KCPH - PIM Magazine

TABLE OF CONTENTS 1. EXECUTIVE SUMMARY .................................................................................................................8 1.1. The Opportunity .............................................................................................................................8 1.2. Bed Demand....................................................................................................................................8 1.3. Project Returns...............................................................................................................................8 1.4. Project Key Performance Indicators ............................................................................................9 1.5. Funding Summary........................................................................................................................10 1.6. High Level Risks Assessment ....................................................................................................11 1.7. Overall Risk Analysis...................................................................................................................12 1.8. Project Benefits ............................................................................................................................13 2. PROJECT BACKGROUND ...........................................................................................................13 2.1. Hospital License ...........................................................................................................................13 2.2. Facilities, Medical Disciplines and Services .............................................................................14 3. EXECUTION PLAN AND PROPOSED TIMELINES .....................................................................15 4. TRANSACTION OVERVIEW.........................................................................................................15 4.1. Opco and Propco structure.........................................................................................................16 4.2. Opco Ownership...........................................................................................................................16 4.3. Propco Ownership .......................................................................................................................17 4.4. Debt Requirements ......................................................................................................................17 5. TRANSACTION RATIONALE .......................................................................................................17 6. STATUTORY INFORMATION .......................................................................................................18 7. MARKET AND COMPETITIVE ANALYSIS ..................................................................................19 7.1. Overview - Healthcare in South African.....................................................................................19 7.2. Public Hospital Funding in South Africa ...................................................................................19 7.3. Private Hospital Industry in South Africa ..................................................................................20 7.4. Demand for Healthcare ................................................................................................................22 7.5. Ulundi Market Analysis................................................................................................................23 8. HOSPITAL DEVELOPMENT AND CONSTRUCTION..................................................................32 8.1. Area Description...........................................................................................................................32 8.2. Site Characteristics......................................................................................................................34 8.3. Bulk Services ................................................................................................................................35 8.4. Building Design Layout and Rational ........................................................................................36 8.5. Professional Team .......................................................................................................................38 9. Construction Contractors............................................................................................................38 9.1. Contractor .....................................................................................................................................38 9.2. Expression of Interest..................................................................................................................39 10. OPERATIONS AND MANAGEMENT ...........................................................................................40 KING CETSHWAYO PRIVATE HOSPITAL PROJECT – PIM: JULY 2020 Page |2

10.1. Human Resource Strategy ..........................................................................................................40 10.2. Operational Strategy ....................................................................................................................40 10.3. Specialist Recruitment.................................................................................................................40 11. PROJECT RISK ASSESSMENT ...................................................................................................41 11.1. Risk Analysis and Mitigation of Project Risks: .........................................................................41 11.2. Overall Risk Analysis...................................................................................................................43 12. FINANCIAL ANALYSIS.................................................................................................................43 12.1. Conclusion on Viability of the Project .......................................................................................43 12.2. Financial Model Preparation and Input Assumptions ..............................................................44 12.3. Project Key Performance Indicators ..........................................................................................44 12.4. Project Returns.............................................................................................................................46 12.5. Income Statement ........................................................................................................................46 12.6. Projected Cash Flow Statement..................................................................................................47 12.7. Balance Sheet ...............................................................................................................................48 13. SENSITIVITY ANALYSIS ..............................................................................................................49 13.1. Key Assumptions .........................................................................................................................49 13.2. Scenario and Sensitivity..............................................................................................................49 14. ENVIRONMENTAL, HEALTH AND SAFETY ...............................................................................51 14.1. Town Planning and Zoning .........................................................................................................51 14.2. Environmental Impact Assessment ...........................................................................................52 14.3. Health & Safety Management ......................................................................................................52 14.4. COVID-19 Policy and Procedure .................................................................................................52 15. OPERATING AND PERMIT ATTAINMENT PROGRESS ............................................................52 15.1. Pre-Construction ..........................................................................................................................52 15.2. Post Construction ........................................................................................................................53 16. BROAD BASED BLACK ECONOMIC EMPOWERMENT............................................................53 17. ANNEXURES .................................................................................................................................54 KING CETSHWAYO PRIVATE HOSPITAL PROJECT – PIM: JULY 2020 Page |3

LIST OF TABLES Table 1: Key Project Returns and Ratios over Project Life...............................................................................................8 Table 2: Project Key Performance Indicators .......................................................................................................................9 Table 3: Summary Sources and Uses of Funds ...................................................................................................................10 Table 4: Summary of the expected debt funding terms ..................................................................................................10 Table 5: Key Project Risks within the Sponsor’s control................................................................................................11 Table 6: Key Project risks outside the Sponsor’s control...............................................................................................11 Table 7: High Level Assessment of Key Project Risks......................................................................................................12 Table 8: Hospital License Bed mix ..........................................................................................................................................14 Table 9: Facilities, Medical Disciplines, and Services ......................................................................................................14 Table 10: Source and Application of Funds .........................................................................................................................16 Table 11: Proposed Debt Funding ..........................................................................................................................................17 Table 12: Number of private hospital beds .........................................................................................................................21 Table 13: Private Healthcare Expenditure Trends (South Africa 2010-2018) ......................................................22 Table 14: Profile of public hospitals in the catchment area..........................................................................................26 Table 15: Key Economic Indicators for the catchment areas .......................................................................................27 Table 16: Catchment Area Demographic Snapshot ..........................................................................................................28 Table 17: Estimating bed requirements ...............................................................................................................................29 Table 18: Summary of Supply and Demand in Catchment Area ..................................................................................30 Table 19: Occupancy ramp up ..................................................................................................................................................32 Table 20: Average occupancy ...................................................................................................................................................32 Table 21: Summary of the total costs per contractor ......................................................................................................39 Table 22: Key Project Metrics...................................................................................................................................................44 Table 23: Project returns ..........................................................................................................................................................46 Table 24: Projected Income Summary ..................................................................................................................................46 Table 25: Projected Cash Flow Summary.............................................................................................................................47 Table 26: Projected Balance Sheet .........................................................................................................................................48 Table 27: Sensitivity – Changes in Capex..............................................................................................................................49 Table 28: Changes in Occupancy .............................................................................................................................................50 Table 29: Changes in Tariffs......................................................................................................................................................50 Table 30: Changes in Opex.........................................................................................................................................................50 KING CETSHWAYO PRIVATE HOSPITAL PROJECT – PIM: JULY 2020 Page |4

LIST OF FIGURES Figure 1: Concentration of Private Hospital Facilities in South Africa......................................................................21 Figure 2: Locality Map: Zululand District Municipality...................................................................................................23 Figure 3: Ulundi Airport (Prince Mangosuthu Buthelezi Airport)..............................................................................24 Figure 4: Locality Map - Ulundi Local Municipality ..........................................................................................................24 Figure 5: Network of Public Hospitals in Catchment Area.............................................................................................25 Figure 6: Hospital Site .................................................................................................................................................................33 Figure 7: Site Location and Site Survey .................................................................................................................................34 Figure 8: Hospital Renderings & Drawings .........................................................................................................................37 Figure 9: Graph – Performance Parameters .......................................................................................................................45 Figure 10: Graph – EBITDA and Interest Expense.............................................................................................................45 Figure 11: Projected IRR sensitivity to changes in key assumptions ........................................................................51 KING CETSHWAYO PRIVATE HOSPITAL PROJECT – PIM: JULY 2020 Page |5

King Cetshwayo Private Hospital: Development Team Advisor Discipline Project Sponsor [Busamed to insert] Project Management Joint Venture Architects Joint Venture Architects Financial Modelling and Project Information Memorandum Market Study Quantity Surveyor LANCELOTO PLANTEGNO Environmental Consultants Civil and Structural Engineers MEP Engineers Health and Safety Consultants KING CETSHWAYO PRIVATE HOSPITAL PROJECT – PIM: JULY 2020 Page |6

Town Planners Legal Advisors Hospital Operator Main Contractor KING CETSHWAYO PRIVATE HOSPITAL PROJECT – PIM: JULY 2020 Page |7

1. EXECUTIVE SUMMARY 1.1. The Opportunity This Project presents the opportunity to invest in a 110-bed private hospital in the Ulundi, an area situated in the northern part of the KwaZulu-Natal Province within the Zululand District, in the Ulundi Local Municipality. Ulundi Local Municipality is a Category B municipality and one of the five municipalities in the district, making up almost a quarter of its geographical area. Ulundi is the power hub of central Zululand where there is a large unmet demand for private healthcare. 1.2. Bed Demand Set out below is the analysis of beds projected based on the catchment area needs analysis and the King Cetshwayo Private Hospital bed analysis:  There are currently no private hospitals in the target catchment area, as a result the segment of the population that can afford private healthcare services has to travel to facilities in the Richards Bay and eThekwini regions.  The 110 bed King Cetshwayo Private Hospital is deemed necessary for the area based on the market research performed by Demacon Market Studies which indicates a demand of at least 103 private beds being completely unmet in the primary catchment area.  Demacon’s methodology for the market study gives a potential private bed requirement of up to 206 beds in the primary and secondary catchment area. This means there is more than enough demand for the project to be feasible. 1.3. Project Returns Set out below in Table 1 are the key Project returns over the life of the Project along with key ratios: Table 1: Key Project Returns and Ratios over Project Life KEY OUTPUTS IRR/NPV R'000 22 Years R'000 IRR - Project 15,1% IRR - Equity Project [email protected]% 18,2% Equity NPV@12% 391 149 204 921 CREDIT RISK Min Min Date Average DSCR_All 0,22x 29-Feb-24 2,45x DSCR_Senior DSCR_Junior 0,22x 29-Feb-24 2,62x 0,02x 30-Apr-25 2,91x KING CETSHWAYO PRIVATE HOSPITAL PROJECT – PIM: JULY 2020 Page |8

