Innovative TOD Strategy on PPP & Financing Structure

Innovative TOD Strategy on PPP & Financing Structure International Conclave on Clean & Low Carbon Transport Strategies for Clean Air Speaker: Girish Ramachandran 4 th September 2018 #RebuildingHumanity

An Overview of Current Indian Railway Some major investments & development in recent years: A US$ 14.52 billion high speed passenger corridor project between Ahmedabad to Mumbai was undertaken in Railway Budget 2016-17. Estimated to be operational by 2022. In May 2018, Parcel Cargo Express Train (PCET) commenced operations. The train connects the North- Eastern region with the coast as its initial and penultimate stops are New Guwahati in Assam and Kalyan in Maharashtra. In March 2018, Alstom completed production of the first all-electric locomotive at the manufacturing facility in Madhepura, Bihar In order to develop three new arms of Dedicated Freight Corridor (DFC) in the various regions of the country, Indian government is planning to invest Rs 3,30,000 crores ($50.98 billion). Key Facts: One of the world s largest rail networks. Route length of rail network = 67,368 km (as of 2016-17) Passenger carried (2016-17) = 8.1 billion / 22 mil per day 1,65,292.20 (in crore) during 2016-17 Gross Traffic Receipts of Indian Railways 1,59,029.61 (in crore) during 2016-17 Total Working Expenses of Indian Railways 6,262,59 (in crore) during 2016-17 Net Traffic Receipts of Indian Railways Source: India Brand Equity Foundation (IBEF), Indian Railways 2

Recent news on Indian Railways The Indian Railways will spend Rs 9,000 crore over the next three years to procure new wagons as it seeks to up its game in goods transportation. A major increase in Indian Railways capital expenditure to Rs1 485bn in the 2018-19 financial year was announced by Finance Minister Arun Jaitley as part of the national budget unveiled on February 1. This is almost three times the Rs540m allocated for capital works in 2013-14. The railways will spend over Rs 73,000 crore on safety out of the Rs 1.48 lakh crore capital expenditure earmakred for it in 2018-19 union budget Piyush Goyal, Railway Minister Source: The Economic Times, Railway Gazette 3

Delhi ranked the top in terms of transport-related emission in megacities Based on a dianogstic analysis of key cities of India by the Centre of Science & Environement (CSE), Delhi ranks the worst in terms of overall toxic emissions, heattrapping emission and energy consumption, due to highest vehicle stock and relatively higher population than other megacities. Source: DownToEart.Org 4

New Delhi ranked 60 th worldwide in terms of Sustainable Cities Mobility Mobility systems are key to the everyday functioning of a city. Arcadis 2017 Sustainable Cities Mobility Index, compiled in partnership with research firm, Cebr, tracks the overall performance of the mobility systems in 100 cities around the world. The Index is built from 23 individual indicators, each reflecting a component of urban mobility, from infrastructure spending commitment to affordability of public transport. These indicators are grouped into three sub-indices: People, Planet and Profit. Combining these individual metrics and sub-indices into an overall Index score gives an indicative picture of the current state of a city s urban mobility environment. Key Takeaways New Delhi ranked 60 th over the 100 cities evaluated. By region, European cities most consistently rank the highest, occupying seven of the top ten spots. Asian cities also rank highly, taking three of the top ten spots. Modern metro systems, large airports and low usage of private vehicles help boost the rankings of developed Asian cities such as Hong Kong and Singapore. The data highlights that the wealth, size or age of a city does not necessarily equal sustainable urban mobility. Mobility favors the bold. Those cities that have pursued bold moves of innovation and planned for future growth see the greatest sustainability and quality of life benefits. Source: Arcadis 5

What is Transit-oriented Development (TOD)? Transit-oriented development (TOD) is a planning and design strategy that consists in promoting urban development that is compact, mixed-use, pedestrian- and bicycle-friendly, and closely integrated with mass transit by clustering jobs, housing, services, and amenities around public transport stations. Based on the premise that economic growth, urban transport, and land use can be managed more efficiently if planned together, TOD has been successfully applied at a city scale in cities around the world including Stockholm, Copenhagen, Hong Kong SAR, Tokyo, and Singapore. WorldBank 6

