Aigbe Halls of Residence:

Investment Opportunity

Author: Ernest Hanson August 2015

Aigbe Halls of Residence – Business Plan CONFIDENTIAL

 Agenda

• Introduction
– Background: The University's need for student accommodation
– Investment Opportunity
• Financial Overview
– Projected P&L and CF
– Financial Scenarios
• Timetable and Risks
– Land Lease under BOT
– Project Risks
• Informational Sources

Clifton Halls of Residence Business Plan 2

 Project Overview
Overview

The Osun State University, Osogbo, is seeking private investors to fund the
provision of additional housing capacity for its students. Like most African
academic institutions, the university is highly undercapitalised and lacks the
financial resources to sufficiently meet the housing demands of its 24,000
student population.

As a result, the university is allowing private individuals/consortiums to lease

land for the construction of on-campus facilities under negotiable Build-
Operate-Transfer Agreements.

This investment opportunity is a recurring revenue business model that will

provide annual dividend income and opportunities for liquidity. Although there
Project Summary – Base Case
are project risks, we are not “reinventing the wheel”. We have used the data and
Construction Period 9 months experience of existing halls of residence to create conservative earnings
Construction Costs £220,000 projections.

Operating revenue £91,500 The project company is therefore seeking additional finance for the preliminary
Operating costs £43,430 phase of this project to construct accommodation for 1000-1100 students.
Investors will also be given the opportunity to invest in phases 2 and 3.
Operating profit £42,726
However phases 2 and 3 will be predominantly financed by debt once we have
Capex To be determined historical financials for phase 1.
Dividends will be distributed from operating profits (42k) less
any agreed amount of Capex for future growth

Clifton Halls of Residence Business Plan 3

 Background
Current Scenario - Inadequate Housing Capacity

The legacy of underinvestment, combined with the general growth in

student numbers has placed considerable demands on existing facilities.

The university currently owns five halls of residence. Other residential

facilities include the Jubilee Hostel and the SSNIT Hostel, both of which
are co-ed. These two are the first facilities to be built using private capital
under BOT contracts.

At present, these on-campus facilities can only accommodate about 14,000

The Osun State University students. This leaves another 10,000 students with less preferred options,
The Osun State University, Osogbo is the oldest and largest of the five including living with relatives, commuting and off-campus housing.
Ghanaian public universities. It was founded in 1948 as the University
Existing halls are also characterised by overcrowding. In certain instances,
College of the Gold Coast, and was originally an affiliate college of the
as many as ten people will be sharing accommodation space designed for
University of London, which supervised its academic programmes and
four. Conversations with the University’s former vice Chancellor,
awarded degrees. It gained full university status in 1961, and now has
Professor Asenso-Okyere and the present Development officer, Phillip
nearly 24,000 students.
Azungdwo, have highlighted a concerted effort to alleviate the housing
The University is set on a spacious campus on the slopes of Legon Hill, shortage in the next couple of years.
a suburb about nine miles from the centre of the capital city of Accra .

The university’s academic year runs from mid-August through to late

June with each semester being 16 weeks long.

Clifton Halls of Residence Business Plan 4

 Investment Opportunity: Strong Market Demand
Demand for Student Housing Supply Constraints
 Legon is a catchment university attracting students from other  Black-market in the allocation of beds demonstrates excess
regions demand over supply
• But only 14,000 of 24,000 are given on-campus • Due to capacity constrains, opportunistic students have
accommodation profited by reselling their housing allocations