 Project Peak funding is R418 million (including capitalized interest over 24 months construction period and commissioning period).  The Project has a reasonable Equity IRR of 18.2%, which meets the minimum hurdle rates for hospitals and other long-term infrastructure projects. It is anticipated that an in-depth value engineering currently being undertaken with result in project cost reduction and even further improved project returns.  The project NPV is R391 million on discounting project cash flows at WACC of 8.79%.  The Equity NPV is R204 million based on equity cash flows discounted at a required rate of 12%  The interest rate on Senior Debt and Junior Debt is variable rate of 9.75% and 12.25% respectively. 1.4. Project Key Performance Indicators Set out below in Table 2 are the key Project Ratios based on Pre-feasibility stage work completed: Table 2: Project Key Performance Indicators Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Turnover 46,237 115,285 140,140 166,041 200,238 229,534 258,473 EBITDA 1,982 12,053 23,009 36,425 49,632 61,664 76,616 Interest (13 535) (29 822) (31 362) (30 372) (28 672) (26 230) (22 894) Expense (19 297) (36 352) (26 936) (12 530) 2 377 16 330 33 891 EBT Cash flow from 377 6 040 962 4 385 19 118 33 628 51 939 Operations 4% 10% 16% 22% 25% 27% 30% EBITDA % -1% -2% 1% 5% 9% 13% 17% -13% -34% 3% 19% 28% ROA 186% 273% -33% -18% 253% 158% 358% 397% 353% ROE D/E Ratio The revenue drivers, i.e. occupancies and theatres utilization are based on a similar size facility managed by the Busamed, the proposed Hospital Operator. The EBITDA% is strong due to low rent on land lease as well as the consolidation of the property and hospital operations. The interest expense includes interest on both the building and medical equipment debts. KING CETSHWAYO PRIVATE HOSPITAL PROJECT – PIM: JULY 2020 Page |9

1.5. Funding Summary 163,337 254,656 Set out below in Table 3 is the Summary Sources and Uses of Funds 417,993 Table 3: Summary Sources and Uses of Funds 292 789 93 704 Sources (R’000) 31 500 Equity Funding Debt Funding 417 993 Total Uses (R’000) Building, Development & Commissioning Costs Medical & Non-Medical Equipment Other Total Set out below in Table 4 is a summary of the expected debt funding terms for the Project and how the Project can manage its debt: Table 4: Summary of the expected debt funding terms KEY INPUTS Timing Start Duration End Activity Construction & Commissioning (months) 0 1 -Nov-2 0 22 31-Aug-22 Operations (months) 0 1 -Sep-2 2 240 31-Aug-42 Debt Amount Period Margin Senior Debt R 152 794 12 years 9,75% Junior Debt R 101 863 15 years 12,25% Total R 254 657 Principal Payment Dates Start Duration End Senior Debt 0 1 -Apr-2 4 8,5 years 0 1 -Oc t -3 2 Junior Debt 0 1 -Oc t -2 6 9,0 years 0 1 -Oc t -3 5 Principal Grace Period 3 1 -Oc t -2 0 42 months 31-Mar-24 3 1 -Oc t -2 0 72 months 30-Sep-26 Senior Debt Junior Debt Interest Grace Period 3 1 -Oc t -2 0 36 months 3 1 -Oc t -2 3 Senior Debt 3 1 -Oc t -2 0 48 months 3 1 -Oc t -2 4 Junior Debt The Interest Grace period for Senior Debt is 36 months (48 months for Junior Debt/Mezzanine) to cover Planning & Construction period (21 months) and Commissioning period (3 months). The Principal Grace period on Senior Debt and Junior Debt is up to 18 months and 48 months respectively from date of Commercial Operations. The funding assumptions are indicative at this stage and will be confirmed by the debt provider. KING CETSHWAYO PRIVATE HOSPITAL PROJECT – PIM: JULY 2020 P a g e | 10

1.6. High Level Risks Assessment Risk Analysis and Mitigation of Project Risks: The following tables below summarize the top three Project Risks identified for this Project. The three biggest risks are (1) Hospital Operations Management; (2) Supply Risk and (3) Market Risk. Table 5: Key Project Risks within the Sponsor’s control Project Risks Description of Risk Mitigation of Risk WITHIN THE SPONSOR’S CONTROL 1. Hospital Operations 1.1. Appointment of a The success of the hospital Busamed has been preselected to be the suitable and largely depends on the hospital management company. A fee experienced Hospital appointment of a suitable and proposal has been negotiated pending Operator experienced hospital operator. the signing of the Operator Agreement. Table 6 below shows issues identified as project risks for the King Cetshwayo Private Hospital. They are classified as falling outside the Promoter’s control. Mitigation strategies have been put in place to improve project viability. Table 6: Key Project risks outside the Sponsor’s control Project Risks Description of Risk Mitigation of Risk OUTSIDE THE SPONSOR’S CONTROL 2. Supply The beds capacity is more than Detailed feasibility has been performed 2.1. Bed Capacity the need. to assess the supply demand dynamics of the area. 2.2. Tenants/Anchor Doctors Confirmation by key tenants and Specialists Doctors in the area have relevant specialists needs to be signed expression of interest letters to in place on time and through move their cases to the new hospital. adequate contractual The engagement process is going to arrangements. continue led by the hospital management company as the project approaches financial close. KING CETSHWAYO PRIVATE HOSPITAL PROJECT – PIM: JULY 2020 P a g e | 11

Project Risks Description of Risk Mitigation of Risk 3. Market 3.1. Affordability The annual average income of The primary catchment area of Ulundi the target market is lower than Municipality has more than 27% of 3.2. Lack of off-take the national average. household income profile in the middle to high income range. The facility has no off-take agreements or similar e.g. has The Sponsor will sign up key doctors not signed any DSP with medical and together with operator will sign aids or Public Private Designated Service Provider Partnership with government. arrangements with medical aids. KCPH will be a member of NHN. 1.7. Overall Risk Analysis Set out below in Table 7 is a high-level assessment of the key risks for the project: Table 7: High Level Assessment of Key Project Risks Risk Analysis Legal and regulatory L Market / commercial M Technical / Engineering L Financial structure M Environmental L Management/Operating L Construction L Supplier L No material flaws have been identified for the Project. The initial market study which was the basis of a successful license application was undertaken by Demacon in November 2017. An updated market study was undertaken in June 2020 so that it reflects the current market conditions. The advent of Covid19 has presented the hospital industry with excessive demand for healthcare services against the shortage of critical beds and personnel protective equipment. The economic impact of Covid-19 presents market and affordability risks mainly for the under-insured and out-of-pocket paying patients. Policymakers, strategists and advisors to governments are of the view that Covid-19 present governments with opportunity to implement universal health coverage like NHI. This will result in efficient resource utilization to the benefit of the healthcare industry albeit at the expense of margins. KING CETSHWAYO PRIVATE HOSPITAL PROJECT – PIM: JULY 2020 P a g e | 12

The Project Sponsor has to date been funding development costs from his limited financial resources and is in the process of securing strong equity/seed funder. The Financial Model is based on a Debt:Equity structure of 60:40. The letter of intent from RHM indicates a likely equity contribution of R50million, thus creating an equity short fall. The Project will thus be proceeding through to Financing Stage and final detailed design and interaction with the Specialists and the landowner (Ingonyama Trust) over the following 3 months. Busamed has been preselected to be the Hospital Operator. A fee proposal has been negotiated and a non-disclosure agreement has been signed. A Hospital Operator Agreement will be negotiated to incorporate sufficient risk mitigation structures. Concept engineering reports have been generated for all services. The reports are accompanied with conceptual line drawings. Design development is going to start in July 2020 after getting sign off on the proposed value engineering proposals. 1.8. Project Benefits The project has several macro-economic and socio-economic benefits, which include:  Development in geographical areas identified in the government’s Integrated Sustainable Rural Development and Urban renewal projects.  Opportunity to provide a world class facility to take advantage of the excess demand for private healthcare in the area.  Socio-economic upliftment in the Ulundi area in the Zululand District Municipality.  Skills development for the unemployed.  Creation of at least 150 new direct permanent jobs at the hospital facility and several indirect jobs.  Infrastructure development (e.g. housing, transport, and healthcare). 2. PROJECT BACKGROUND 2.1. Hospital License The project was initiated by the Project Sponsor, Mr. Thulani Mengoe, after realizing a need for private healthcare in Ulundi, KwaZulu Natal. The Department of Health issued a hospital license to Wagna Projects KZN (Pty) Ltd, an entity representing the interest of the Sponsor, to a build a 110 bed Private Hospital. KING CETSHWAYO PRIVATE HOSPITAL PROJECT – PIM: JULY 2020 P a g e | 13