Driving factors for TOD "Traffic congestion has increased so much in virtually every metropolitan area that two-hour commutes now are routine. Attempts to alleviate the problem by constructing more highways almost always have led to more sprawl and, eventually, more congestion." People are keen and looking forward to a TOD with the following reasons:- Jim Miara Rapidly growing, mind-numbing traffic congestion nation-wide Growing desire for quality urban lifestyle Growing desire for more walkable lifestyles away from traffic Changes in family structures: more singles, empty-nesters, etc Growing national support for Smart Growth New focus of Federal policy 7

Components of Transit Oriented Development Facilities / Infrastructure within a TOD The rule of thumb is that TOD occurs within 400m radius, or a 5 to 7 minute walk, of a transit station, while Transit Planning Zone (TPZ) occurs within 250m radius of a transit station. Transit Station 250m 400m 1 2 3 Served by, LRT Commuter + Range of feeder bus services Land Use Mix Housing 31% Commercial 24% Public Amenities 30% Open Spaces 13% Industry 2% Availability of, Pedestrian Network 60% Availability of, Parking On Ground Multilevel Availability of, 4 5 Special Need Facilities Ramp Tactile Pavement 82% 18% 25% Platform Transit Planning Zone Cycle Lane 0% Transit-Oriented Development 8

Some key criteria in measuring the TOD at local scale & regional scale Criteria & KPIs for Local Scale TOD Criteria & KPIs for Regional Scale TOD Transit Urban Development Urban Development Safety Basic Ameneties Information Systems Parking for cars Criteria Parking for cycles Measurable Indicators Passesnger load in peak hours Passenger load in off-peak hours Userfriendliness Optimum Parking Interchange Routes Comfortable ride Access to and from node Frequency Access to Opportunities TOD Population density Urban Density Economic Development Employment levels Commercial density Land use Diversity Walkable Urban Design Business density Tax earnings Land use entropy index Walkable / cyclable roads Intersection density Mixed-ness of residential with other land uses Business density Criteria Land use entropy index Tax earnings Measurable Indicators Land use diversity Economic development Employment levels TOD Population density Urban Density Walkable urban design Mixed-ness of residential with other land uses Employment density Walkable / cyclable roads Intersection density Commercial density Transit Urban Development Urban Development Source: University of Twente 9

Benefits of TOD Mobility Benefits Social Benefits Environmental Benefits Economic Benefits Increase access to jobs and amenities city wide Improve access to a low cost transport solution (public transit/ walkable urban space/ bicycle infrastructure) Reduce automobiledependency Revitalize neighborhoods Promote social equity through creation of mixed-income housing near transit Increase accessibility for less mobile Improve health and increase physical activity through creation of walkable neighborhoods Lower air pollution and GHG emissions by reducing automobiledependency and urban sprawl Reduce energy consumption Conversation of green and natural spaces Increase agglomeration and access to employees Encourage economic resilience through diversity Energize local economy Increase property values along corridors to help fund needed infrastructure Reduce infrastructure costs Reduce transport cost 10

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Case Study: TOD in Singapore Land Size 710 km2 Population 5.6 Mil Density 7,887 people / km2 Singapore is a small island state that can be traversed through within one work day. But in its development planning, which looks at future prospects in magnitudes of decades rather than years, space is a constraint requiring specific attention. As part of a national economic development strategy, Singapore has embraced Scandinavian planning principles that call for radial corridors that interconnect the central core with master-planned new towns. Its structure plan, called the Constellation Plan, looks like a constellation of satellite planets, or new towns, that surround the central core, interspersed by protective greenbelts and interlaced by highcapacity, high-performance rai transit. Source: Land Transport Authority, CPGCcorp Analysis 12