 Strong preference for On-Campus accommodation  Constructing student housing represents an opportunity costs
for the University
• Off-campus accommodation does not
guarantee the same degree of personal safety. Private land
• Student housing development must compete with other
lords running off-campus housing operate university financial obligations ( i.e. wages) and
halls with little or no accountability to the university infrastructure projects (i.e. expanding lecture hall space)
 Existing Halls are overcrowded
• Living at home - unreliable journey times to
lectures, restrictions on personal freedom etc • Although private capital has been used to construct an
make on-campus housing the preferred choice
additional two halls ( the Jubilee and SSNIT halls), student
 Growing incomes, developments in retail banking and other housing is still characterised by overcrowding
socio-economic factors will continue to drive demand for student
• The university has acknowledged housing shortage and is
housing * pursuing private capital to add additional capacity
• Education is still valued as a means of social
* ¢100 billion (£5.5m) earmarked for student fund during 2006/7 academic year. Access to
mobility. Rising incomes and urbanisation will finance has also been made easier through changes in retail banking
continue to drive growth in student numbers.
Legon, as one of leading universities will benefit
from these developments

Clifton Halls of Residence Business Plan 5

 Build Operate Transfer Agreement
BOT Agreements

Build-Operate-Transfer (BOT) is a form of project financing where a

private entity receives a licence/franchise to finance, design, construct, University Of Ghana
and operate a facility for a specified period, after which ownership is
transferred back to authorising body.
Pays annual ground
The Osun State University, Osogbo, is seeking private investors to fund rent to lease land
Leases land to
($2000 per acre per
the provision of additional housing capacity for its students under such Project
Project Company annum). Facility is
arrangements. Company
returned to the
Structure of agreement with the University University after 50
years or option to
• The project company will enter into a BOT agreement to lease land extend term of
from the university for a period of 35-50 years. lease.
Agrees to construct
• The investor builds and operates the facility over the lease period and operate facility for
during which time he is expected to recoup his investment. concessionary period
(typically 35-50 yrs) Project Company
• At the end of the lease period, ownership of the property transfers to receives recurring
the University, although the lease period may be renegotiated and Clifton Halls of Residence annual revenues
extended by mutual agreement.
• The project company will pay a non-refundable commitment fee
($6000) and an annual ground rent of $2000 p.a. per acre (2 acres will
suffice for all 3 phases).

Clifton Halls of Residence Business Plan 6

 Architectural Drawings: Phase 1

Residential Facility
• Mix of 1,2 and 4 bedrooms
• WC and showers provided on each wing per floor

• On-site warden and cleaners

• Reading rooms with free internet access

• To accommodate 200-220 students

• Fire alarms and extinguishers

• Follow-on plans to provide telephones in each room

• Communal parking and green space
( not currently available in any hall)
Clifton Halls of Residence Business Plan 7
 Financial Assumptions : Phase 1 - Base Year
• Revenue and Cost forecasts for the Revenues
No. Of Students 200 Rates Per Student Revenue per room type
proposed project are based on £
information gathered from existing % of Total
1 bedroom 30% 550 33,000
halls of residence. 2 bedroom 40% 450 36,000
4 bedroom 30% 375 22,500

• Revenue risk is mitigated by the fact 100% Average £ 458 £ 91,500

that we are not “ reinventing the

wheel “. Construction Costs
£
– The university will also assist Construction,plumbing & electricals - Current Estimate 220,000
in allocating accommodation Furniture-beds , tables 40,000
LAND lease p.a ( 2 acres @ $2000) 2,222
Preliminary costs ( non refundable deposit, architect, surveys) 5,000
• Greatest risk to project is construction Total £ 267,222

risk - efforts are being made to

mitigate against this via Operating Costs

– Using data from existing halls Electricity @ £50/ppa 10,000

Water 8,000
– Cost estimates from quantity Insurance' ( sourced from Standard Chartered Bank in Ghana) 1,830
surveyor Internet 1,000
Telephone (GT installs pay phone booths) 200
– Arranging fixed term / payment Maintenance 3,000
contracts with builders Staff 2 Wardens at (PCM)
2 Parttime cleaners
£50
£25
1,200
600
– Securing raw materials at 1 Security Guard £50 600
Marketing (brochures & newspaper), Admin , PCs, printers, travel 5,000
subsided rates ( i.e. reduced Accountancy, project management and Legal fees 5,000
import duty on concrete ) Unforeseen Expenses 7,000
£ 43,430