The updated license issued on 21 June 2019 has the following bed configuration: Table 8: Hospital License Bed mix Description Units Description Units Day Ward 8 Medical Ward 22 Pediatric Ward ** 10 Surgical Ward 22 Neonatal High Care 4 Maternity Ward 16 Neonatal Intensive Care Unit 4 First Stage/Prep Rooms and 5 Cardiac Beds 10 Delivery rooms 8 General Theatres 2 Maternity Theatres 1 Adult Intensive Care Unit Adult High Care Beds 6 Cardiac Hybrid Theatres 1 Laminar Flow Theatres 1 ** (Erroneously indicated as Surgical on license) 2.2. Facilities, Medical Disciplines and Services The proposed services to be provided by the hospital include the following: Table 9: Facilities, Medical Disciplines, and Services Facilities, Medical Disciplines, and Services 1) General Medicine 2) Ear Nose and Throat 3) General Surgery 6) Ophthalmology 4) Anesthesiology 5) Emergency Unit 9) Obstetrics 12) Pharmacy 7) Gynecology 8) Intensive Care Unit 15) Theatres 18) Coffee Shop 10) High care 11) Pediatrics 13) Radiology 14) Pathology 16) Dental Services 17) Cardiology KING CETSHWAYO PRIVATE HOSPITAL PROJECT – PIM: JULY 2020 P a g e | 14

3. EXECUTION PLAN AND PROPOSED TIMELINES Item Description Date Status 1 Rezoning Approval June 2020 2 Updated Market Study June 2020 3 Land – Renewal of Lease July 2020 4 Financial Model and PIM June 2020 5 SG Diagram Approval July 2020 6 Building Plan Approval August 2020 7 Design Development August 2020 8 Bulk Earthworks September 2020 9 Financial Close November 2020 10 Hospital Construction Commences November 2020 11 Hospital Construction Complete June 2022 12 Hospital Commercial Operation September 2022 Source: KCPH Project timeline June 2020 4. TRANSACTION OVERVIEW The proposed King Cetshwayo Private Hospital site is situated in Ulundi D and will be easily accessible to the local populace via Bus and Taxi routes and is situated on a Hard Surface Road. The Hospital site is >4.5 Ha in Area which is adequate for the proposed Development and possible future expansion. KING CETSHWAYO PRIVATE HOSPITAL PROJECT – PIM: JULY 2020 P a g e | 15

KCPH will be financed using a combination of Equity and Debt as set out below: Table 10: Source and Application of Funds SOURCES & APPLICATION (R'000) R 163 337 % Cost/bed Sources: R 101 863 Equity R 152 794 39% R 1 485 Junior Debt R 417 993 24% R 926 Senior Debt 37% R 1 389 Total 100% R 3 800 Application: R 22 245 5% R 202 Development Costs R 240 393 58% R 2 185 Construction Costs 19% R 710 Medical Equipment R 78 087 4% R 142 Non-Medical Instruments R 15 617 3% R 95 Commissioning costs R 10 500 2% R 91 Finance, Insurance, Legal and Other Costs R 10 000 2% R 88 Interest During Construction R 9 651 8% R 286 Net Working Capital R 31 500 100% R 3 800 Total R 417 993 The Sponsor has received interest to finance the KCPH Project from the following key investors: 1) Resultant Capital – signed letter of intent to provide debt finance for the new hospital. 2) Razorite Healthcare and Rehabilitation Fund (Managed by RH Managers) – a Fund with the mandate to invest in healthcare infrastructure in order to increase accessibility and affordability of healthcare and rehabilitation facilities in South Africa, whilst achieving a gross IRR greater than 18%. 4.1. Opco and Propco structure Both the hospital license and the property development are currently in the name of Wagna Projects (KZN) (Pty) Ltd, the company representing the interest of the Sponsor, Mr. Thulani Mengoe. 4.2. Opco Ownership Wagna Projects (KZN) (Pty) Ltd is the holder of the awarded license and will be the OpCo should the Sponsor decide to separate the property and hospital operations. Mr. Mengoe is ultimately the main shareholder in the proposed 110 bed private hospital. KING CETSHWAYO PRIVATE HOSPITAL PROJECT – PIM: JULY 2020 P a g e | 16

4.3. Propco Ownership The property is currently being developed under the name of Wagna Projects (KZN) (Pty) Ltd, the hospital license holder. The project Sponsor has negotiated a lease on the land, with the Ingonyama Trust. The initial short-term lease that was entered into has expired (Annexure ) but is in the process of being renewed. A long-term lease will be signed once the development has secured all the required consents. 4.4. Debt Requirements Amount Period Margin Table 11: Proposed Debt Funding R152 794 12 years 9.75% R101 863 15 years 12.25% Debt R254 657 Senior Debt Junior Debt Total The proposed terms for the debt component are: 1) Senior Debt: 12-year tenor with a 42-month moratorium on Principal and a 36-month moratorium on Interest at a rate of 9.75% 2) Junior Debt: 15-year tenor with a 72-month moratorium on Principal and a 48-month moratorium on Interest at a rate of 12.25%. 5. TRANSACTION RATIONALE Quality of the Project supported by: Company  His Majesty the King Goodwill Zwelithini.  Traditional and Local Municipal Authorities  Ulundi community at large Competitive  Specialists will ensure patient volumes for bed days and theatre Positioning utilization are achieved.  The lack of private beds in the area means little or no competition for the facility. Strong Sustainable  Projected margins more than 30% at steady stage. Margins Growth Industry  Healthcare will continue to grow and improve in profitability as the middle-class population grows in South Africa. Strong Cash Flows  Increasing cash flows as market demand increases. KING CETSHWAYO PRIVATE HOSPITAL PROJECT – PIM: JULY 2020 P a g e | 17

Job Creation  At least 150 new permanent jobs, increasing to 219 when facility reaches highest occupancy levels. Underdeveloped Province  Within the KZN region, leading to development in geographical areas identified in the Government’s Integrated Sustainable Rural Exit Strategy for Development and Urban renewal projects. Further, KZN has a higher Equity Investor population per private bed (1,878) than the national average (1,504) and Gauteng (796). Acceptable IRR’s Various exit strategies exist including:  Trade sale to other hospital groups.  Consolidating into a larger group and listing.  Project IRR of 15.1% over 22 years  Equity IRR of 18.2% over 22 years. (comparable to RHM required hurdle rate of 18%) 6. STATUTORY INFORMATION Company Name King Cetshwayo Private Hospital (KCPH) Land Owner Building Owner Ingonyama Trust Date Appointed Registration number Wagna Projects KZN (Pty) Ltd 23/01/2015 Tax Number 2015/022722/07 VAT Number 9023049241 Date of incorporation 4440277269 Main business 23/01/2015 Shareholders Property Development Company Directors Thulani Mengoe Full Name Thulani Mengoe Registered address KwaZulu Natal Financial year end February Legal Advisors De Beer Attorneys KING CETSHWAYO PRIVATE HOSPITAL PROJECT – PIM: JULY 2020 P a g e | 18

7. MARKET AND COMPETITIVE ANALYSIS 7.1. Overview - Healthcare in South African The South African healthcare industry comprise of providers of products and services on one hand and funders on the other. The providers of service include hospitals, doctors, administrators, and pharmaceutical suppliers. The funders comprise of medical aid insurance, government, and NGOs, and “out of pocket” individuals. The Government and NGOs spends 20% of total healthcare expenditure to deliver healthcare to 84% of the population. The private sector on the other hand spends, mainly through medical aid 80% on 16% of the population. The scenario puts pressure on the already stretched public resources. Private sector healthcare investment is a welcome relief and bodes well for a successful universal coverage scheme (NHI). The South African healthcare industry was estimated at R310 billion in 2013. This figure has been growing at a compound rate of 10.4% for the past 4 years despite slowing economy economic growth and it is expected to reach R 460 billion in 2018. Healthcare expenditure has hovered around 8% of the South African GDP which is in line with other OECD (Organization for Economic Co-operation and Development) countries and this is expected to continue. Such a big portion of an emerging economy’s expenditure offers huge investment potential. More than half of the country's healthcare expenditure comes from the private sector. This is even though only about 20% of the population use the private healthcare sector. Higher earners and foreigners working in the country make up most of the people that use the private sector. 7.2. Public Hospital Funding in South Africa South Africa’s health system consists of a large public sector and a smaller but fast-growing private sector. South Africa currently offers a universal health cover through its national health service and all residents have access to the healthcare provided by the public sector. High levels of poverty and unemployment mean healthcare is largely the burden of the state, consuming two-thirds of the health budget. The dedication of the government towards improving health conditions in the country are also evident from the various provisions made in the recently released national budget for the financial year 2014-2015. Although the state contributes c. 40% of the nation’s total health expenditure, the public health sector is under pressure to deliver services to c. 80% of the population. Despite this, most resources are concentrated in the private health sector, which caters to the health needs of the remaining 20% of the population. KING CETSHWAYO PRIVATE HOSPITAL PROJECT – PIM: JULY 2020 P a g e | 19

