2. Financing Ekurhuleni Strategic Land Parcels
31 May 2017

3. Overview of project 4
Financial Analysis 7
Overview of valuation approach 8
Value for money 10
Sensitivities 11
Job creation
Conclusion 13

4. Overview of Project

5. Strategic Land Parcel process
Aligned to EMM’s 10 point plan
10-Point Econo-mic Plan
Actively participate in the labour environment in the region
Promote support of local products (Buy Local)
Massive infrastructure rollout
Empowerment of SMMEs through public procurement
Revival of township economies (garages, shops, informal trading, foreign nationals)
Provision of land available for large scale investments
Accelerate the spatial economic zones programme
Full implementation of the transport strategy
Clear strategies of the revitalisation of the manufacturing sector
A clear roadmap for the effective implementation of the Aerotropolis Master Plan

6. Demographic analysis model

7. Artists impression of a possible SLP development
The main goal or purpose of the land development programme is to alter the EMM spatial landscape and optimise urban development by maximising the potential of strategic developable land and property through partnership with the private sector, lease or outright disposal of the land and property assets

8. Financial Analysis

9. Overview of valuation approach
Financial model basis
How is value for money determined
Discounted Cashflow
“DCF”
Assumptions
Sale or Lease
Green/Brownfield
Opportunity cost basis. Incremental cash flows
Outputs are determined to measure value creation
The model determines the value for money for each Strategic Land Parcel (“SLP”) by using the discounted cash flow method (“DCF”).
It allows for assumption to be input regarding the proposed transactions. Example:
Whether the SLP will be a sale or lease
If it’s a sale, will this be greenfield or will it be brownfield
The model is built on an opportunity cost basis. This means that the model will calculate the incremental future cash flows that result from a transaction taking into account the forgone benefits of the option which was not chosen.

10. Overview of valuation approach
Sale vs Lease
SALE
LEASE
Municipality receives the following:
Highest & best value of property
Lease payments
Rates & taxes
Residual value
Municipality forgoes the following:
Future lease payments
Rates and taxes
Key assumptions made:
Lease period is 10 years
Lease period is 30 years
Proceeds of sale are reinvested at prevailing interest rates
Lease payments are implied rental yield X current value
Highest and best use value is received immediately
Rates and taxes are ongoing
Lease payments received post construction
Residual value is received at the end of the lease period
Lease period is 10 years as major refurb expected after 10 years and is the industry norm
Lease period is 30 years as per council policy

11. Outputs Value for money Inputs Highest and best use value
Municipal Capex
Bulk Services Contribution
Developer investment
Outputs
Internal Rate of Return (IRR)
Return on investment
Net Present Value (NPV)
Profitability Index (PI)
Highest and best use value: most recent value of the property. Reasonably probable and legal use of vacant or improved property that is physically possible-results in the highest value
Municipal capex: Required by the municipality for the envisioned development of the SLP
Bulk Services (Water & Sanitation) Contribution: Received by the municipality, paid by the developer/investor at the end of the construction period. Cash inflow for both sale & lease.
Further development: Total cost borne by developer. Affects rates and taxes and residual value in a lease scenario.
IRR: Discount rate that makes the NPV=0. In a lease scenario, the we have value creation when the IRR is greater than the WACC. In a sale scenario, value is created when the IRR is lower than WACC
ROI: Return on investment on municipal capex
NPV: Core metric to measure returns. A positive NPV indicates that the selected transaction creates value for the municipality compared to the forgone transaction (Lease vs Sale)
PI: PV/Capex PI greater than 1 is value creating in a lease, PI less than 1 is value creating in a sale

12. Sensitivities
Risks and Opportunities
The sensitivity analysis dashboard indicates the sensitivity of the NPV of the transaction to changes in core inputs.
Lease
Sale

13. Job creation estimate
This is a very high level attempt at arriving at an indicative number for job creation. We have assumed the relationship for job creation to be this equation.
What its basically saying is that higher rates and taxes are a result of higher amount of investment made into the property and greater future income, therefore greater job creation.
The type of development assumed for the SLP also plays a major role in the level of job creation. For e.g. an industrial zone would created more jobs or rank higher in zoning than a residential development.

14. Conclusion
Investing in the EMM SLP programme has positive benefits from a quantitative and qualitative perspective
Economic benefits
Estimated combined market value of SLP’s under consideration: R 235M
Estimated jobs to be created:
Estimated value creation: R60M
Estimated municipal capex: R291M
Estimated additional investment required from private developers: R6.5B
Socio-economic benefits
Job creation
Youth development
Poverty eradication
Act as game changers
Destinations for investments where wealth can be created
Raise vibrancy in the (TOWNSHIP) economy
Require intervention or to unblock challenges
Leverages investment opportunities for disadvantaged groups

15. Thank You