An Overview of the urban rail operators The Land Transport Authority (LTA), a Ministry of Transport agency, plans, finances, builds and owns the rail infrastructure. Train operating and maintenance (including infrastructure maintenance) licenses have been awarded to two companies, SMRT and SBS Transit. Fare regulation Transit fares (for both rail and bus) are regulated by the Public Transport Council (PTC) - an independent public agency. Since 1998, the PTC has utilised a price cap formula to regulate fare increases of transit operators. However, transit operators are still required to submit annual fare revision applications to the PTC each year, with the PTC having the discretion to approve the amount and structure of the increase. Land Value Capture Singapore government is the largest landowner and auctions land to private developers periodically through its government land sales programme. Singapore operators did not have the access to transit oriented real estate development opportunities. The public sector captures the land value increment largely through fee-based LVC including land leasing, property tax and development charge. Land sales revenues are channelled to a specific fund - past reserves, and reserves are not permitted to be used to finance the current government s expenditure without the permission of the President. The reserves are invested and 50% of net investment returns is taken into the government s general budget for spending. The government finances LTA s budget including rail projects from its general budget and there is therefore no direct link between urban rail financing and LVC. Source: Singapore Management University 13

Implementation of Singapore New Rail Financing Framework New Rail Financing Framework (NRFF) SMRT and the Land Transport Authority (LTA) have agreed on a new rail financing framework in 2016. Rail operating assets will now be owned by LTA, who will decide when to build up, replace and upgrade the operating assets to meet rail ridership and commuter expectations. Chronology of Key NRFF Events The intention behind this move is to free the rail operators, SMRT and SBS Transit, of heavy capital expenditure. The Government has been taking over all operating assets from SMRT from Oct 2016. LTA will pay SMRT the net book value of its operating assets as at Sept 30, 2016. This amounts to $991 million or $1,060 million including GST. There are over 60,000 operating asset items. These include the trains, signalling system, maintenance equipment such as rail grinding vehicles, electrical and fire protection equipment, as well as equipment for power and building services. LTA owns and makes decisions on building-up, replacement and upgrading while SMRT remains responsible for maintenance. Key benefits to Commuters 1 2 3 Enabling the Government to ensure timely procurement of additional trains and operating assets to enhance reliability and keep pace with growing ridership demand Relieving rail operators from heavy capital expenditure and large fare revenue risks so that they can focus on their core role of operating and maintaining the rail network Making the industry more contestable by shortening the licence period from 30 40 years under the previous financing framework to 15 years, with a possible 5-year extension Source: Land Transport Authority 14

Comparison between Previous and New Rail Financing Framework Key Elements Previous Financing Framework After Transition License Period 30 to 40 years 15 years, and possibly a 5-year extension Rail Infrastructure (Viaducts, tunnels, tracks, etc.) Operating Assets (Trains, signalling system, etc.) LTA owns and make decisions on building-up, replacing and upgrading while Rail Operator maintain the rail infrastructure Rail Operators own, maintain and make decisions on building-up, replacement and upgrading LTA owns and make decisions on building-up, replacement and upgrading, while Rail Operator remains responsible for maintenance Regulatory Regime Outcome-based regulation Outcome-based regulation coupled with processbased regulation for maintenance (e.g. Maintenance Performance Standards) Revenue Risk All fare and non-fare revenue risk borne by Rail LTA shares in revenue risk with Rail Operator Operators Regulatory Risk All regulatory risk borne by Rail Operators If there are any regulatory changes introduced by LTA after 1 October 2016 that results in changes to costs or revenues, LTA may provide grants to Rail Operator (if Rail Operator costs increase or revenues decrease consequentially) or require Rail Operator to reimburse LTA (if Rail Operator costs decrease or revenues increase) License Charge No License Charge Rail Operator pays an annual License Charge into the Railway Sinking Fund, which will help pay for the building-up, replacement and upgrading of operating assets Operators Profit Margin No cap on EBIT margin In line with comparable asset-light rail operators in other jurisdictions. The License Charge which Rail Operators pay to the Railway Sinking Fund increases with higher profits Fares Regulated by Public Transport Council Source: Land Transport Authority 15

