Louis Aucamp

BUSINESS CASE Busine© Nooitgedacht Lifestyle Retirement Village November 2016 Document Control Document Information Document Id Document Owner Issue Date Last Saved Date File Name Information TBA Louis Aucamp TBA 19 May 2016 Nooitgedacht – Business Case ver- Document History Version- Issue Date 22/09/2015 19/10/2015 28/10/2015 03/12/2015 29/01/2016 11/02/2016 19/05/2016 22/11/2016 Changes Draft to be compiled Draft to be reviewed New draft for review, incorporating all previous comments Changes requested by Standard bank Scenario changes, 1 page summaries for investors added Changes requested by reviewer, investment ratios added Equity description changed Updated for new layout Document Approvals Role Project Sponsor Name © Signature Date Project Review Group Project Manager © Quality Manager (if applicable) Procurement Manager (if applicable) Communications Manager (if applicable) Project Office Manager (if applicable) i Table of Contents 1 EXECUTIVE SUMMARY .......................................................................................... 1 1.1 BUSINESS OPPORTUNITY................................................................................................................ 1 1.2 PROPOSED DEVELOPMENT ............................................................................................................. 1 1.2.1 Residential Units ................................................................................................................ 2 1.2.2 Residential Type 3 Units ..................................................................................................... 2 1.2.3 Special Zoned Park ............................................................................................................ 2 1.3 FINANCIAL ASSUMPTIONS ............................................................................................................... 3 1.3.1 Overview ........................................................................................................................... 3 1.3.2 Project Performance ........................................................................................................... 4 1.4 PROJECT OVERVIEW ..................................................................................................................... 4 2 BUSINESS OPPORTUNITY ...................................................................................... 6 2.1 BACKGROUND INFORMATION ........................................................................................................... 6 2.2 DEFINITION OF A RETIREMENT VILLAGE ............................................................................................. 6 2.2.1 General Requirements ........................................................................................................ 6 2.2.2 White River Residents Preferences ...................................................................................... 7 2.3 CURRENT MARKET STATUS ............................................................................................................ 9 2.3.1 Macro Area Market ............................................................................................................. 9 2.3.2 Competitor and Supply Analysis ........................................................................................ 10 2.3.3 Micro Market Status for the White River Area ...................................................................... 11 2.4 CONCLUSION ............................................................................................................................. 12 3 PROPOSED DEVELOPMENT .................................................................................. 13 3.1 LOCATION AND DESCRIPTION ........................................................................................................ 13 3.2 PROPOSED RESIDENTIAL LAYOUT................................................................................................... 14 3.2.1 Residential Units .............................................................................................................. 15 3.2.2 Residential Type 3 Units ................................................................................................... 17 3.2.3 Special Zoned Park .......................................................................................................... 18 4 FINANCIAL ASSUMPTIONS.................................................................................... 19 4.1 PROJECT DEVELOPMENT SUMMARY ................................................................................................ 19 4.2 PROJECT PERFORMANCE OVERVIEW .............................................................................................. 21 4.2.1 Total Project Performance: ................................................................................................ 21 4.2.2 Res 1 Performance:.......................................................................................................... 22 4.2.3 Res 3 Performance:.......................................................................................................... 23 4.2.4 Financial Ratio Definitions ................................................................................................. 23 4.3 BENCHMARKS ............................................................................................................................ 24 4.4 EQUITY AND FUNDING .................................................................................................................. 24 5 OVERVIEW OF PROJECT .....................................................................................- PROJECT MILESTONES TO DATE .................................................................................................... 25 PROJECT SCHEDULE ................................................................................................................... 25 PROJECT MANAGEMENT CONSULTANTS........................................................................................... 