7.3. Private Hospital Industry in South Africa The private healthcare industry is regulated by the provincial health departments who are the custodian of licenses to develop and run such facilities in accordance with the Regulations Governing Private Hospitals and Unattached Operating Theatres, regulation 158 of 1 February 1980. The private healthcare industry has grown significantly over the last two decades. This sector plays a pivotal role in providing quality healthcare services to at least 38% of South Africa’s population. Due to the failure of the public healthcare system to provide high quality healthcare service, the private healthcare sector has become more important in providing high quality healthcare service in the Country. As of 2016/17, there is approximately 363 private hospitals and day theatres in South Africa. Netcare, Life Healthcare and Mediclinic are the most dominant private hospital groups in South Africa, making an oligopoly of the market. These private hospital groups own at least 75% of the private hospital beds in South Africa. The number of private hospital beds has increased from 24 402 in 2000 to 36 959 in 2016/17. The majority of the private beds is in the hands of the Big 3 groups. Netcare had the largest number of beds (10 088) registered across all their hospitals followed by Life Healthcare with 8 636 registered beds and MediClinic with 8 007 beds in 2016/17 (see Table 12). The balance of the private beds belongs to National Hospital Network (NHN), a grouping of mining hospitals and independent players like Busamed, Clinix, Melomed, JMH, Lenmed, Advance Health, etc. The total number of private beds in South Africa have been growing at an average annual growth rate of 3.3% from 2002 - 2009. Since 2000, an additional 2 190 659 beneficiaries joined medical schemes, a growth of approximately 34% to 8 778 348 beneficiaries in 2013. In 2013, about 16.5% of South Africa’s population were beneficiaries of medical schemes. The increase in GEMS membership and beneficiary coupled with the introduction of LIMS increased the beneficiaries to ca20% of the population. This indicates that the current medical scheme coverage of 11.6 million lives is highly correlated with income and affordability levels. KING CETSHWAYO PRIVATE HOSPITAL PROJECT – PIM: JULY 2020 P a g e | 20

The table below sets out the number of private beds in South Africa. Table 12: Number of private hospital beds Hospital Group 2012/13 2013/14 2014/15 2015/16 2016/17 9 262 9 289 9 424 9 942 10 088 8 222 8 279 8 418 8 515 8 636 7 378 7 436 7 614 7 985 8 007 National Hospital Network (NHN) 10 228 Source: Netcare, Life and Mediclinic Annual Reports (10-year Review) and HASA (2009) The private hospital facilities are concentrated in the main provinces like Gauteng, Western Cape and KwaZulu Natal and in the major cities or metros in these provinces. The picture below depicts concentration of private hospital facilities. Figure 1: Concentration of Private Hospital Facilities in South Africa Source: https://econex.co.za/wp-content/uploads/2017/09/ECONEX_HASA-summary_handout.pdf KING CETSHWAYO PRIVATE HOSPITAL PROJECT – PIM: JULY 2020 P a g e | 21

Private healthcare expenditure has been growing at a rate of above 6% per annum as shown in the table below: Table 13: Private Healthcare Expenditure Trends (South Africa 2010-2018) Private Healthcare Expenditure Trends, Historic data and Forecasts (South Africa 2010-2018) Private Health Spend 2010 2011 2012 2013 2014 2015 2016 2017f 2018f (USD bn) 16,896 18,187 17,328 15,818 15,230 17,739 20,455 22,440 23,920 27.78% 7.64% -4.72% -8.71% -3.72% 16.47% 15.31% 9.70% 6.60% (% y-o-y) 123,683 132,091 142,213 152,663 162,963 173,572 183,927 194,560 205,320 11.11% 6.80% 7.66% 7.35% 6.75% 6.51% 5.97% 5.78% 5.53% Private Health Spend (ZAR bn) 53.41% 52.30% 51.20% 50.49% 49.66% 48.62% 47.46% 46.39% 45.34% (% y-o-y) Private Health Spend As % Total Health Expenditure Source: World Health Organization (WHO) Private healthcare expenditure as a percentage of total healthcare expenditure is forecast to decrease mainly due to increased government expenditure on healthcare. Healthcare insurance schemes are the biggest contributor to private sector healthcare spending, accounting for approximately 80% of the total followed by out-of-pocket payments, equating to approximately 14% and contributions by non-profit organizations to households making up the 6% Based on the CMS 2017/18 annual report, there were 21 open schemes and 59 restricted schemes at the end of 2012. The biggest medical schemes are Discovery Health (2,79 million), Government Employees Medical Scheme (1,81 million), Bonitas (0,7 million) and Polmed (0,5 million). 2018 statistics show that about 16.5 million people were employed in South Africa earning an average of R22,500 in gross monthly wages. Of these 4.039 million people were medical scheme main members. There were 8.9 million medical scheme beneficiaries. There is scope for more employed people to take up medical schemes membership as less than 50% are currently medical scheme members which could potentially translate into more private healthcare expenditure. This bodes well with the trend of increasing private healthcare expenditure. 7.4. Demand for Healthcare The demand for healthcare in South Africa is determined by the following macro and local economic factors that drive the decision to obtain healthcare or not: KING CETSHWAYO PRIVATE HOSPITAL PROJECT – PIM: JULY 2020 P a g e | 22

Factor Comments  Household income source About 63.5% of households in South Africa are dependent salary income.  Education Education promotes empowerment, economic growth, and general welfare improvement.  Health facilities / location In South Africa 91.7% of the population utilize the nearest health facility.  Medical Aid About a quarter of South African households have at least one member who belongs to a medical aid scheme. Under the proposed new National Health Insurance, it is envisaged that there will be universal coverage allowing all South Africans to have medical insurance.  Consumer market profile There is a positive tendency for the market profile towards the development of a private hospital due to increased demand for quality healthcare. 7.5. Ulundi Market Analysis The hospital will be located in Ulundi area, within Ulundi Local Municipality. The municipality is one of the five municipalities under the jurisdiction of The Zululand District Municipality. Figure 2: Locality Map: Zululand District Municipality Source: Zululand District Municipality Draft IDP 2020/21 P a g e | 23 KING CETSHWAYO PRIVATE HOSPITAL PROJECT – PIM: JULY 2020

The Zululand district has two airports, Ulundi Airport (Prince Mangosuthu Buthelezi Airport) and Vryheid Airport. The Ulundi Airport has daily flights to Pietermaritzburg and is envisaged to alleviate the high traffic volumes on the roads leading to Ulundi and the accidents on these roads. Figure 3: Ulundi Airport (Prince Mangosuthu Buthelezi Airport) The Ulundi Municipality is located in North Eastern KwaZulu-Natal covering an area of approximately 3 750km² and has a resident population of some 230,000 People (Expanding during Holiday Periods). Figure 4: Locality Map - Ulundi Local Municipality Source: Ulundi Local Municipality IDP 2019/20 P a g e | 24 KING CETSHWAYO PRIVATE HOSPITAL PROJECT – PIM: JULY 2020

7.5.1. Public Healthcare Facilities The Zululand IDP 2012 – 2016 notes that there are 4 Hospitals and 27 Clinics in the Ulundi District which offer medical facilities to what are predominantly State Assisted Patients. The existing Hospitals provide some 500 Useable Beds at a ratio of 2.1 Beds/1,000 Population. Associated with these Hospitals are 267 Clinics rendering Primary Health Care services (including Aids/HIV, Childcare, Family Planning and Immunisation against Tuberculosis and other Diseases) to Communities within the Municipal Boundaries. Set out below in Figure 8 is the network of public hospitals in the catchment area: Figure 5: Network of Public Hospitals in Catchment Area Source: Demacon, June 2020 As illustrated in Figure 8 there are 4 public healthcare facilities that have been identified as servicing the catchment area. Set out below in in Table 15 is the profile of public hospitals in the catchment area. From this information, there are only 617 beds servicing the entire catchment area and the closest hospital to the proposed hospital site is about 13km. KING CETSHWAYO PRIVATE HOSPITAL PROJECT – PIM: JULY 2020 P a g e | 25

Table 14: Profile of public hospitals in the catchment area Facilities within 40km Number of Beds Distance from Site 7,2 km Nkonjeni District Hospital 265 7,8 km 32,8 km St Francis Hospital (Psychiatric) 105 37,6 km Ceza Hospital 160 Thulasizwe Hospital 106 Total Bed Number 636 Source: Extracted from Demacon Market Studies 7.5.2. Private Healthcare Facilities No Private, Academic or Specialist Hospital exists in Ulundi Municipal Area, nor is there a facility which caters for “Private Medical Aid” and affluent patients within the Municipal Area and these patients currently travel to hospitals in Durban (eThekwini) and Pietermaritzburg (uMgungundlovu) for hospitalization and medical treatment, distances of 240kms and 300kms respectively. Accordingly, it has been identified that an integrated Private/Public Hospital of approximately 100- 120 beds together with a modern Out-Patient Department, necessary Infrastructural Facilities, Educational Facilities, Staff Accommodation and Social Facilities would be needed to address the shortfall in Health Care Facilities in Ulundi Town and the immediate surrounding District. 7.5.3. Income levels of the catchment population The key driver in the viability of a private hospital facility is the income levels of the population in the catchment area. KCPH Hospital will be a private facility and it is therefore important to understand to what extent the target population can afford to pay for the services to be provided. Ulundi has the second highest Average Annual Household Income in the Zululand District Municipality. It also has the second highest number of households, after Abaqulusi Local Municipality. Ulundi also has a high number of Economically Active Population (EAP). This bodes well for the proposed hospital as well as people of Ulundi. According to Econex (2016/17), the private hospitals’ contribution to the South African economy:  For every R100 of private hospital services delivered by private hospital groups, South Africa’s GDP grew by R123  For every person directly employed by private hospital groups, almost 5 additional (formal and informal) jobs are supported in the South African economy. KING CETSHWAYO PRIVATE HOSPITAL PROJECT – PIM: JULY 2020 P a g e | 26