TOD in Singapore are adopting a framework similar to the 3V 3V Framework Singapore has been planned for decades along principles of integrated land use and transport planning similar to the 3V framework The 3V Framework is applicable to large cities with extensive networks and smaller cities with only a few mass transit lines or a bus rapid transit system. The model works for growing cities and declining ones. It seeks to determine the relative areas of potential within a city rather than across cities. The 3 values are: 1. Node Value = the level of access offered by a mass transit station 2. Place Value = the attractiveness of the area in terms of diversity and accessibility of community spaces 3. Market Potential Value = the prospects of the community in the future. Policy Levers to Increase Value Node Value Place Value Market Potential Value Increase the number of hubs and the number of lines/modes they connect to. Interlink neighboring stations into clusters. Increase accessibility for all within the network. Increase compactness (proximity to existing urban activity and short travel time to main destinations). Increase the diversity of uses. Increase the concentration of commercial, cultural, and educational amenities. Design neighborhoods that promote walking and cycling. Create a vibrant public realm. Increase residential density. Increase job density. Increase human density. Increase the diversity of land parcels to create a vibrant land market. Increase floor area ratios. Source: World Bankc 16

A closer look at the TOD around MRT stations in Singapore Being a country that is well known for its expertise in city planning, particularly the TOD model, it is important to study the development quantum surrounding the MRT stations, to provide a platform of reference and also further studies on the subject. Hence, we have chosen 4 MRT stations, focusing on the land use distribution and development intensity of each station. Raffles Place Tampines Toa Payah Sengkang Raffles Place is located at the Central Business District of Singapore, which is also the financial centre of the country. Tampines MRT station is located within the regional centre that serves the eastern region of Singapore. Toa Payoh new town is built in 1970 s, and was among the earliest new town models in Singapore developed based on TOD concept. Sengkang is a relatively new (built in 90 s) new town in Singapore, with the MRT station well integrated, vertically, with the other modes of public transport (LRT and bus), and also integrated with the land use around the MRT station. Source: Land Transport Authority, CPGCcorp Analysis 17

Sample Station 1: Raffles Place Land Area Distribution (Ha) Key Highlights Raffles Place is located at the Central Business District (CBD) of Singapore, which is also the financial centre of the country. The station is an interchange of 2 major MRT lines in Singapore: the East-West line and North-South line, which has made it into one of the busiest MRT stations in Singapore. The Radar Chart analysis suggests the land use distribution within the study area emphasises on commercial use, which takes up more than 30% of the total land area within the range. The type of commercial activities is mostly offices use. On the other hand, there is about 3% of the land is used for residential purposes while 1% of the land within the range is planned as white site. The estimated Gross Floor Area (GFA) of the area is about 3 million square metres. Commercial use is the biggest share of all, taking up about 90% of the total GFA. Residential use is estimated to be around 250,000 sq. m. A point to note is that the total GFA in the study area is moderated by the presence of a substantial percentage of water bodies compared to the other 3 stations or case studies. Gross Plot Ratio Source: Land Transport Authority, CPGCcorp Analysis 18

Sample Station 2: Tampines Land Area Distribution (Ha) Key Highlights Tampines MRT station is located within the regional centre that serves the eastern region of Singapore. The land use distribution in the study area is more evenly distributed, as suggested by the Radar Chart analysis. Commercial land is planned surrounding the MRT station, which takes up about 15% of the total land area. Residential land is about 35% of the total land area, equivalent to about 28 hectares. Institutional use has a significant distribution in this area as the regional centre of Singapore is always completed with certain key civil service centres and amenities. The permissible plot ratio of the land within the study area shows a bell curve grading; where the highest permissible plot ratio of 4 is granted to the land parcels that are located immediately next to the MRT station. The total GFA of the study area is about 1.5 million m2. Floor area for residential use takes up about 825, 000m2 while commercial use is the second highest, about 473,000m2. The commercial activities in the study area consist of both offices and shopping activities. Gross Plot Ratio Source: Land Transport Authority, CPGCcorp Analysis 19