Key Dates
Project Start Mar 2007
Operations Start Jun 2008
Operations End 2032

Clifton Halls of Residence Business Plan 8

 Financial Projections: Base Case - Phase 1
Profit and loss account Mar 2007 Jun 2008 Jun 2009 Jun 2010 Jun 2011 Jun 2012 Jun 2013 Jun 2014 Jun 2015

Revenues 0 91,500 96,075 100,879 105,923 111,219 116,780 122,619 128,750

Operating costs 0 (43,430) (45,602) (47,882) (50,276) (52,789) (55,429) (58,200) (61,110)
Gross profit (EBITDA) 0 48,070 50,474 52,997 55,647 58,429 61,351 64,418 67,639

Construction costs, Furniture,electricals, plumbing & carpentry (267,222) 0 0 0 0 0 0 0 0

Depreciation (Straight line over 50 years) (5,344) (5,344) (5,344) (5,344) (5,344) (5,344) (5,344) (5,344)
(267,222) 42,726 45,129 47,653 50,303 53,085 56,006 59,074 62,295

Taxation (28%) - Ghanaian corporate law allows 5 years tax exemption* 0 0 0 0 0 (15,682) (16,541) (17,443)

Net Income p.a (267,222) 42,726 45,129 47,653 50,303 53,085 40,325 42,533 44,852

Return On Capital Employed ROIC 19.4% 20.5% 21.7% 22.9% 24.1% 18.3% 19.3% 20.4%

Cash flow Forecast

Net Income 42,726 45,129 47,653 50,303 53,085 40,325 42,533 44,852
Add Depreciation 5,344 5,344 5,344 5,344 5,344 5,344 5,344 5,344
Less Capex (5,000) (5,000) (5,000) (5,000) 0 0 0 0

Cash flow 43,070 45,474 47,997 50,647 58,429 45,669 47,878 50,197

Distributed in proportion to equity share: Other investors £ 120,000 23,493 24,804 26,180 27,626 31,871 24,910 26,115 27,380
Lead Investor £ 100,000 19,577 20,670 21,817 23,021 26,559 20,759 21,763 22,817

* Revenue Growth at 5.0%

Note Growth Opex 5.0%
Taxation - The income of a company from a business of construction for sale or letting of residential premises is exempt for five (5) years from the date of commencement of operations.

• Capital Expenditures ( Capex) will be negligible during the life of the facility although maintenance costs have already been taking into account in
operating costs. Capex will include the planned installation of phone lines and hardware in rooms and general upgrading of the facility. This is estimated
to be in the region of £10k for the first two.
• Capex will be determined after equity investors have agreed on first and second year dividend distributions. General upgrade will enable the facility to
command higher rents and maintain revenue growth.
Clifton Halls of Residence Business Plan 9
 Sensitivity Tests – Construction Cost Overruns (40%)
Profit and loss account Mar 2007 Jun 2008 Jun 2009 Jun 2010 Jun 2011 Jun 2012 Jun 2013 Jun 2014 Jun 2015

Revenues 0 91,500 96,075 100,879 105,923 111,219 116,780 122,619 128,750

Operating costs 0 (43,430) (45,602) (47,882) (50,276) (52,789) (55,429) (58,200) (61,110)
Gross profit (EBITDA) 0 48,070 50,474 52,997 55,647 58,429 61,351 64,418 67,639

Construction costs, Furniture,electricals, plumbing & carpentry (355,222) 0 0 0 0 0 0 0 0

Depreciation (Straight line over 50 years) (7,104) (7,104) (7,104) (7,104) (7,104) (7,104) (7,104) (7,104)
(355,222) 40,966 43,369 45,893 48,543 51,325 54,246 57,314 60,535