 For every R10 million worth of capital investment, private hospital groups create 20 jobs  Capital expenditure of R10 million stimulated R7.3 million in GDP Set out below in Table 17 are the key economic indicators for the identified catchment areas: Table 15: Key Economic Indicators for the catchment areas Population Measure Municipality Provincial/National Total Population Ulundi Nongoma AbaQulusi uPhongolo eDumbe KZN SA Population growth % (2011 to 2016) 205,762 211,892 243,795 141,247 89,614 11,065,240 55,653,653 Average Household Size Total Households 2.01 1.90 2,89 3.03 2.00 1.7 1.6 R76,401 to 5.3 5.6 4.8 4.4 5 3.8 3.9 R153,800 38,553 36,409 51,472 34,667 17,415 2,875,843 14,410,256 R153,801 to R307,600 2,430 1,924 3,134 1,581 761 R307,601 to R614,400 1,583 966 2,153 944 420 R614,401 to See Comments below R1,228,800 703 178 1,126 404 232 119 72 239 90 38 R6,401 to 6.7 % 7.5 % R12, 800 2.2 % 3.0 % 0.6 % 1.0 % R12,801 to See Comments below R25 600 R25,601 to R51,200 R51,201 to 0.3 % 0.4 % R102,400 Unemployment rate 38.3 38.5 25.9 26.4 29.9 26.1 26.5 (%) 7 546 000 36 905 000 Economically Active 138,977 136,603 165,020 95,896 60,184 Population (EAP) Source: Extract from Zululand District Municipality IPD-2019/20 and Stats SA Comments: Data regarding income from Zululand District Municipal IDP is only available as an income per household, whereas the same information is provided at an individual level at provincial and national level. These are different variables and a comparison of income from a municipal to provincial or national level is therefore not possible. KING CETSHWAYO PRIVATE HOSPITAL PROJECT – PIM: JULY 2020 P a g e | 27

7.5.4. Ability to pay - Medical Insurance and Out-Of-Pocket To assess the ability of the population to pay, several different factors need to be considered, beginning with a demographic snapshot as outlined in Table18 below: Table 16: Catchment Area Demographic Snapshot Category Catchment Provincial National Total Population Area Statistics Statistics 205,762 11,065,240 55,653,653 Total Number of Households 38,553 2,875,843 14,410,256 Average household Size 5.3 4.0 3.9 Average Income per household per annum R80,764 R 83,050 R 103,204 Source: Demacon & Zululand District Municipality IPD-2019/20 Average household income is a direct indicator of consumer demand for a broad spectrum of economic goods and services – such as private healthcare. Average household income, to an extent, also reflects the living standard of a household, and influences aspects such medical aid coverage. Table 18 displays a snapshot of the catchment area (summarized from Table 17). The 2011 census states the average household income in South Africa at R103 204 per annum. The statistics for the catchment area can be summarized as follows:  72.2% of households in the market area earn annual incomes below R38 401 (less than R3 200 per month) – of which 13.0% of households earn no income at all.  20.0% of households earn annual household incomes between R38 401 and R153 600 (between R3 200 and R12 800 per month)  6.9% of households earn annual household incomes between R153 601 and R614 400 (between R12 801 and R51 200 per month)  0.8% of households earn annual household incomes more than R614 401 per annum.  The weighted average annual household income in the market area (for households earning an income) amounts to R80 764 per annum / R6 730 per month (2017 values).  The weighted average annual household income in the market area (LSM 4 – 10+) amounts to R180 389 per annum / R15 032 per month (2017 values). KING CETSHWAYO PRIVATE HOSPITAL PROJECT – PIM: JULY 2020 P a g e | 28

South African National Statistics estimate that 18% of the total population holds some form of health insurance. Furthermore, research completed by Econex1 showed that in addition to this 18%, about 28%-38% of the population pay out of pocket for private healthcare services. The combination of insured and out-of-pocket payers affects the potential number of people who could access private healthcare. 7.5.5. Bed requirements in catchment area Set out below is the estimated bed requirements as per Demacon model, considering the LSM, affordability of private healthcare either through a medical insurance or out of pocket. Table 17: Estimating bed requirements MARKET DEMAND (Baseline Scenario) PRIMARY DEMAND 2020 2025 2030 2020 Medically insured population (people) 21 409 22 457 23 556 Additional insured lived per annum Population growth rate (% / annum - compound 0.96% 200 220 growth) National Average (beds / 1000 population medically 0.96% 0.96% insured (private beds) Private beds in demand 4.8 4.8 4.8 SECONDARY DEMAND 103 108 113 Injection Secondary demand 33% 33% 33% Private beds in demand 10 708 11 228 11 778 TOTAL MARKET DEMAND Number of beds 51 54 57 154 162 170 Source: Demacon Market Studies From Table 25, it is evident that there is a requirement for 154 beds in 2020. Since there are currently no hospitals in the catchment area, private patients in the catchment area are therefore likely to be utilizing facilities in the eThekwini region for private healthcare. 1 Econex: The South African Private Healthcare Sector: Role and Contribution to the economy http://www.econex.co.za/index.php?option=com_docman&task=doc_download&gid=106&Itemid=60 KING CETSHWAYO PRIVATE HOSPITAL PROJECT – PIM: JULY 2020 P a g e | 29

The lack of private healthcare in the vicinity of the development means the proposed 110- bed facility will meet demand, thus further strengthening the case for the selected location of the KCPH. Set out below in Table 18 is a summary of the supply and demand in the catchment area: Table 18: Summary of Supply and Demand in Catchment Area MARKET SUPPLY (Trade Area Apportioned Effective Competitive Supply) 2020 2025 2030 170 Number of beds 154 162 0 Private beds supply - None 00 170 33% MARKET POTENTIAL 56 Net effective demand (residual market capacity) 154 162 Market share (% market share of total beds for facility) 33% 33% Market potential (total number of viable beds for facility) 51 54 Source: Demacon Market Studies We can see from Table 18 that demand exceeds supply and we can therefore be sure that the hospital is viable at 33% market share of total beds required. Limitation: It is unclear if any other new private facilities are being planned for within the target catchment area. 7.5.6. Medical Facilities / Disciplines Gap Analysis The following medical facilities / disciplines were identified as gaps in the market and relevant for consideration as part of the private hospital. Medical Discipline Effective Market Gap Development Prospects Pediatrics Yes Renal Dialysis Yes Moderate – High HIV/TB Clinic Yes Moderate – High Cardiology Yes Moderate – High Moderate – High KING CETSHWAYO PRIVATE HOSPITAL PROJECT – PIM: JULY 2020 P a g e | 30

The market gaps identified are in line with the disease burden in the catchment area. The medical facilities / bed mix and the service offering in terms of the awarded license allows KCPH to address the gaps identified during the market study. It should be noted that the success of any disciplines is largely dependent on the availability and support of Specialist doctors. The utilization of the hybrid cardiac theatre and cardiac beds rest on the success in securing Cardiac/Cardiothoracic surgeons and are currently a critical specialty in short supply. 7.5.7. Conclusion In summary, it can be concluded that there is demand for the hospital to be built and the licensed bed mix is reasonably in line with the ideal bed mix as per disease burden statistics. However, the key risk going forward is that it is not known how many other hospitals in the catchment area are being planned or have been awarded licenses. If a number of these are activated in the coming years, it could impact the proposed facility in a way that cannot currently be estimated. The relatively low income of most of the municipalities in the catchment area could also pose a demand risk, however this may be mitigated by the facility being the only private bed hospital in the area. The Sponsor also has the option of developing say 70 beds initially and only scaling up once demand has been proven. This option carries the risk that DoH may reduce the licensed beds to what has been built, with no guarantee that cancelled beds will be approved in future. 7.5.8. Occupancy In addition to the market research by Demacon, consideration was given to views and inputs from Busamed based on their experience in operating similar facilities, to arrive at the occupancy and/or ramp-up assumptions. KING CETSHWAYO PRIVATE HOSPITAL PROJECT – PIM: JULY 2020 P a g e | 31

Set out below is an extract from the model for these over the first 6 years per key specialty: Table 19: Occupancy ramp up Clinical Area Beds 1 2 3 4 5 Day Ward 8 45.0% 51.0% 57.0% 62.0% 68.0% Medical Ward 22 45.0% 51.0% 57.0% 62.0% 68.0% Surgical Ward 22 30.0% 35.0% 41.0% 46.0% 52.0% Pediatric Ward 10 35.0% 40.0% 46.0% 51.0% 57.0% ICU Ward 8 35.0% 38.0% 44.0% 49.0% 55.0% HC Ward 6 35.0% 38.0% 44.0% 49.0% 55.0% NICU Ward 4 35.0% 37.0% 43.0% 48.0% 54.0% NHC Ward 4 35.0% 37.0% 43.0% 48.0% 54.0% Cardiac Ward 10 25.0% 30.0% 36.0% 41.0% 47.0% VIP Ward 0 0.0% 0.0% 0.0% 0.0% 0.0% Maternity Ward 16 20.0% 30.0% 36.0% 41.0% 47.0% Source: KCPH Financial Model 20200601.xlsm Set out below is the average theoretical occupancy per annum in total: Table 20: Average occupancy Activity Year 1 Year 2 Year 3 Year 4 Year 5 Wards Occupancy 33% 38% 44% 49% 55% Theatre Utilisation 20% 25% 29% 35% 45% Source: KCPH Financial Model 20200601.xlsm 8. HOSPITAL DEVELOPMENT AND CONSTRUCTION 8.1. Area Description The proposed 110 bed acute private hospital is located on King Shaka Road in Ulundi, on the north eastern part of the KwaZulu Natal province. Ulundi Municipality covers an area of roughly 3750km2 and has a population of 230 000 people. The proposed King Cetshwayo Hospital Site is identified as Portion 17 of the Farm No: 20 of 15840 Ulundi, measuring 4 Hectare in extent. The size is enough for the proposed two-story hospital development. KING CETSHWAYO PRIVATE HOSPITAL PROJECT – PIM: JULY 2020 P a g e | 32