Sample Station 3: Toa Payah Land Area Distribution (Ha) Key Highlights Toa Payah is located at the CBD fringe, which provides the park & ride facilities. Private vehicles from more remote areas will stop and park in the car park provided and travel into the city centre by MRT. This helps to address the traffic congestion problem. The development in the study area of Toa Payoh MRT station is relatively matured as compared to the other new town centres. Most of the daily-need services e.g. groceries store, healthcare clinic, childcare & banks can be found within walking distance. The land use analysis has suggested that residential use is of the major component, which is 40% of the total land area of the study site. Commercial land is about 9% and is distributed within the area of 200m-radius from the station. Highest permissible plot ratio is 4, which is the area for residential use after the immediate catchment area of the MRT station. The conserved commercial area located at the north-east side of the station has the lowest plot ratio of 1.4 within the study area. Total GFA of the study area is approximately 1.3 million sq. m. GFA for residential use is of the highest at 1 mil sq. m. Commercial use takes up about 16% of the total GFA, which is about 215,000 sq. m. Apart from that, institutional and business uses are minimal. Gross Plot Ratio Source: Land Transport Authority, CPGCcorp Analysis 20

Sample Station 4: Sengkang Land Area Distribution (Ha) Key Highlights Sengkang is a relatively new (built in 90 s) new town in Singapore, with the MRT station well integrated, vertically, with the other modes of public transport (LRT and bus), and also integrated with the land use around the MRT station. Residential use is the major land use type within the study area. It takes up about 60% of the total land area. Commercial land is about 2% of the total land area. Meanwhile, there is 3% of land is reserved for future development. The development in Sengkang is more compact as compared to the other sites. The lowest permissible plot ratio found within the study area is 3, where the land parcels located immediately next to the MRT station is permitted with plot ratio as high as 4.2. The estimated total GFA is about 1.38 million sq. m. Residential use occupies the highest share of 1.25 million sq. m., which is about 90% of the total GFA. On the other hand, GFA for commercial use is about 51,000 sq. m. and 74,000 sq. m. for institutional use. Gross Plot Ratio Source: Land Transport Authority, CPGCcorp Analysis 21

Key Takeaways from Singapore TOD TOD development in different urban functions and positions demonstrates different development quantums. Raffles Place (CBD of Singapore): Highest development intensity in Singapore due to the high land and infrastructure cost. The land use type surrounding the station is mainly of commercial-offices use. Tampines (regional centre): Evenly distributed land use pattern and being planned in a more balanced condition around the MRT station. The intensity of development is lower than the CBD but slightly higher as compared to the rest. Toa Payoh: Distribution of residential land tends to be higher as compared to the other land use types. There is also a significant of transportation facilities uses being planned nearby the station to serve the function of CBD fringe centre. Sengkang: A new trend of TOD in the country where different public transport modes are being integrated seamlessly in the vertical direction. The intensity of the development around the MRT station is also getting higher as compared to the traditional ones. Focusing on the 3V framework for TOD: The node value describes the importance of a station in the public transit network based on passenger traffic, connections with other transport modes, and centrality within the network. The place value reflects the quality and attractiveness of the area around the station. Factors include the diversity of land use; the availability of essential services such as schools and healthcare; the proportion of everyday amenities that can be accessed by walking or cycling; pedestrian accessibility and also the size of urban blocks around the station. The market potential value refers to the unrealized market value of station areas. It is measured by looking at the major variables that can influence the demand for land (current and future number of jobs in the vicinity of the station, number of jobs accessible by transit within 30 minutes, current and future housing densities) as well as the supply (amount of developable land, possible changes in zoning policy, market vibrancy, etc.). 22