Taxation (28%) - Ghanaian corporate law allows 5 years tax exemption* 0 0 0 0 0 (15,189) (16,048) (16,950)

Net Income p.a (355,222) 40,966 43,369 45,893 48,543 51,325 39,057 41,266 43,585

Return On Capital Employed ROIC 13.3% 14.1% 14.9% 15.8% 16.7% 12.7% 13.4% 14.2%

Cash flow Forecast

Net Income 40,966 43,369 45,893 48,543 51,325 39,057 41,266 43,585
Add Depreciation 7,104 7,104 7,104 7,104 7,104 7,104 7,104 7,104
Less Capex (5,000) (5,000) (5,000) (5,000) 0 0 0 0

Cash flow 43,070 45,474 47,997 50,647 58,429 46,162 48,370 50,690

Distributed in proportion to equity share: Other investors £ 208,000 29,086 30,709 32,414 34,203 39,459 31,174 32,666 34,232
Lead Investor £ 100,000 13,984 14,764 15,583 16,444 18,971 14,988 15,705 16,458

Clifton Halls of Residence Business Plan 10

 Sensitivity Tests – Revenue Shortfall (by 15%)
Profit and loss account Mar 2007 Jun 2008 Jun 2009 Jun 2010 Jun 2011 Jun 2012 Jun 2013 Jun 2014 Jun 2015

Revenues 0 77,775 81,664 85,747 90,034 94,536 99,263 104,226 109,437

Operating costs 0 (43,156) (45,313) (47,579) (49,958) (52,456) (55,079) (57,832) (60,724)
Gross profit (EBITDA) 0 34,620 36,350 38,168 40,076 42,080 44,184 46,393 48,713

Construction costs, Furniture,electricals, plumbing & carpentry (267,222) 0 0 0 0 0 0 0 0

Depreciation (Straight line over 50 years) (5,344) (5,344) (5,344) (5,344) (5,344) (5,344) (5,344) (5,344)
(267,222) 29,275 31,006 32,824 34,732 36,736 38,840 41,049 43,369

Taxation (28%) - Ghanaian corporate law allows 5 years tax exemption* 0 0 0 0 0 (10,875) (11,494) (12,143)

Net Income p.a (267,222) 29,275 31,006 32,824 34,732 36,736 27,965 29,555 31,225

Return On Capital Employed ROIC 13.3% 14.1% 14.9% 15.8% 16.7% 12.7% 13.4% 14.2%

Cash flow Forecast

Net Income 29,275 31,006 32,824 34,732 36,736 27,965 29,555 31,225
Add Depreciation 5,344 5,344 5,344 5,344 5,344 5,344 5,344 5,344
Less Capex (5,000) (5,000) (5,000) (5,000) 0 0 0 0

Cash flow 29,620 31,350 33,168 35,076 42,080 33,309 34,900 36,570

Distributed in proportion to equity share: Other investors £ 120,000 16,156 17,100 18,092 19,133 22,953 18,169 19,036 19,947
Lead Investor £ 100,000 13,463 14,250 15,076 15,944 19,127 15,140 15,864 16,623

Clifton Halls of Residence Business Plan 11

 Sensitivity Tests – Operating Costs (increase by 50%)
Profit and loss account Mar 2007 Jun 2008 Jun 2009 Jun 2010 Jun 2011 Jun 2012 Jun 2013 Jun 2014 Jun 2015

Revenues 0 91,500 96,075 100,879 105,923 111,219 116,780 122,619 128,750

Operating costs 0 (65,145) (68,402) (71,822) (75,413) (79,184) (83,143) (87,301) (91,666)
Gross profit (EBITDA) 0 26,355 27,673 29,056 30,509 32,035 33,636 35,318 37,084

Construction costs, Furniture,electricals, plumbing & carpentry (267,222) 0 0 0 0 0 0 0 0