Figure 6: Hospital Site This parcel of land has been acquired by Wagna Projects KZN (Pty) Ltd from the Ingonyama Trust, led by his Majesty the King, Goodwill Zwelithini through a lease on the land. o The proposed Private Hospital is located in Ulundi, the main administrative centre within the local municipality, on the R66 which connects Ulundi directly to Nongoma in the North and Melmoth to the south, then leading to the N2 which connects the town to the coastal cities. o The site enjoys high levels of regional and local accessibility and is serviced by all modes of transport, in an area experiencing increased pressure for residential, social and commercial development. o The site is located in proximity of a number of commercial uses and a number of social, religious and educational facilities. KING CETSHWAYO PRIVATE HOSPITAL PROJECT – PIM: JULY 2020 P a g e | 33

Figure 7: Site Location and Site Survey The town of Ulundi is the only formal urbanized node within the Zululand District Municipality and houses all formal (first Economy) economic activities. The areas surrounding the town of Ulundi are generally characterized as large, densely populated tribal areas with an informal settlement pattern. These areas are completely reliant on Ulundi for employment, goods, and services. Ulundi is also situated on the main road network system and is therefore a connection and concentration point for people and activities. 8.2. Site Characteristics The following key points are considered pertinent in understanding the site characteristics:  The site is underlain by tillite of the Dwyka Formation, Karoo Supergroup. Residual soils have developed from the weathering of the tillite bedrock.  The site classifies as soft excavation to depths varying between 1,2m and 2,0m (average depth 1,4m).  Below these depths the site generally classifies as intermediate excavation material upon very dense residual tillite varying to very soft rock tillite. The intermediate excavation material could be removed using medium to heavy earthmoving equipment and / or power tools. The intermediate excavation material is anticipated to be of the order of 0,5m to 1,0m thick. KING CETSHWAYO PRIVATE HOSPITAL PROJECT – PIM: JULY 2020 P a g e | 34

 Hard rock excavation on tillite bedrock would occur below the intermediate excavation material. The tillite bedrock would require excavation by blasting.  An allowable bearing pressure of 250kPa could be utilized for the medium dense to dense reworked residual tillite. These founding horizons occur at depths varying between 0,1m to 0,7m (average depth 0,4m) below present ground level. Conventional strip / spread foundations could be utilized as suitable foundation types.  In the areas of deeper cut, where the very dense to very soft rock / soft rock tillite is exposed at final terrace level or at shallow depth below final terrace, conventional strip / spread foundations could be placed upon the above founding horizons utilizing an allowable bearing pressure of 750kPa.  In the areas of thick bulk fill conventional strip / spread foundations could be placed directly within the engineered fill material provided allowable bearing pressures are limited to 150kPa.  The in-situ soils across the site (hill wash, reworked / residual tillite and very soft rock tillite bedrock) are considered suitable for use as general fill and lower selected layer material. 8.3. Bulk Services Electricity will be supplied by Ulundi Local Municipality. The site is located between two substations. The main substation has 2 x 20MVA and the maximum demand for Ulundi does not exceed 16MVA. Therefore, there is sufficient capacity to accommodate 2MVA required by the development. Road and storm water: the main road is available, access road tie in with existing road as per Geometric design. Ulundi has a Waste Transfer Station registered with the Department of Environmental Affairs, whereby waste is collected and temporally stored and transported for final disposal to uThungulu landfill site. The Zululand District Municipality confirmed the availability of Water and Sewer networks up to the main road next to the site. The connection costs are for the account of the developer. KING CETSHWAYO PRIVATE HOSPITAL PROJECT – PIM: JULY 2020 P a g e | 35

8.4. Building Design Layout and Rational (1) Storeys:  Phase 1 is accommodated on the Ground and First Floors  Ground Floor levels accommodate the back of house (Kitchen, Plant Rooms, etc.) and maintenance; (2) Structure  Foundations: the foundation is generally envisaged as being a combination of Concrete Column Bases and Concrete Strip foundations.  Frame: Conventional reinforced concrete columns and beams.  Floors (Non-Suspended / Surface Bed): Ground Storey floor is envisaged as being a 125mm thick unreinforced mass concrete surface bed on compacted hard fill.  Floors (Suspended): o Intermediate Floors are envisaged as generally being 255mm thick reinforced concrete; o Roofs slabs – a minimum of 255mm thick, as these will perform vertical expansion of the hospital, the roofs will become the next intermediate floor slabs to the next storey above.  Exterior Walls: Generally a combination of polystyrene filled cavity brickwork and glass curtain walling. (3) Footprint:  The concept design proposes a Gross Building Area (GBA) of approximately 10,769 m².  This equates to 97.9 m2 per bed. (4) Orientation:  The new hospital will be orientated along this longitudinal axis in a linear configuration and;  be generally North facing, with plant, services and delivery areas on the South Western side (5) Aesthetic  Exterior o The exterior should be generally modernistic minimalistic, with clean and uncomplicated horizontal lines; o Finishes should be a combination of white walls, off shutter concrete and some degree of aluminium cladding on certain feature areas. (6) Future Expansion  The structure should be designed so as to be able to accommodate a further 2 storeys over the Ground Storey, i.e. 1st and 2nd Storeys;  Wards and Units will be so designed and configured, so as to permit a relative ease of future expansion or continuation KING CETSHWAYO PRIVATE HOSPITAL PROJECT – PIM: JULY 2020 P a g e | 36

Figure 8: Hospital Renderings & Drawings SITE PLAN GROUND FLOOR PLAN FIRST FLOOR PLAN KING CETSHWAYO PRIVATE HOSPITAL PROJECT – PIM: JULY 2020 P a g e | 37

8.5. Professional Team To date the management of the feasibility phase of the project has been administered through Wagna Projects and the project consultants. Listed below are the professional team members and specialists including their roles and responsibilities on the hospital project. No Role / Responsibility Organization Wagna Projects KZN (Pty) Ltd 1 Developer and Client. Gordon DE Bee Attorneys 2 Legal Ndangano GIS 3 Town Planner 127 PGM Capital 4 Project Finance Advisor Demacon 5 Market Research Consultant Purlin Consulting 6 Project Manager John Wagner Architect 7 Joint Venture Architect Ideate Design Partnership (id8) 8 Joint Venture Architect Mbatha Walters & Simpson 9 Quantity Surveyor Fortem Consulting Engineers 10 Civil and Structural Engineers Rivoningo Consulting Engineers 11 Electrical and Mechanical Engineers Busamed (Preferred) 12 Hospital Management It is envisaged that this core team along with new investor representatives will continue to develop the project in a coordinated manner through to financial close 9. Construction Contractors 9.1. Contractor A prequalification tender document based on a schedule of rates was issued to seven reputable contracts on 28 February 2020 and submissions were received on 23 March 2020. Four contractors submitted their documents and indicated their willingness to form part of the project team. Below is a summary of the total costs provided by the contractors. KING CETSHWAYO PRIVATE HOSPITAL PROJECT – PIM: JULY 2020 P a g e | 38

Table 21: Summary of the total costs per contractor In line with the recommendation from the professional team, a letter of intent was issued on the 17th of April to Grinaker LTA stating, the Developer’s intention to appoint Grinaker as the main contractor for the King Cetshwayo Private Hospital subject to post prequalification negotiations and financial close. 9.2. Expression of Interest As part of the overall procurement process, the Developers issued an Expression of Interest invitation which closed on 05 December 2019. A summary of the submissions received is attached as Annexure E. Assessment of the submissions is going to finalized once the appointment of the main contractor and hospital management company are concluded. Below are possible the main parties in the development and management of the hospital project. No Role / Responsibility Organization 1 Main Contractor Grinaker LTA 2 Sub-Contractor Nkosinathi Holdings 3 Hospital Operator Busamed KING CETSHWAYO PRIVATE HOSPITAL PROJECT – PIM: JULY 2020 P a g e | 39

10. OPERATIONS AND MANAGEMENT 10.1. Human Resource Strategy The hospital plans to have the following staff complement, which will be recruited through a professional recruitment company that deals specifically with the healthcare industry: Designation Quantity Designation Quantity Hospital Manager 1 Night Matron 1 Human Resources Manager 1 Infection Control 1 Financial Manager 1 Clinical Facilitator 2 Technical/Maintenance Manager 1 Unit Manager 10 Information Technology Manager 1 Nurse 80-152 Nursing Manager 1 Administrative Staff 32-37 Assistant Nursing Manager 1 Ward Secretary 8 Marketing Manager 1 Ward Hostess 8 Total 150-227 10.2. Operational Strategy Busamed is going to be appointed as hospital operators. The Busamed Hospital Group is an award- winning, proudly South African private hospital group, providing specialist services in seven state-of- the art hospitals across the country. The group has a vision to provide quality, cost-effective services to all its patients, in partnership with its specialist health professionals, using a combination of high clinical standards and innovative technology. Each of the hospitals under the Busamed umbrella has core specialities, together with in-house ancillary services like radiology, pharmacy, pathology, and physiotherapy. Busamed also specialises in the provision of consulting and management services to health care entities. 10.3. Specialist Recruitment Specialists Doctors in the area have signed expression of interest letters to move their cases to the new hospital. The engagement process is going to continue led by the hospital management company as the project approaches financial close. KING CETSHWAYO PRIVATE HOSPITAL PROJECT – PIM: JULY 2020 P a g e | 40