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Case Study: TOD in Hong Kong Land Size 2,754 km2 Population 7.347 Mil Density 2,667 people / km2 While a stable fare revenue is one of most important sources of recurrent income for the Hong Kong MTR. They also use a number of proven financing models such as the Rail plus Property model, Public- Private Partnerships, and service concessions and cash grants to support the delivery of high quality railway services over the long term. Source: MTR, World Bank In 2016, on average we carried approximately 5.6 million passengers each weekday across our rail network and bus passenger services in Hong Kong. Integration of land use and transit planning has put 75 percent of people and 84 percent of jobs in Hong Kong SAR, China, less than 1 kilometer from a mass transit station. The city has one of the highest rates of public transit use (90 percent of motorized journeys) and lowest rates of car ownership (56 cars per 1,000 people, compared with an average of 404 in OECD countries). 24

An Overview of the Hong Kong MTR s Financial Performance Breakdown of Operating Profits for Hong Kong MTR (2016, HKD Billion) HKD 9.8 billion (56%) out of the HKD 17.6 billion operating profits, are from non-fare box receipts These non-fare box receipts are mainly come from: Station Commercial Businesses (Retail Rental, Advertising, Telecommunication) Property Businesses (Property Rental, Property Management, Property Development) Mainland China & International Businesses (Railway, Property Rental & Management subsidiaries, Property Development subsidiaries, Railway subsidiaries) Source: MTR Annual Report 2016 25

A self-sustainable model : Rail + Property One important reason the system has been able to perform so well is that the government of Hong Kong has enabled MTR to make money from the property-value increases that typically follow the construction of rail lines. The key is a business model called Rail plus Property (R+P). The Mass Transit Rail (MTR) Corporation was established in 1975 as a government-owned enterprise to build, operate, and maintain a mass transit railway system for Hong Kong s public transport needs. Key components which bring in most of the revenue for MTR: Retails & Shopping mall Office Residential Advertising Source: MTR MTR has applied the R+P model extensively. Buildings sit over about half of the system s 87 stations, amounting to 13 million square meters of floor area. New projects being planned or developed will add another 3.5 million square meters. 26

Physical typology & evolution of the Rail + Property Model The design principles of R+P have evolved over the past 35 years. Since the late 1990s, development has integrated transit-oriented development design concepts high -density, mixed-use, and pedestrian-friendly in a more physically comprehensive manner than seen in the 1980s Profits from property development and related business of MTR Corporation, including HK station commercial business and HK property rental and management business, have accounted for more than 50 percent of MTRC s total profit between 2000 and 2015. From 1980 to 2005, the government received an estimated HK$140 billion (US$ 18 billion) in net financial returns (nominal value). Source: MTR 27

Example of TOD in relation to MTR Hong Kong Transit-oriented development (TOD) is an initiative of the Government that has railway at its core. In accordance with this strategy, the framework for public transport in Hong Kong has set rail as the backbone. One key objective is to utilise Hong Kong s limited land resources in a prudent way by promoting development near railway stations. It also aims to facilitate efficient mass transportation of Hong Kong s population in an environmentallyfriendly way and to make optimal use of land with railway facilities. Source: MTR Annual Report 2016 28

Success stories in Hong Kong 1 2 Source: MTR Annual Report 2016 Telford Gardens One of the earliest examples of how TOD has succeeded is the Kowloon Bay Station and Depot on the Kwun Tong Line. Completed in the early 1980s, it comprises residential towers with a regional shopping mall and several open spaces well connected to the station. Developments along the Tung Chung Line The International Finance Centre above Hong Kong Station has expanded Hong Kong s Central Business District by adding world-class Grade A office space. On the other side of the harbour, the International Commerce Centre in West Kowloon previously an inconvenient area to travel to is now only a tenminute journey from Central via the Tung Chung and Airport Express lines. Maritime Square and Tierra Verde have become new focal points in Tsing Yi after their completion, and the new railway line has enabled the development of various residential properties in Tung Chung by providing convenient links to the city centre. These have helped support the continuing economic development and growth of Hong Kong. 29