26 SHAREHOLDER PROPOSAL............................................................................................................ 27 RISK MITIGATION AND STRATEGY ................................................................................................... 27 6 DECLARATION ................................................................................................... 28 7 REFERENCES .................................................................................................... 29 8 APPENDIX ........................................................................................................ 30 8.1 APPENDIX 1: PROJECT SCHEDULE ................................................................................................. 30 8.2 APPENDIX 2: NOOITGEDACHT CASH FLOW ....................................................................................... 33 8.3 APPENDIX 3: RISK REGISTER ......................................................................................................... 35 8.4 APPENDIX 4: SUMMARY PRESENTATIONS FOR POTENTIAL INVESTORS .................................................... 36 8.4.1 Total Project .................................................................................................................... 36 ii 1 Executive Summary 1.1 Business Opportunity There is a tendency amongst the higher income, over 50 segment of the South African population to retire early. This, coupled with the fact that people are living longer and more active lifestyles, has seen a change in how retirement living is perceived. Retirees of today want to be active and independent, without being excluded from the rest of society. As a result there has been a definite shift in the retirement property market which has seen retirement villages replacing the conventional old age home. Retirement villages offer an environment better suited to the needs of the modern retiree. This specific segment of the residential property market has experienced significantly less pressure throughout the past years while the rest of the residential property market struggled. The property market in White River caters to an already established retired or soon to be retired population with approximately 50% of the home owners older than 50. The supply of units per year in White River is zero and there are an unsatisfied demand. The background information and market summary is as follows:       The South African population of over 50s is expected to increase from 30% to 40% of the population by 2021. The trend in retirement facilities is towards retirement villages offering a range of free standing independent units, assisted living and frail care. 2 and 3 bedroom units are the preferred accommodation. The over 50s constitute more than 50% of the White River residents and as the majority are in the higher income groups, they can afford to spend more on their retirement options. According to the surveys conducted in White River, there is a market demand of 25 (lower limit) to 40 (upper limit) retirement units per year in the area. According to the Mbombela Town Development there are no retirement units planned in the White River area in the foreseeable future. The projected demand for retirement units in the White River area are 178 units on the lower limit and 239 units on the upper limit, with 206 units as the average demand. The proposed Nooitgedacht project offers 63 independent units and 128 semi-detached units. This caters conservatively to the market demand with only 193 units compared to the average demand of 206 units thereby offering an excellent investment opportunity. 1.2 Proposed Development The proposed development site for the retirement village is located just north of White River, and forms part of the Mbombela Local Municipality (LM). White River is the second largest urban centre in the local municipality after Mbombela (Nelspruit) which is situated 20 km south of White River and is also the provincial capital. The Mbombela LM forms part of the Ehlanzeni District Municipality (DM) and the Mpumalanga province. Nooitgedacht Lifestyle Retirement Village will be located near to other prominent Country Estates and within minutes of the Castor Bridge Shopping Centre. This will offer residents a variety of shopping experiences and recreational activities within their immediate surroundings. The specific portion of land earmarked for the retirement village development is situated along the R40 on portions 11 and 12 of the farm Nooitgedacht 62 JU and covers an area of 1 approximately 12 hectares (ha). The retirement village has been planned to consist of three different zoned areas: 1.2.1 Residential Units 63 free standing residential units have been planned. Prospective buyers will be able to choose between nine different layouts with floor areas ranging from 127 m2 to 271 m2. A choice from a limited range of high quality finishes will allow the individual to cater for their own taste. The average size of the stands is 560 m2 and provision for carports or lockup garages have been made. 1.2.2 Residential Type 3 Units Six high density units with 24 sectional title units each in four developments and 16 sectional titles unit each in two developments have been planned. The one bed room units have a floor area of 74 m2 and the two room units have a floor area of 84 m2. 1.2.3 Special Zoned Park In line with the requirements of the environmental study a “special zoned park” for conservation of endangered plant species will be established in the North West corner of the site. It will be available to the residents for recreation purposes. 