11. PROJECT RISK ASSESSMENT 11.1. Risk Analysis and Mitigation of Project Risks: Set out below are issues identified as project risks, as well as risk mitigates for the KCPH. They are classified as falling within the Sponsor’s control. Key Project Risks within the Sponsor’s control Project Risks Description of Risk Mitigation of Risk WITHIN THE PROMOTER’S CONTROL A recruitment plan will be drawn up (in conjunction with the hospital operator) and 1. Operating: implemented during the construction of the facility. Technical NHN negotiated medical aid inflation has 1.1 Staffing Shortage of skilled personnel. historically been above CPI which includes Labour and Eskom as a component of the 2. Operating: Cost No recruitment plan is in place basket. 2.1 Labour cost to ensure the right individuals On-going operational efficiencies will be are employed and at the right implemented and monitored. 2.2 Electricity cost time. A fee proposal has been discussed with 3. Operating: Nursing and support staff may Busamed, an experienced operator with a Management demand higher salaries and proven track record of successful hospital salary increases than management. Signing of a formal agreement 3.1 O&M Contractor budgeted. is imminent. Nersa approved higher tariffs resulting in increased The organizational structure will be finalized operational costs. prior to the commencement of the main building contract. Appointing the correct The DoH will be kept informed through operator is fundamental to the progress reports as per regulations to protect success of the project. the license. 4. Sponsor/Participant Both the engineering design and construction being managed by a 4.1 Organizational Organizational structure not professional team with extensive experience in hospital developments. Structure well defined. 4.2 Hospital license The DoH may withdraw license due to delays in development 5. Engineering of the Project. Services Technical requirements for the 5.1 Engineering Designs hospital are too onerous, or not physically possible. 5.2 Electrical 6. Construction 6.1 Cost Over-runs Construction costs likely to The risk will be transferred to the Contractor 6.2 Project Delay exceed budget. through Project finance structured agreements. Construction not completed within budgeted schedule. KING CETSHWAYO PRIVATE HOSPITAL PROJECT – PIM: JULY 2020 P a g e | 41

Below are the issues identified as project risks, as well as risk mitigants for the King Cetshwayo Private Hospital. They are classified as falling outside the Sponsor’s control. Key Project Risks outside the Sponsor’s control Project Risks Description of Risk Mitigation of Risk OUTSIDE THE PROMOTER’S CONTROL Detailed feasibility has been performed to assess the supply demand dynamics of the 7. Supply area. Busamed together with the Sponsor will 7.1 Bed Capacity The beds capacity is more than continue securing the required specialists that will operate full time at the facility. the need. Furthermore, the core group of doctors within Zululand will sign non-binding 7.2 Tenants / Anchor Identification and sign-up of the agreements prior to financial close. Doctors tenant/anchor Doctors is not The primary catchment area of Ulundi Municipality has more than 27% of done yet. household income profile in the middle to high income range. 8. Market The annual average income of the The Sponsor will sign up key doctors and 8.1 Affordability target market (Zululand DM) is together with operator will sign Designated lower than the national average. Service Provider arrangements with 8.2 Lack of off-take medical aids. KCPH will be a member of The facility has no off-take NHN. 8.3 Competition agreements or similar e.g. has not There are large barriers to entry should signed any DSP with medical aids other developers attempt to build new or acute facilities. private healthcare facilities, as a hospital license will only be issued if there is a need The facility is likely to face for additional beds. competition from new entrants. Project capex includes standby generator & 9. Infrastructure Load shedding is expected to opex includes energy security related costs. 9.1 Electricity supply continue. Value management of cost items 8. Foreign Exchange Equipment costs are subject to throughout the activation process. 8.1 Equipment Cost foreign exchange rate fluctuations as most high-ticket items need to be imported. KING CETSHWAYO PRIVATE HOSPITAL PROJECT – PIM: JULY 2020 P a g e | 42

11.2. Overall Risk Analysis Set out below is a high-level assessment of the key risks for the project: Financial Low/Medium/High Financial Structure M Legal and regulatory L Market / commercial M Portfolio / Sector exposure L Technical / Engineering L Environmental L Management/Operating L Supplier L No material flaws have been identified for the Project with market risk to be addressed based on the results of the updated market study currently being undertaken so that it reflects the current market conditions. The initial market study was undertaken by Demacon in November 2017. The Project Sponsor has to date been funding development costs from his limited financial resources and is in the process of securing strong equity/seed funder. The Financial Model is based on a Debt:Equity structure of 60:40. The letter of intent from RHM indicates a likely equity contribution of R50million, thus creating an equity short fall. The Project will thus be proceeding through to Financing Stage and final detailed design and interaction with the Specialists and the landowner (Ingonyama Trust) over the following 3 months. Busamed has been preselected to be the Hospital Operator. A fee proposal has been negotiated and a non-disclosure agreement has been signed. A Hospital Operator Agreement will be negotiated to incorporate sufficient risk mitigation structures. 12. FINANCIAL ANALYSIS 12.1. Conclusion on Viability of the Project The cash flows appear reasonably robust from the 2nd year of operations and consistently increases in line with inflation, projected at 5.0% and occupancy increases (reaching an average of 71.6%). Overall, the Project is viable with average EBITDA margin of 16% in year 3, increasing to 25% by year 5 of operations, based on current assumptions. The Senior DSCR is low at 0.86x in year 3 of the Project (i.e. 3rd year of operations), when the grace period expires. The ratio improves to an average of 1.3x in year 4, when the Project is ramping up. KING CETSHWAYO PRIVATE HOSPITAL PROJECT – PIM: JULY 2020 P a g e | 43

During the first two years of operations, while the Project is still ramping up, a standby facility in the form of junior debt or equity should be injected into the cash flows in order to decrease the debt burden during the early years. 12.2. Financial Model Preparation and Input Assumptions A BFS 22 year (2-year construction and 20 year operational) financial model with supporting assumptions was prepared and is available for review. This was based on a review of the original promoter business plan and assumptions and combined inputs from professional team as well as hospital operator’s experience in similar projects. 12.3. Project Key Performance Indicators Set out below are the key Project Metrics based on Feasibility Study: Table 22: Key Project Metrics Indicator Year 1 Year 2 Year 3 Year 4 Year 5 Year 10 Year 15 Year 20 Turnover 46,237 115,285 140,140 166,041 200,238 337,952 449,643 579,686 EBITDA 1,982 12,053 23,009 36,425 49,632 111,050 151,928 196,993 Interest (13 535) (29 822) (31 362) (30 372) (28 672) (10 713) 10 016 23 090 Expense (19 297) (36 352) (26 936) (12 530) 2 377 80 506 140 520 199 967 EBT 377 6 040 962 4 385 19 118 98 453 115 521 157 071 Cash Flow from Operations 4% 10% 16% 22% 25% 33% 34% 34% EBITDA % ROA -1% -2% 1% 5% 9% 21% 17% 13% ROE -13% -34% -33% -18% 3% 26% 13% 10% D/E Ratio 186% 273% 358% 397% 353% 33% 0% 0% KING CETSHWAYO PRIVATE HOSPITAL PROJECT – PIM: JULY 2020 P a g e | 44

Set out below is graph showing key Project Metrics over time: Figure 9: Graph – Performance Parameters COS Operating Expenses Depre ciati on 400 Interest Gross Revenue M illions 350 350 M illions 300 300 250 250 200 200 150 150 100 100 50 50 - - 2 8- Fe b-3 1 2 8- Fe b-3 0 2 8- Fe b-2 9 2 9- Fe b-2 8 2 8- Fe b-2 7 2 8- Fe b-2 6 2 8- Fe b-2 5 2 9- Fe b-2 4 2 8- Fe b-2 3 2 8- Fe b-2 2 Set out below is graph showing EBITDA and Interest Expense over time: Figure 10: Graph – EBITDA and Interest Expense EBITDA Interest Expense Millions 120 100 80 60 40 20 - 29-Feb-32 28-Feb-31 28-Feb-30 28-Feb-29 29-Feb-28 28-Feb-27 28-Feb-26 28-Feb-25 29-Feb-24 28-Feb-23 KING CETSHWAYO PRIVATE HOSPITAL PROJECT – PIM: JULY 2020 P a g e | 45