Success stories in Hong Kong 3 Tai Wai Station Development As the interchange station for the East Rail Line and the Ma On Shan Line, Tai Wai Station is expected to serve as the main transport hub of the district. The future integration of the station, public transport interchange, retail and residential spaces, as well as, a post-secondary college will provide a good example of a sustainable TOD concept. 4 Lohas Park As one of our biggest developments to date, LOHAS Park is being developed as a comprehensively planned and integrated community. The station itself, which opened in 2009, serves as the principal transport hub for the area, connecting approximately 68,000 residents via a network of covered walkways. In 2016, we awarded an additional tender for the development s further expansion. Source: MTR Annual Report 2016 30

Success stories in Hong Kong 6 5 Ho Man Tin Station Development Ho Man Tin and Whampoa Stations are the newest addition to the Kwun Tong Line, the first MTR line in Hong Kong. Ho Man Tin Station is the largest station in the MTR network. Supported by footbridges linking nearby housing estates to the station, it will also be the interchange station to the future Shatin to Central Link. New property developments above the Ho Man Tin Station will add about 1,400 to 1,800 residential units in phases, bringing new energy to the area. Regeneration of Wong Chuk Hang Our planned large-scale development at Wong Chuk Hang will act as a catalyst to enhance the transformation of the Southern District. It will create a focal point providing convenience and vitality to the community while promoting tourism in the area. Our master plan for the former public housing estate accommodates a station; a rail depot; Government, Institution and Community facilities; retail property of 47,000 square metres, and about 4,700 residential units. Source: MTR Annual Report 2016 31

Summary of the sustainability benefits of Rail + Property Model in Hong Kong Source: MTR Annual Report 2016 32

Key Takeaways from Hong Kong TOD Policy: Favourable government policy support in terms of its exclusive land grant to the MTRC and its commitment in mass transit railway as an essential mode of public transport. Process: Superb planning, management and control procedures and effective development processes that seek to maximize the synergy between railway and property from the stages of project inception to completion. Synergy of Integrated Railway and Property Development Model Project: Development of high-quality real estate projects that contain high development density, appropriate land use diversity and attractive layout design and integrate well with the railway facilities at the appropriate locations and at the right timing. Organization: A well-experienced and efficiently managed company that is committed to providing world class railway services and developing topquality property development projects in order to enhance the quality of life in Hong Kong. Source: Hong Kong Polytechnic University Integrated Rail-Property Development Model: Key Elements Institutional Model: Successful Integrated Railway and Property Development 33

Socio-Economic Modelling in relation to TOD 34

Case study: MY-SG HSR MY HSR is an iconic HSR project in Malaysia that linking the two capital cities: Kuala Lumpur & Singapore Cluster Assessment Setting the Vision Identify Development Opportunities 35

Comparing the Unconstrained Development & Constrained Development Physical Assessment & Land Uses Evaluation Comparing Unconstrained Development & Constrained Development 36

Simulation of benefits by stations according to land use combination Detail Land Uses Combination Development Benefits By Station 37

Simulation of Socio-economic benefits to be arise from the development Simulation of Socio-Economic Benefits Based On The Land Use Combination 38

Finanlizing land use and develop the implementation structure & action plan Implementation Structure & Actions Plan Finalizing Land Use 39

Developing the Land Value Capture strategy Land Value Capture Strategy 40

Financing Strategy 41

TOD Financing Strategies Type of Capital Investment Investment Size Transit Infrastructure Capital costs for BRT, LRT, or metro systems Often paid by public sector, but funding can be raised through capturing land value uplift and real estate improvements Massive Street Infrastructure & Public Realm Local street improvements & sidewalk/ NMT infrastructure Can be paid by developers in strong markets or by local government Small - Medium Real-estate development / Housing Construction Consists of construction costs of residential/commercial buildings Most costs to be paid by developer, but public subsidy sometimes required if weak market or affordable housing is required Varies 42