2 1.3 Financial Assumptions 1.3.1 Overview Overview Number of units Units after construction: Type A Type B Type C Type D Type E Type F Type G Type H Type I Total CAPEX Finance requirement (land and infrastructure) Equity (equal to purchase price of land) Loan requirement Sales price of units (R/m 2) (VAT included) Sales price per stand (including VAT) Construction price (R/m 2) Income from sales (Excluding VAT) Overview Number of units Units after construction approximately: 2 bedroom unit 1 bedroom unit Total CAPEX Sales price of units (R/m 2) (VAT included) Construction price (R/m 2) Income from sales (excluding VAT) Overview Sale of land for future frail care facilities Residential zone 1 © 63 Value R- R- R- R- R- R- R- R- R- R- R- Area m- R- R- R 10 135 R 650 000 R 6 545 R- Residential zone 3 © 128 Value R 963 200 R 828 800 R- R 11 200 R 6 440 R- Area m2 86 74 Special zone © R- 3 1.3.2 Project Performance Based upon the total value scenario. Description 1.Total Project Cost SALES COST OF DEVELOPMENT R- -R- NETT PROFIT/(LOSS) before taxation R- Financial ratios Ratio Description Return on investment 18.5 % Return on equity: 1) Profit before taxes/ owners investment (equity) 215.5 % 2) Profit before taxes/ equity & bond loan 86.2 % 3) Profit before taxes / investment - loan 143.7 % LVR 11.1 % The ROI outperforms all the benchmark indices of the IPD South African Property Index. Table 1 – Benchmarks IPD SA Annual Property Index 2014 1 jr IPD SA Annual Property Index 2014 3 jr annualised IPD SA Annual Property Index 2014 5 jr annualised IPD SA Annual Property Index 2014 10 jr annualised IPD SA Biannual property Indicator 2015 (6 months to June) 8.7% 14.6% 13.5% 17.2% 8.5% Return on Investment = 18.5 % Funding requirement = R- consisting of land and fixed costs including bulk infrastructure. Required Equity investment = R- Equity will be raised by issuing 9 shares at a par value of R- each. During stage 1 a total of R 400 000 will be raised divided as follows:  R 300 000 towards the loan deposit  R 50 000 for rezoning application  R 50 000 for project management Loan requirement = R- The ROI outperforms all the benchmark indices of the IPD South African Property Index. 1.4 Project Overview The project milestones which have been completed to date are as follows:  Offer to purchase has been signed by all parties.  Sub-division, rezoning and township establishment applications have been completed and approved.  Spatial township layout plans have been drawn up and approved. 4      Financial structuring is underway. An environmental impact assessment and water permit have been submitted for review and approval. Service level agreements are being drawn up. Project Management Consultants have been engaged. The Nooitgedacht Special Purpose Vehicle has been registered with the CPIC. A Project Schedule has been compiled and is already actively used to manage the project process. The Nooitgedacht Project Management Consultants are comprised of various professionals and consultants which have worked on large scale developments ranging from Commercial, Residential and Retail developments both in and outside South Africa. A Professional team is essential in any development in order to ensure the best quality at the most cost effective price, which in turn increases profitability and performance of the project. Great care was given in selecting and employing this professional team. The role that each professional /consultant plays in the development has been well articulated. Individual competence, and the cost of their service, was determined in advance. For the purposes of the development, a Special Purpose Vehicle company has been registered and incorporated with the CIPC with the intention of allowing prospective investors the opportunity to invest in the development. The SPV is called Nooitgedacht Retirement Estate (Pty) Ltd. The Risk matrix identifies the possible risks associated and identified for the project based on its current stage of implementation, highlights the possibility of the event occurring and assigns a percentage of the likelihood of occurrence. It further goes on to state which mitigation strategies will be used in order to secure the investor's investment into the development. 5 2 Business Opportunity 2.1 Background Information The generation commonly referred to as the baby-boomers are currently getting ready to enter the retirement market. Baby-boomers refer to the generation of children born between 1945 and 1960, implying a current age group of 55 – 70 years of age. This group of retired and soon to be retirees will undoubtedly have an effect on the demand for retirement living facilities (and the way in which it is perceived) during the next decade. There is a tendency amongst the higher income, over 50 segment of the South African population to retire early. This, coupled with the fact that people are living longer and have more active lifestyles, has seen a change in how retirement living is perceived.   The growth rate of the portion of the South African population aged older than 50 is estimated at above 10% per annum - Development Services Research, 2008. The number of the South African population aged 50 and above is expected to make up approximately 40% of the total population by 2021, compared to the current figure of less than 30% - Retirement Communities World Conference, Johannesburg 2007. Retirees of today want to be active and independent, without being excluded from the rest of society. As a result there has been a definite shift in the retirement property market which has seen retirement villages replacing the conventional old age home. Retirement villages offer an environment better suited to the needs of the modern retiree. This specific segment of the residential property market has experienced significantly less pressure throughout the past years while the rest of the residential property market struggled. 2.2 Definition of a Retirement Village 2.2.1 General Requirements The most significant way in which the change in retirement market trends and the growth in the retirement market population has manifested itself, is in the emergence and growth of the “retirement village” concept. This type of development potentially caters to a variety of lifestyles ranging from a younger (50-65) active adult community to a more traditional (65 and older) retirement community and normally includes facilities that cater to the frail and/or very old. The typical retirement village is specifically designed or geared for people older than a certain age (usually 50) who are no longer employed (although not necessarily). There are five levels of lifestyle a retirement village needs to adhere to: 1. Level one: Fully independent elderly They can perform all daily tasks of living without assistance. They can live anywhere their financial capability will allow them. 2. Level two: Semi-independent residents They need some support in managing their home such as meals, transport or social needs. 