrated in table below. The costs are net of VAT current at 16%. However, the VAT is considered in the financial projections for the project. Table 8: Estimated Project Costs and Financing Plan Total Costs (Excl. Vat) Phases 1 & 2 KES Plots Value Construction costs Professional fees Interest Pre-operating expenses Total 146,300,000 1,150,011,437 69,000,686 75,469,634 7,350,011 1,448,131,769 Financing Structure Equity (Land) Equity (Cash injection) Equity (Internal - pre sales) Debt Total 146,300,000 191,350,011 75,469,634 1,035,012,124 1,448,131,769 9.2 % KES 10.1% 13.2% 5.2% 71.5% 100.0% PROPOSED FINANCING PLAN To facilitate fully completion of the project, the promoters plans to use various strategies to finance the project including shareholders, term loan and pre sales as shown in the table above: The development loan is expected to be repaid after completion of the project while interest will be paid when due. Below are the loan terms used in the projections: Table 9: Borrowing Terms Borrowing Terms Debt currency Interest Drawdown Principal grace period USD 7.0% On a need basis (during the initial 16 months) 18 months Principal repayment Month 19 - 25 26 GuestCare Ideal Homes Ltd 9.3 KEY ASSUMPTIONS The purpose of this financial projections is to prepare a Business Appraisal for a Property Development Project at Ruaka to determine viability of the proposed development project taking into account the following key assumptions:  The construction is expected to take 18 months;  The apartments are expected to be sold in three years;  A total of 345 units will be constructed; these comprises 143 studio apartments, 121 one - bedroom apartments and 81 two - bedrooms apartments;  In addition, a total of 153 parking and 1,282 sqm shops spaces are considered;  Interest rates is assumed at 7%;  It is estimated that unit’s selling prices (net of vat) are as outlined below: Sales Price KES Net of VAT 3,200,000 5,600,000 8,000,000 150,000 Studio apartments 1 - bedroom apartments 2 - bedroom apartments Shops 9.4 Per unit Per unit Per unit Per sqm PROJECTED REVENUE The estimated revenues have been worked out for each type of unit including shops. The drivers of each of the revenue lines are outlined under financial assumptions. Total revenue is expected to be spread over a three years’ period. Revenue is expected to be driven by units take off and price quoted. The revenue categories are summarised in the table below. Table 10: Projected Revenue Revenue Studio apartments 1 - bedroom apartments 2 - bedroom apartments Shops Retained Units (1 - bedroom) Total 9.5 Year 1 Year 2 104,864,000 246,528,000 38,136,000 160,608,000 104,080,000 Year 3 KES 106,208,000 Year 4 Total - 457,600,000 30,856,000 - 229,600,000 327,840,000 216,080,000 - 648,000,000 48,676,500 - 104,427,000 - 39,196,500 - 337,650,011 192,300,000 295,756,500 839,403,000 392,340,500 337,650,011 1,865,150,011 UNITS RETAINED The shareholder’s contributions of approximately KES 337.65 million is expected to be repaid through retention of equivalent number of one - bedroom units. 27 GuestCare Ideal Homes Ltd 9.6 PERFORMANCE HIGHLIGHTS The table below summarized the project’s financial performance over the three years’ period. Performance Highlights Return Income Statements Income Net profit Financial Position Assets Equity Borrowing Cashflow Statements Cashflow Year 1 KES Year 2 KES Year 3 KES Year 4 KES 295,756,500 18,479,928 839,403,000 377,754,341 392,340,500 293,151,507 337,650,011 (436,902,166) 1,206,111,342 356,129,939 776,259,093 1,091,762,941 733,884,280 345,004,041 1,027,035,787 1,027,035,787 - 252,483,610 252,483,610 - 258,641,807 132,740,916 360,690,871 252,483,610 28 GuestCare Ideal Homes Ltd 10.0RISK ASSESSMENT 10.1 OPERATION RISKS A sensitivity analysis has been carried out to assess the impact on the profitability and financial condition of the investment to ascertain changes in variables contained in the projections. Several scenarios were tested as follows:  Increase in construction costs by 10%;  Reduction of sales price by 10%; and  Increase in financial cost by 10% due to forex fluctuation. These sensitivities are compared to the base case scenario using three elements namely Net Present Value (NPV), Internal Rate of Return (IRR) and Return on Equity (ROE). The project is noted to be highly sensitive to forex fluctuation as compared to the other variables, while it is less sensitive to increase in construction costs as illustrated below. Table 11: Sensitivity Analysis Summary Sensitivity Analysis Summary Base Case Sensitivity Analysis: Increase in construction costs by 10% Reduction of sales price by 10% Increase in financial cost by 10% due to forex fluctuation Net Present Value (NPV) KES 127,893,407 Internal Rate of Return (IRR) Return on Equity (ROE) 20.2% 24.9% 65,024,862 32,322,753 (27,582,989) 13.4% 11.0% 6.1% 18.2% 14.5% 17.5% 10.2 PROJECT APPRAISAL Based on the computed financial projections, the investment is viable as it records an internal rate of return of 20.2%, and a net present value of KES 127.89 million. In conclusion the project investment is financially viable as it would ensure good financial returns to investors of 24.9%. Table 12: Project Appraisal Summary Project Appraisal Summary Net Present Value Internal Rate of Return Return on Equity KES 127,893,407 20.2% 24.9% 29 GuestCare Ideal Homes Ltd 11.0MATTER OF SCOPE This Report is produced solely for the use of those to whom they are addressed and are not meant for general circulation or publication nor to be reproduced or used for any purpose other than that outlined in this report. We do not accept any responsibility to any other party who places any reliance on the contents of this report. In particular, the following points must be made clear:  The report remains addressed to the directors of GuestCare Ideal Homes Ltd and it is a matter for them to decide whether the release of our report is in their best interest. We appreciate that this report may be shown to potential financiers of the project. The third party should not rely on our report but make its own independent assessment based on the findings in this report as well as other enquiries while taking into account its own specific circumstances.  GTF Consulting Ltd are acting as financial consultants to the directors of GuestCare Ideal Homes Ltd and therefore accept no duty of care or liability towards any other person in connection with this report or the projections. The projections indicated in this report have been prepared for illustrative purposes only. In our opinion, the projections have been properly compiled on the basis of the assumptions as shown in the financial analysis. Since the projections relate to the future, actual results are likely to be different from the projected results because events and circumstances frequently do not occur as expected and the difference may be material. Our findings are based on information available to us as outlined in our report as well as from the promoters of the project. 30 GuestCare Ideal Homes Ltd APPENDICES 31 GuestCare Ideal Homes Ltd Appendix I Financial Projections 32 GuestCare Ideal Homes Ltd Appendix II Cost Estimates by Quantity Surveys 33 GuestCare Ideal Homes Ltd 34 GuestCare Ideal Homes Ltd Appendix III Pin Location of the Site 35 GuestCare Ideal Homes Ltd 36 GuestCare Ideal Homes Ltd Appendix IV Proposed Building Plans and Designs 37 GuestCare Ideal Homes Ltd 38 GuestCare Ideal Homes Ltd 39 GuestCare Ideal Homes Ltd SITE PLAN BASEMENT 1 FLOOR PLAN 40 GuestCare Ideal Homes Ltd GROUND FLOOR PLAN FIRST FLOOR PLAN 41 GuestCare Ideal Homes Ltd ND TH TYPICAL FLOOR PLAN(2 -12 ) TERRACE FLOOR PLAN 42