Depreciation (Straight line over 50 years) (5,344) (5,344) (5,344) (5,344) (5,344) (5,344) (5,344) (5,344)
(267,222) 21,011 22,328 23,712 25,165 26,690 28,292 29,974 31,740

Taxation (28%) - Ghanaian corporate law allows 5 years tax exemption* 0 0 0 0 0 (7,922) (8,393) (8,887)

Net Income p.a (267,222) 21,011 22,328 23,712 25,165 26,690 20,370 21,581 22,853

Return On Capital Employed ROIC 9.6% 10.1% 10.8% 11.4% 12.1% 9.3% 9.8% 10.4%

Cash flow Forecast

Net Income 21,011 22,328 23,712 25,165 26,690 20,370 21,581 22,853
Add Depreciation 5,344 5,344 5,344 5,344 5,344 5,344 5,344 5,344
Less Capex (5,000) (5,000) (5,000) (5,000) 0 0 0 0

Cash flow 21,355 22,673 24,056 25,509 32,035 25,715 26,926 28,197

Distributed in proportion to equity share: Other investors £ 120,000 11,648 12,367 13,122 13,914 17,473 14,026 14,687 15,380
Lead Investor £ 100,000 9,707 10,306 10,935 11,595 14,561 11,688 12,239 12,817

Clifton Halls of Residence Business Plan 12

 Project Timetable
• Preliminary surveyors report estimates that
the facility will take about 9 months to
complete

• The foundation and superstructure shell is

estimated to take about 5-6 months

• The roofing and finishing stages are often

more complex than other stages

• The project team is looking to commence

construction from Feb / April 2007 for a July
2008 opening ( buffer of 8-9 months for
construction overruns and unforeseen events)

• Marketing of the facility will begin once the

superstructure shell is in place ( after 6
months)

• Student Deposits will be secured immediately

after completion

Clifton Halls of Residence Business Plan 13

 Project Risks
Perceived Risk
 Construction cost and time overrun
 Demand / Revenue risks
- Competition and market entry will affect
revenues

 Exchange rate risk
- Potential exposure to exchange rate
movements when the operating facility is
based overseas
- Concerns regarding the volatility of a
developing country’s currency against the
GBP £
Clifton Halls of Residence Business Plan
Factors limiting effects of perceived risk
 Utilise fixed price and time contracts with builders and contractors
- In addition, raw materials maybe sourced more cheaply by utilising Ghanaian
legislation permitting reduced import duties to hoteliers ( The hall can also be used as
a short stay hotel or for students during term breaks).
 Students accommodation is a captive market
- The university will control the availability of land and hence restrict market entry
- Demand risk is also minimised by being on-campus and receiving the university’s
assistance in the allocation of new students
 Most transactions in Ghana are surprisingly quoted in US dollars
- Exchange risk with the local currency (cedi) is reduced as most input costs,
including ground rent are quoted in USD
- Although there are daily fluctuations, Ghana has a “managed” exchange rate policy
and so the “official rate” is relatively constant
- Revenues are collected twice a year and hence reduce the risk of daily fluctuations
- Changes in rental income will be indexed to the cedi/£ exchange rate
14
 Information Sources
• Ghana Hostels Limited: Provided information on operating costs i.e. electricity and water
• University of Ghana infrastructure and Development Office
• Professor K. Asenso-Okyere ( former vice-chancellor on the university (2002-2006)
• Roland Mottey – qualified chartered quantity surveyor
• www.ghana.gov.gh/news/article.php?id=0000017854
• www.ug.edu.gh

Ghana offers foreign investors

•Tax exemptions
•Investment guarantees on capital, profits and dividends
•Double Taxation Agreements - Ghana also uses Double Taxation Agreements (DTA) to rationalise tax
obligations of investors who come from global tax sourced jurisdictions with a view to saving the investors
the incidence of double taxation. Ghana has to date signed and ratified DTAs with France and the United
Kingdom.

Source : www.gipc.org.gh
Clifton Halls of Residence Business Plan 15