3. Level three: Moderately dependent They require assisted living. They are frail but not ill. 4. Level four: Intermediate care in a nursing home. 5. Level five: Need round the clock medical care. Retirement villages have always been viewed as a place where you spend your last years and the final step before you are laid to rest, but nowadays it is more acceptable to retire there at an earlier age and enjoy the lifestyle it has to offer. This has a lot to do with the fact that 6 retirement villages are not there only for the elderly and sick anymore, but also for those who are lonely and in search of companionship. Thus it is of utmost importance to choose the correct retirement village. 2.2.2 White River Residents Preferences Residents in retirement villages are usually looking for smaller, more manageable living units, and surroundings with people of the same age with similar lifestyles and interests. Retirement villages often cater for all of the retirees needs in one facility. For example, they provide housing, recreation and care. The size and style of retirement village accommodation varies a great deal, from bed-sitter apartments to spacious freestanding units. Most retirement villages have common areas and a range of facilities available for the use and enjoyment of all residents. These developments closely resemble resorts, residential estates and gated communities, all of which are popular South African housing options. In a survey conducted by Urban-Econ Development Economists, during a Marketing Feasibility Study in the White River area, respondents revealed some of the preferences that they have toward the specific retirement unit that they would like to own/occupy as well as some additional facilities that they would be interested in as summerised in Tables 1 and 2 respectively. The survey was conducted during 2010, but the findings and trends of the study are still relevant and can be utilised for the current study. 7 Table 1 - Residential property preferences Table 2 – Supporting facilities preferences 8 2.3 Current Market Status 2.3.1 Macro Area Market Urban-Econ, Development Economists conducted a Market feasibility Study in the area in 2010. The findings and trends of the study are still relevant and can be utilised for the current study. The proposed development is situated in the Mbombela Local Municipality in Mpumalanga Province. The socio-economic character of the market area is very well developed with White River and Nelspruit serving as the most prominent urban centres in the region. The income level of the local population in these areas is high compared to the rest of the municipality and the province, allowing more households the luxury of buying property and or acquiring mortgages. In addition, the market population has an encouragingly high level of education and a very low rate of unemployment. This ensures the sustainability of the market population’s potential to earn comparably high average household incomes in the long-term. The market population also consists of a large share of people that are over the age of 50 (25%), signaling a well-established retirement market. Table 3 provides a summary of the findings. Table 3 – Socio-economic profile of the study area According to the market surveys conducted by Urban-Econ in 2010, it could be concluded that an average of 610 individuals who have the capacity to purchase and occupy a formal housing unit will settle in the market area per year. From the sample of 610 individuals who move into the market area per year, only a portion will have an interest in living in a retirement village/estate for over 50's. It was possible to establish the portion of the market that is likely to occupy such a unit by the time of their next resettlement, as approximately 188 individuals per year (on average). Based on known ratios of individuals per unit (1.68/unit for 50 – 64 years and 1.48/unit for over 65), it is possible to conclude that 188 individuals translate into a total market demand for 115 retirement living units in the entire market area per year. Based on the current distribution of the retirement population between Nelspruit and White River, White River can expect to capture approximately 29.6% of total market demand, translating into 34 units per year for the likely scenario. Table 4 indicates the total market demand (in units per year) based on the three scenarios that were utilised. 9 Table 4 - Total market demand, units per year 2.3.2 Competitor and Supply Analysis According to the town planning department of the Mbombela LM there are no planned retirement developments taking place in White River, and no supply (measured in units per year) will therefore influence the White River market potential. As an indication of the current retirement units available in White River the following comparison (Table 5) is included. Table 5 - Comparative analysis, (2010 basis) 10 2.3.3 Micro Market Status for the White River Area The property market in White River caters to an already established retired or soon to be retired population with approximately 50% of the home owners older than 50 as is shown in Table 6. Table 6 - Age profile of the residential property owners in White River. Table 6 indicates that the area is favoured by an older population and that a large potential market of soon to be retirees already live in the area. The methodology used in determining the Net Effective Demand (NED) is based on the macro and micro market analysis in the preceding sections. In order to calculate the NED or market gap for residential retirement units in the market area it was assumed that the market is currently in equilibrium. This implies that demand is equal to supply in the market area and that a market GAP will occur as the population, who are able and likely to purchase and occupy a unit in a retirement village/estate in White River, increases. Three different scenarios take into account the variables that have been estimated or projected, eliminating in that way the possibility to under or over calculate the NED. Based on the fact that supply of units per year in White River equals zero, the NED per year and the subsequent growth is illustrated in the Figure 1. Figure 1 - Net Effective Demand,- It can be seen that there is a demand of between 123 and 199 units for 2015 and thus an excellent opportunity for a successful retirement village scheme. 