12.4. Project Returns Set out below are the key Project returns over the life of the Project along with key ratios. This section gives a detailed analysis of the Project’s returns. Table 23: Project returns KEY OUTPUTS IRR/NPV R'000 22 Years R'000 15,1% IRR - Project 18,2% IRR - Equity Project [email protected]% 391 149 Equity NPV@12% 204 921 CREDIT RISK Min Min Date Average 0,22x 29-Feb-24 2,45x DSCR_All 0,22x 29-Feb-24 2,62x DSCR_Senior 0,02x 30-Apr-25 2,91x DSCR_Junior 12.5. Income Statement Set out below are selected extracts from the Projected Income Statement for selected years (year 1, 2, 3, 4, 5): Table 24: Projected Income Summary INCOME STATEMENT FY2023 FY2024 FY2025 FY2026 FY2027 Year 1 Year 2 Year 3 Year 4 Year 5 Revenue Wards Fees 32 617 130 81 037 785 98 697 589 115 751 254 136 808 487 Theatre Fees 4 486 715 11 681 088 14 227 566 18 029 760 24 340 176 Pharmacy Revenue 8 069 706 20 263 179 24 681 687 29 474 011 36 023 722 Rent Income 1 063 920 2 533 159 2 786 475 3 065 123 46 237 470 2 302 872 140 140 002 Total Revenue 115 284 924 (21 298 625) 166 041 500 200 237 508 Cost of Sales (6 971) (17 485 726) 118 841 377 (25 385 255) (30 918 183) Gross Profit 39 266 112 (95 832 230) 140 656 245 169 319 325 Operating Expenses (37 284 333) 97 799 198 23 009 147 (104 230 885) (119 686 919) EBITDA (85 746 194) (18 583 179) 36 425 361 49 632 406 Depreciation 1 981 779 12 053 005 4 425 968 (18 583 179) (18 583 179) EBIT (7 742 991) (18 583 179) (31 361 852) 17 842 182 31 049 227 Net Interest (Expense)/Income (5 761 212) (6 530 174) (26 935 884) (30 372 093) (28 672 026) EBT (13 535 390) (29 821 672) (12 529 911) Tax Expense (19 296 601) (36 351 846) - 2 377 201 Net Income (26 935 884) - - - - (12 529 911) (19 296 601) (36 351 846) 2 377 201 KING CETSHWAYO PRIVATE HOSPITAL PROJECT – PIM: JULY 2020 P a g e | 46

12.6. Projected Cash Flow Statement Set out below are selected extracts from the Projected Cash Flow Statement for selected years (-1, 0 (construction period) and 1, 2, 3, 4, 5) Table 25: Projected Cash Flow Summary CASH FLOW STATEMENT FY2021 FY2022 FY2023 FY2024 FY2025 FY2026 FY2027 -Year 1 Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 Net Income - - (19 296 601) (36 351 846) (26 935 884) (12 529 911) 2 377 201 Add: Depreciation 18 583 179 18 583 179 18 583 179 18 583 179 Add: Deferred Interest - - 7 742 991 25 016 763 10 555 425 Add: Working capital Movements (1 207 926) (1 240 911) - - Cash Flow from Operations - - 13 793 381 6 040 170 961 809 (1 668 008) (1 842 865) Less: Capital Expenditures 4 385 259 19 117 515 Cash Flow Before Financing - - (1 862 559) -- Debt Financing 6 040 170 961 809 - - Equity Financing - - 377 211 4 385 259 19 117 515 Debt Maturity - Senior -- Debt Maturity - Junior (72 790 092) (161 708 624) (151 994 594) -- - - Cash for the period - (14 979 795) - - (72 790 092) (161 708 624) (151 617 382) -- (17 975 754) (17 975 754) 6 040 170 (14 017 985) - (3 772 689) - 71 161 915 183 494 594 (13 590 494) (2 630 928) 72 790 092 90 546 709 - --- --- - - 31 877 211 KING CETSHWAYO PRIVATE HOSPITAL PROJECT – PIM: JULY 2020 P a g e | 47

12.7. Balance Sheet Set out below are selected extracts from the Projected Balance Sheet for selected years (-1, 0 (construction periods) and 1, 2, 3, 4, 5): Table 26: Projected Balance Sheet BALANCE SHEET FY2021 FY2022 FY2023 FY2024 FY2025 FY2026 FY2027 -Year 1 Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 Assets Net Fixed Assets 72 790 092 234 498 716 378 750 319 360 167 140 341 583 962 323 000 783 304 417 604 72 790 092 234 498 716 386 493 310 386 493 310 386 493 310 386 493 310 386 493 310 Gross Fixed Assets Accumulated Depreciation - - (7 742 991) (26 326 170) (44 909 348) (63 492 527) (82 075 706) Current Assets - - 42 022 797 50 443 361 39 162 294 28 503 204 29 433 073 Inventory - - 2 125 426 2 594 812 3 091 933 3 764 173 4 329 736 Receivables - - 8 020 160 9 931 168 12 170 965 14 430 128 17 425 363 Maintenance Reserve (MMRA) - - 1 667 156 5 139 488 8 785 436 12 613 682 16 633 340 Bank & Cash - - 30 210 055 32 777 893 15 113 960 (2 304 780) (8 955 365) Total Assets 72 790 092 234 498 716 420 773 116 410 610 501 380 746 256 351 503 987 333 850 678 Liabilities - 71 161 915 268 449 890 278 486 858 271 066 530 249 318 087 220 024 267 Long Term Liabilities - 42 697 149 160 174 114 155 982 039 138 006 285 120 030 531 102 054 778 - 28 464 766 108 275 776 122 504 820 133 060 245 129 287 556 117 969 489 Senior Debt Junior Debt Current Liabilities - - 8 283 027 24 435 289 28 927 256 33 963 341 43 226 651 Senior Short Term - - - 14 979 795 17 975 754 17 975 754 17 975 754 Junior Short Term - - - - - 3 772 689 11 318 067 Payables - - 8 283 027 9 455 495 10 951 503 12 214 898 13 932 830 Equity 72 790 092 163 336 801 144 040 199 107 688 354 80 752 470 68 222 559 70 599 760 Share Capital 72 790 092 163 336 801 163 336 801 163 336 801 163 336 801 163 336 801 163 336 801 Retained Earnings (19 296 601) (55 648 447) (82 584 331) (95 114 242) (92 737 041) - - Total Capital and Liabilities 72 790 092 234 498 716 420 773 116 410 610 501 380 746 256 351 503 987 333 850 678 KING CETSHWAYO PRIVATE HOSPITAL PROJECT – PIM: JULY 2020 P a g e | 48

13. SENSITIVITY ANALYSIS 13.1. Key Assumptions Set out below are the key assumption drivers of the Project. The sensitivity tables in paragraph 13.2 below use a 5% change from -15% to +15% to provide a relative movement in the underlying base assumptions for changes in the Project IRR and NPV as well as the Equity IRR and NPV. Key assumption / driver Comments Occupancy Average occupancy ramped up from 32% in month 1 to over 72% by year 20 Revenue – tariffs NHN rate for acute bed and theatre tariffs (escalated by a conservative 5.0% inflation) Capex Operating costs Total base capital expenditure of R377 million (PropCo and OpCo) Mainly variable and fixed direct overheads and indirect administration costs. 13.2. Scenario and Sensitivity Sensitivity 1: Changes in Total Capex: Set out below is the sensitivity table which compares the 22-year Project IRR and NPV as well as the Equity IRR and NPV for changes in total capex: Table 27: Sensitivity – Changes in Capex Capex % 0% Equity NPV Project IRR Equity IRR Project NPV 248 418 16,5% 20,5% -15% 237 762 16,0% 19,7% -10% 439 082 222 686 15,5% 19,0% -5% 423 105 206 470 15,1% 18,2% 0% 407 127 190 070 14,6% 17,6% 5% 391 149 173 238 14,2% 16,9% 10% 375 172 155 945 13,9% 16,3% 15% 359 194 343 217 KING CETSHWAYO PRIVATE HOSPITAL PROJECT – PIM: JULY 2020 P a g e | 49

Sensitivity 2: Changes in Occupancy, Tariffs, Opex assumptions Set out below is the sensitivity table which compares the 22-year Project IRR and NPV as well as the Equity IRR and NPV for changes in the following inputs: Table 28: Changes in Occupancy Occupancy % 0% Equity NPV Project IRR Equity IRR Project NPV 65 007 12,7% 14,0% -15% 13,6% 15,5% -10% 231 462 116 067 14,4% 16,9% -5% 289 700 163 207 15,1% 18,2% 0% 343 475 204 138 15,5% 19,0% 5% 391 149 228 046 15,9% 19,9% 10% 415 658 250 642 16,2% 20,6% 15% 437 864 267 903 454 361 Table 29: Changes in Tariffs Tarrifs % 0% Equity NPV Project IRR Equity IRR Project NPV 19 585 11,9% 12,6% -15% 85 310 13,0% 14,6% -10% 177 153 14,1% 16,5% -5% 248 485 145 934 15,1% 18,2% 319 817 204 041 16,0% 19,8% 0% 391 149 259 967 16,9% 21,4% 5% 462 482 315 230 17,8% 22,9% 10% 533 814 369 963 15% 605 146 Table 30: Changes in Opex Opex % 0% Equity NPV Project IRR Equity IRR Project NPV 344 984 17,5% 22,5% -15% 301 911 16,7% 21,1% -10% 570 679 254 356 15,9% 19,7% -5% 510 836 205 617 15,1% 18,2% 0% 450 993 154 611 14,2% 16,7% 5% 391 149 100 746 13,3% 15,1% 10% 331 306 44 293 12,4% 13,3% 15% 271 463 211 620 KING CETSHWAYO PRIVATE HOSPITAL PROJECT – PIM: JULY 2020 P a g e | 50