11 2.4 Conclusion The background information and market summary is as follows:       The South African population of over 50s is expected to increase from 30% to 40% of the population by 2021. The trend in retirement facilities is towards retirement villages offering a range of free standing independent units, assisted living and frail care. 2 and 3 bedroom units are the preferred accommodation. The over 50s constitute more than 50% of the White River residents and as the majority are in the higher income groups, they can afford to spend more on their retirement options. According to the surveys conducted in White River, there is a market demand of 25 (lower limit) to 40 (upper limit) retirement units per year in the area. According to the Mbombela Town Development there are no retirement units planned in the White River area in the foreseeable future. The projected demand for retirement units in the White River area are 178 units on the lower limit and 239 units on the upper limit, with 206 units as the average demand. The proposed Nooitgedacht project offers 63 independent units and 128 semi-detached units. This caters conservatively to the market demand with only 193 units compared to the average demand of 206 units thereby offering an excellent investment opportunity. 12 3 Proposed Development 3.1 Location and Description The development site earmarked for the proposed retirement village is located just north of White River, and forms part of the Mbombela Local Municipality (LM). White River is the second largest urban centre in the local municipality after Mbombela (Nelspruit), which is situated 20 km south of White River and is also the provincial capital. The Mbombela LM forms part of the Ehlanzeni District Municipality (DM) and the Mpumalanga province. Nooitgedacht Lifestyle Retirement Village will be located near to other prominent Country Estates and within minutes of the Castor Bridge Shopping Centre, which will offer residents a variety of shopping experiences and recreational activities within their immediate surroundings. The location of White River and the Mbombela LM in context to both its immediate surroundings and the province is illustrated in the following map. Figure 2 - Contextual location The specific portion of land earmarked for the retirement village development is situated along the R40 on portions 11 and 12 of the farm Nooitgedacht 62 JU and covers an area of approximately 12 hectares (ha). Figure 3 illustrates the specific location of the site in relation to its immediate surroundings. 13 Figure 3 – Location in relation to White River 3.2 Proposed Residential Layout The development is situated on the north bank of the White River, with north facing units for open life style and a panoramic view to the south. Figure 4 show the proposed layout of the village. Figure 4 – Site layout Perimeter security and access control is an integral part of providing a secure life style. The retirement village has been planned to consist of three different zoned areas: 14 1. Residential units that will address the level 1 and 2 requirements of Section 2.2.1 2. Residential type 3 high density units addressing level 1 but mostly level 2 requirements. 3. A special zoned park to address recreational requirements. 3.2.1 Residential Units The number of free standing residential units will be 63. Prospective buyers will be able to choose between nine different layouts with floor areas ranging from 127 m2 to 271 m2. A choice from a limited range of high quality finishes will allow the individual to cater for their own taste. The average size of the stands is 560 m2 and provision for carports or lockup garages have been made. Figure 5 – Layout of a typical type B unit. 15 Figure 6 – Typical views of different units 16 3.2.2 Residential Type 3 Units Six high density units with 24 sectional title units each in four developments and 16 sectional titles unit each in two developments have been planned. The one bed room units have a floor area of 74 m2 and the two room units have a floor area of 84 m2. Figure 7 show part of the area of one of the high density units. Figure 7 – Type 3 zoning typical layout 17 3.2.3 Special Zoned Park In line with the requirements of the environmental study a “special zoned park” for conservation of endangered plant species will be established in the North West corner of the site. It will be available to the residents for recreation purposes. Figure 8 – Position of the Park 18 4 Financial Assumptions 4.1 Project development Summary Table 7 - Overview Overview Number of units Units after construction: Type A Type B Type C Type D Type E Type F Type G Type H Type I Total CAPEX Finance requirement (land and infrastructure) Equity (equal to purchase price of land) Loan requirement Sales price of units (R/m 2) (VAT included) Sales price per stand (including VAT) Construction price (R/m 2) Income from sales (Excluding VAT) Overview Number of units Units after construction approximately: 2 bedroom unit 1 bedroom unit Total CAPEX Sales price of units (R/m 2) (VAT included) Construction price (R/m 2) Income from sales (excluding VAT) Overview Sale of land for future frail care facilities Residential zone 1 © 63 Value R- R- R- R- R- R- R- R- R- R- R- Area m- R- R- R 10 135 R 650 000 R 6 545 R- Residential zone 3 © 128 Value R 963 200 R 828 800 R- R 11 200 R 6 440 R- Area m2 86 74 Special zone © R- 19 Table 7 – Overview (continued) Variables Increase in construction cost (pa.) Contingencies: Civil All other Increase in sales price Draw Stages Foundations Walls Roof Finish Expenses Estate agent fee Interest per annum VAT Tax Architect per unit Architect fee: Res 1 Res 3 QS fee: Res 1 Res 3 Structural Engineer: Res 3 Electrical engineer Civil engineer Project management Project director NHBRC per unit NHBRC enrollment fee Land Cost Land cost VAT excluded /m2 Transfer duty Bond registration and transfer fee Other cost /m2 Land sales price VAT excluded 5.1 % 10 % 5% TBA -% 9% 14 % 28 % R 12 500 R- R- R 363 914 R- R- % 8% 2% 0.1 % R 8 000 R- R 158.80 R- R 114 449 R 7.21 R- 20 4.2 Project Performance Overview 4.2.1 Total Project Performance: Description SALES COST OF DEVELOPMENT Fixed cost Civil engineering services Electrical Engineering Services Construction Cost Contribution cost Professional fees Associated development cost NETT INCOME TOTAL OTHER EXPENSES Total Project R- -R- R- R- R- R- R- R- R- R- R- NETT PROFIT/(LOSS) before taxation R- NETT PROFIT/(LOSS) after taxation ADJUSTMENTS FOR NON-CASH ITEMS R- -R- CASH INFLOW/(OUTFLOW) R- ROI ROE: Profit before taxes/ owners investment (equity) Profit before taxes/ equity & bond loan Profit before taxes / investment - loan 18.5% 215.5% 86.2% 143.7% 21 4.2.2 Res 1 Performance: Description SALES COST OF DEVELOPMENT Res 1 R- -R- Fixed cost Civil engineering services Electrical Engineering Services Construction Cost Contribution cost Professional fees Associated development cost R- R- R- R- R- R- R- NETT INCOME R- TOTAL OTHER EXPENSES R- NETT PROFIT/(LOSS) before taxation R- NETT PROFIT/(LOSS) after taxation ADJUSTMENTS FOR NON-CASH ITEMS R- -R- CASH INFLOW/(OUTFLOW) R- ROI 12.4% ROE: Profit before taxes/ owners investment (equity) Profit before taxes/ equity & bond loan Profit before taxes / investment - loan 81.9% 32.8% 54.7% 22 4.2.3 Res 3 Performance: Description Res 3 SALES R- COST OF DEVELOPMENT -R- Fixed cost Civil engineering services Electrical Engineering Services Construction Cost Contribution cost Professional fees Associated development cost R- R0 R 52 500 R- R- R- R- NETT INCOME R- TOTAL OTHER EXPENSES R- NETT PROFIT/(LOSS) before taxation R- NETT PROFIT/(LOSS) after taxation ADJUSTMENTS FOR NON-CASH ITEMS R- -R- CASH INFLOW/(OUTFLOW) R- ROI 21.4% 4.2.4 Financial Ratio Definitions Table 8 – Ratio Definitions as used for Calculations Definitions Return on investment (ROI) Profit before taxes/total investment (capital cost) Return on equity (ROE) 1) Profit before taxes/ owners investment (equity) 2) Profit before taxes/ equity & bond loan 3) Profit before taxes / investment - loan Loan to value ratio (LVR) Bond loan / property value (taken as total investment (capex)) 23 4.3 Benchmarks The IPD South African Property Index and the IPD South African Biannual Property Indicator has been utilised as benchmarks to compare the ROIs for the different scenarios. Table 9 – Benchmarks IPD SA Annual Property Index 2014 1 jr IPD SA Annual Property Index 2014 3 jr annualised IPD SA Annual Property Index 2014 5 jr annualised IPD SA Annual Property Index 2014 10 jr annualised IPD SA Biannual property Indicator 2015 (6 months to June) 8.7% 14.6% 13.5% 17.2% 8.5% The calculated ROIs for the different scenarios exceed all the benchmarks except for the Total value scenario with the cost for FC/AL and Admin included and Res 3 for the 10 year annualised Index. 4.4 Equity and Funding Funding requirement = R- consisting of land and fixed costs including bulk infrastructure. Required Equity investment = R- Equity will be raised by issuing 9 shares at a par value of R- each. During stage 1 a total of R 400 000 will be raised divided as follows:  R 300 000 towards the loan deposit  R 50 000 for rezoning application  R 50 000 for project management Loan requirement = R- It is assumed that the construction of Res 1 and Res 3 will be funded from the cash flow generated from the house owner individual bond and sales transactions. 24 5 Overview of Project 5.1 Project Milestones to Date Item: Status: Date:  Township amendment Establishment Approval. Approved by Mbombela Municipality 01 September 2015 Township amendments establishment Approval  Signed offer to purchase the land 1 November 2015  Marketing concept drawings Offer to purchase will be signed by representatives of Nooitgedacht Retirement Estates (Pty) Ltd as the purchaser and Gerrit Marthinus Visagie as the seller Drawn up and approved  Financial models Completed January 2016  Financial structuring In process Ongoing  Project Management Consultants Nominated and engagement letters concluded PROCSA Agreements July2015  Service Level Agreement The Service Level Agreement is in the process of being drafted.  Nooitgedacht Special Purposes Vehicle Service Contributions costs have been concluded and received from Municipality Incorporated and registered  Marketing Campaign Marketing has been launched In process  Installation of internal services 5.2 Comment: August 2015 In process 2015 At start of construction Project Schedule For the status of the Project refer to the Project Schedule. The Project Schedule is attached as an Appendix 1 in Section 7.1. 25 5.3 Project Management Consultants The Nooitgedacht Project Management Consultants are comprised of various professionals and consultants who have worked on large scale developments ranging from Commercial, Residential and Retail developments in and outside South Africa. The consultant’s team is essential in any development in order to ensure the best quality at the most cost effective price, which in turn increases profitability and performance of the project. Great care was given in selecting and employing the professional team. The role that each professional /consultant plays in the development has been well articulated. Individual competence, and the cost of their service, were determined in advance. The Consulting team is made up as follows: Consultant Designation Name Quantity Surveyor Ole Bogeng and Associates Architect OSHO Architects Civil Engineers H Swart Engineer Structural Engineers PDS Civils Electrical Engineers NLA Engineers Project Advisors TBA Project Director Loufrandini Consult (Pty) Ltd Project Manager Loufrandini Consult (Pty) Ltd Building Contractor Blue Bridge Construction Estate Agents Aida, White River Century 21, White River Responsibility To ensure that adherence to the Bills of Quantity is maintained in order to avoid any unplanned expenses. Production of building plans, and to monitor that the construction is carried according to the building plans. To ensure that the civil infrastructure is constructed to required standards. To ensure the integrity of the components used in the construction in order to have a sound end structure. To ensure that electrical infrastructure is constructed according to the required standards and regulations. To advise and structure the financing and partners in the project. To ensure the thorough and diligent execution of the Development from concept to construction, and identify and mitigate any possible risks along the process from concept to construction. To deliver the project on time and on the quality policy within the required budget constraints. Building/construction of the structures as per the working drawings. To market the development in order to attract customers and to advise them on how to acquire the units. 26 Transferring Attorneys 5.4 Gerrit Lourens Transferring Attorneys, Nelspruit Shareholder Proposal For the purposes of the development, a Special Purpose Vehicle company has been registered and incorporated with the CIPC with the intention of allowing prospective investors the opportunity to invest in the development. The SPV is called Nooitgedacht Retirement Estate (Pty) Ltd. 5.5 Risk Mitigation and Strategy The Risk matrix identifies the possible risks associated and identified for the project based on its current stage of implementation, highlights the possibility of the event occurring and assigns a percentage of the likelihood of occurrence. It further goes on to state which mitigation strategies will be used in order to secure the investor's investment into the development. The Risk schedule is attached as Appendix 3, Section 7.3 27 6 Declaration I declare that:  I am duly authorised by Loufrandini Consult to sign and submit this declaration, and in doing Loufrandini Consult is bound by this declaration.  I am aware that there may be further information required by the potential Investor in respect of this prospectus, and that my failure to provide requested information timeously may lead to a rejection of this application.  The information contained in this prospectus, plus any supporting information, is to the best of my knowledge true, accurate and complete. Full Name: Johann F. Carstens Position: Project Director Organisation: Loufrandini Consult Signature: Cell: Email: _________________________ Date: _____________________________-- 28 7 References 1. Michelle Burger, & Yolandi Vertongen. 2013, Retirement centres: investigating the supply and demand in South African towns. http://www.arsa-conf.com 2. Urban-Econ Development Economists. 2010. White River Retirement Village Feasibility Study 3. J. Joubert, & D. Bradshaw. 2012. Growing numbers of older persons in South Africa. http://www.sahealthinfo.org/bod/older.htm 4. Statistics South Africa. 2011. Census 2011. 29 8 Appendix 8.1 Appendix 1: Project Schedule The schedule below show the sequence of the process to end of construction but the timeframe needs to be updated 30 31 32 8.2 Appendix 2: Nooitgedacht Cash Flow The detail cash flow model including assumptions, timing and detail calculations are included in the Business Case and in the spreadsheets attached below. 1. Total project value. Description SALES Month 0 R- COST OF DEVELOPMENT -R- Month 1 Month 2 Month 3 Month 4 Month 5 Month 6 Month 7 Month 8 Month 9 Month 10 Month 11 Month 12 Month 13 - - - - - - - - - - - - - (294 000) -) (497 793) (958 612) -) -) -) -) -) -) -) -) -) - -) -) -) -) -) -) -) -) -) - - - - - - Construction Cost R- - - - - - - - - - - - - - Contribution cost R- - - - - - - - - - - - - - Professional fees R- 291 258 298 407 492 477 608 277 600 331 473 447 574 179 871 913 - - - 956 210 685 017 788 511 907 924 986 838 - 970 486 865 017 701 695 440 301 281 116 Associated development cost R- 2 742 4 053 5 316 6 566 7 767 8 883 9 877 10 717 11 372 11 817 12 991 13 608 65 612 183 940 291 433 379 084 428 003 - 368 918 - - 73 537 NETT INCOME R- - - 506 167 484 675 NETT PROFIT/(LOSS) before taxation Taxation NETT PROFIT/(LOSS) after taxation ADJUSTMENTS FOR NON-CASH ITEMS (497 793) (958 612) 147 438 154 628 -) 164 004 -) 174 368 -) 187 094 -) 204 837 - - - - - - - - - - - 827 275 513 005 - - - - - - - - - - 164 804 328 644 416 767 378 696 218 890 - - - - - - - - - - -) 227 461 -) 251 573 -) 273 761 -) 290 080 -) 390 840 - - - - 146 569 - - -) 249 172 - - -) 375 320 - - -) 476 685 - -) 516 212 - - -) 538 313 - - - - -) -) (350 354) (350 354) (803 984) (803 984) -) -) -) -) -) -) -) -) -) -) -) -) -) -) -) -) -) -) - - -) -) -) -) -) -) -) -) -) -) - - - - -R- (2 205) (143 705) (147 438) (154 628) (164 004) (174 368) (187 094) (204 837) (227 461) (251 573) (273 761) (290 080) (390 840) (146 569) (249 172) (375 320) (476 685) (516 212) (538 313) (506 167) (484 675) R- (294 000) -) (497 793) - - (958 612) - - - - -) -) -) -) -) - (291 795) (291 795) R0 Month- - R- -R- R- ADJUSTMENTS FOR CASH ITEMS CASH INFLOW/(OUTFLOW) 143 705 - Month 22 - -) - - - 2 205 - - R- - - - - - - Month 21 - - 899 611 - Month 17 - 641 986 - Month 20 - R- 343 769 - Month 16 Civil engineering services (294 000) - Month 19 - - R- - Month 15 R- TOTAL OTHER EXPENSES - Month 18 - Fixed cost Electrical Engineering Services - Month 14 - - - - - -) -) -) -) -) - -) -) -) -) -) - - - - - - 516 740 - - -) - (516 740) -) - 2. Total value Res 1. Month 1 Month 2 Month 3 Month 4 Month 5 Month 6 Month 7 Month 8 Month 9 Month 10 Month 11 Month 12 Month 13 Month 14 Month 15 Month 16 Month 17 SALES Description R- - - - - - - - - - - - - - - - - - COST OF DEVELOPMENT -R- - -) - - - - R- R0 - - - - - - - - - - - - - Fixed cost Civil engineering services Electrical Engineering Services Month 0 (283 996) (554 421) (753 691) (805 325) (835 246) (660 106) -) - R 52 500 - - - - - - - - 5 738 11 443 14 511 13 186 Construction Cost R- - - - - - - - - - - - - - Contribution cost R- - - - - - - - - - - - - - Professional fees R- - - - - - - Associated development cost R- - - - - - - R- - - - - - NETT INCOME TOTAL OTHER EXPENSES -) - (283 996) 554 421 - (554 421) 747 953 - (753 691) 793 882 - (805 325) - - - - - - - - - - Month 19 - - Month 20 - - Month 21 -) - 645 321 405 956 529 193 632 299 705 093 739 069 728 896 673 128 574 580 440 301 281 116 1 599 53 875 93 108 129 805 160 082 179 913 186 313 177 763 154 482 118 506 73 537 (835 246) (660 106) -) 21 292 23 422 27 580 33 233 39 273 45 537 50 488 21 292 - (260 574) (260 574) (526 841) (526 841) (720 459) (720 459) (766 052) (766 052) (789 709) (789 709) (609 618) (609 618) -) -) -) -) -) -) -) -) -) -) -) -) -) -) -) -) -) -) ADJUSTMENTS FOR NON-CASH ITEMS -R- - (21 292) (21 292) (21 292) (21 292) (21 292) (23 422) (27 580) (33 233) (39 273) (45 537) (50 488) (85 527) (126 994) (184 276) (254 545) (333 253) (414 578) (492 060) (559 342) (610 953) R0 - - - - - - - - - - - - - R- - (5 962) (5 962) (5 962) (5 962) (835 246) (660 106) -) -) -) -) -) -) -) 559 342 -) 21 292 - - 492 060 -) 21 292 - 414 578 -) 21 292 - - 333 253 -) 21 292 - 254 545 -) 21 292 - - 184 276 -) 21 292 (805 325) 126 994 -) -) -) (753 691) 85 527 -) - (554 421) - 957 - (283 996) -) 819 778 R- -) - -) Month- -) - - R- -R- R- CASH INFLOW/(OUTFLOW) Month 22 - NETT PROFIT/(LOSS) before taxation Taxation NETT PROFIT/(LOSS) after taxation ADJUSTMENTS FOR CASH ITEMS 21 292 283 996 7 622 -) Month 18 610 953 -) - - 643 019 - - -) - (643 019) -) - 33 3. Total value Res 3 Description SALES Month 0 R- COST OF DEVELOPMENT Fixed cost Civil engineering services -R- Month 1 Month 2 Month 3 Month 4 Month 5 Month 6 Month 7 Month 8 Month 9 Month 10 Month 11 Month 12 Month 13 - - - - - - - - - - - - - (294 000) - - (497 793) -) Month 16 Month 20 Month 21 - Month- - - - - Month 22 - Month 23 - -) -) -) -) -) -) -) -) - - -) -) -) -) -) - - - - - 827 275 513 005 - - - - - - - - - - 159 066 317 201 402 255 365 510 211 268 - - - - - - - - - - - - - - - - - - - - - - - - - - - Construction Cost R- - - - - - - - - - - - - Contribution cost R- - - - - - - - - - - - - Professional fees R- 291 258 298 407 492 477 608 277 600 331 473 447 290 183 317 493 334 810 339 955 331 846 310 890 279 062 259 318 275 625 281 746 271 625 241 591 191 890 127 115 Associated development cost R- 2 742 4 053 5 316 6 566 7 767 8 883 9 877 10 717 11 372 11 817 12 034 12 009 11 737 90 831 161 628 219 002 248 091 - 191 154 - - - - - - - - - - - - - - TOTAL OTHER EXPENSES (958 612) -) -) -) -) -) -) -) - - -) -) -) -) -) -) - - - - ADJUSTMENTS FOR NON-CASH ITEMS -R- (2 205) (122 413) (126 147) (133 336) (142 712) (153 076) (163 672) (177 257) (194 228) (212 301) (228 225) (239 592) (305 313) (57 075) (102 396) (158 275) (180 933) (139 134) (83 753) - - - - - - - - - - - CASH INFLOW/(OUTFLOW) R- (294 000) -) (497 793) (958 612) -) -) -) -) -) -) -) -) -) - -) 158 275 -) -) -) - 102 396 -) -) -) - 57 075 -) -) -) - 305 313 - -) -) - 239 592 -) -) -) - 228 225 -) -) 180 933 -) 139 134 - 83 753 - -) -) - 212 301 -) - - 133 336 - 194 228 -) - - (825 276) (825 276) - 177 257 -) - - 126 147 - 163 672 -) - - (371 646) (371 646) - 153 076 -) - - -) -) - 142 712 -) - - (291 795) (291 795) - 122 413 (497 793) - - R- -R- R- R0 2 205 -) - NETT PROFIT/(LOSS) before taxation Taxation NETT PROFIT/(LOSS) after taxation ADJUSTMENTS FOR CASH ITEMS R- (294 000) 899 611 -) Month 19 - R- R- 641 986 -) Month 15 - NETT INCOME 343 769 -) Month 18 - R- R- Electrical Engineering Services - (958 612) Month 14 - - - - - - - © 34 8.3 Appendix 3: Risk register 35 8.4 Appendix 4: Summary Presentations for Potential Investors 8.4.1 Total Project The scenario includes for all the project costs and sales Project site The development site earmarked for the proposed retirement village is located just north of White River. Description SALES The specific portion of land earmarked for the retirement village development is situated along the R40 on the farm Nooitgedacht 62 JU and covers an area of approximately 12 hectares (ha). The retirement village has been planned to consist of three different zoned areas: 1. 63 independent Residential units. 2. 128 Residential high density units. 3. Special park zone Financial ratios Description Return on investment Return on equity: 1) Profit before taxes/ owners investment (equity) 2) Profit before taxes/ equity & bond loan 3) Profit before taxes / investment - loan LVR Ratio 18.5 % 215.5 % 86.2 % 143.7 % 11.1 % The ROI out performs all the IPD South African Property Indices. COST OF DEVELOPMENT NETT PROFIT/(LOSS) before taxation 1.Total Project Cost R- -R- R- Funding requirement = R- consisting of land and fixed costs including bulk infrastructure. Required Equity investment = R- Equity will be raised by issuing 9 shares at a par value of R- each. During stage 1 a total of R 400 000 will be raised divided as follows:  R 300 000 towards the loan deposit  R 50 000 for rezoning application  R 50 000 for project management Loan requirement = R- Risks and Mitigations 1. Market demand – Annual demand for retirement units in the White River area are projected to be 178 units on the lower limit and 239 units on the upper limit. The proposed project with 63 independent units and 128 semidetached units, this caters completely to the market. 2. Business cycle and interest rates – The retirement market grows at a rate of 12% per year and is de-coupled from the general economic market. Innovative and pro-active pricing can limit the effects of monetary impacts. A large part of the potential clients are not dependent on bonds and thus neutral to interest rate movements. 36