Funding Source [1/2] 1 3 2 43

Funding Source [2/2] Investment Revenue Revenues generated by the TOD investment itself, in the form of direct payments received in return for products and services Investment Incentives Incentives intended to induce stakeholder investment for TOD projects, by reducing the overall investment, through provision of grants and/or fiscal incentives: 1 2 Service Charge Revenues obtained from charges applied to the use of transit services and from charges related to real estate assets: Farebox revenues Real estate leasing Betterment levies Sale of Air Right Transfer or sale of development rights through the auctioning of development rights. Example: In Sao Paulo, the difference between the basic FAR and the maximum Floor Area Ratio (FAR) is sold through auctioning. Authorities can also provide density bonuses (FAR increase beyond the zoning code) in exchange of direct payment or provision of affordable housing and public space by private developers Grants Contributions to a TOD investment in monetary or physical asset form that can be received from public or private budgets. Fiscal Incentives Incentives in the form of reduced tax rates, tax exemptions and differed tax, provided by governments. Land Value Capture Revenues gained by capturing some of the land value created through public sector intervention (FAR increase or changes in regulations) as well as public and private sector investments (transit, TOD investments) Public mechanisms - Land readjustment, urban redevelopment, land sale/lease at post-rail prices; property and land tax, special assessment tax, tax increment financing, exaction and impact fees Private mechanism harnesses increased land value based on preferential access to land Own source contribution Existing public or private budgets that are directly mobilized for a TOD investment. 3 44

Financial Products [1/3] 1 3 2 45

Financial Products [2/3] 1 2 Equity Definition: a monetary contribution used to fund TOD investments that is obtained in return for an ownership share in the future profits of the investment Two different types of equity exist: Direct equity: a direct investment made by equity investors in a TOD project Indirect equity: an investment made by equity investors in funds or a portfolio of projects De-risking products: Definition: Products designed to lower the costs of finance by reducing the likelihood that an investor will not receive a return on investment TOD products can access guarantees and insurance for de-risking purposes, which include: Credit guarantees Revenue guarantees Political risk insurance 3 Debt - Loans Definition: Monetary contributions obtained from creditors with specified conditions for repayment of the initial amount of money borrowed and interest TOD investments often utilize commercial and concessional loans Commercial loans: loans provided to TOD investments with interest rates at market value; repayment required in a fixed time period Concessional loans: loans provided to TOD investments that often have interest rates below market rate; more flexible repayment schedules allowed 46

Financial Products [3/3] 3 Debt - Bonds General obligation bond Definition: Full recourse to the issuer; therefore, same credit rating applies as to the issuer s other bonds. Example: In the USA, three counties in the state of Virginia (Arlington, Fairfax, Loudoun, and Prince William) issued a general obligation bond to support the extension of a 23-mile Metrorail between Fairfax County and Loudoun County Revenue bond Definition: Revenue streams from the issuer, such as taxes or user fees, provide repayment for the bond. Example: In the Pearl District in Portland, Oregon, tax increment finance bonds were used to finance the Central City Streetcar, backed by property taxes on land value increments Project bond Definition: Recourse is only to the project s assets and revenue. Example: In 2012, Mid-American Energy issued one of the earliest green project bonds, a 28-year bond to specifically finance the Topaz solar project, a 550 MW solar power plant in California Securitized bond Definition: Recourse is to a group of financial assets that have been grouped together as collateral. Example: The Hawaii State Government issued a Green Bond/ asset-backed security in November 2014 for loans to install distributed solar panels 47

Some Ideas 48

Potential new revenue stream that a TOD can deliver Walkable design with pedestrian as the highest priority Bikeshare rental system and bikeway network integrated into stations Business incubator Reduced and managed parking inside 10-minute walk circle around town center / train station High density, walkable district within 10- minute walk circle surrounding train station Train station as prominent feature of town center Public square fronting train station Designed to include the easy use of bicycles and scooters as daily support transport Large ride-in bicycle parking areas within stations Collector support transit systems including streetcar, light rail, and buses, etc Specialized retail at stations serving commuters and locals including cafes, grocery, dry cleaners A regional node containing a mixture of uses in close proximity (office, residential, retail, civic) 49

Allowing the project stakeholders to capture multiple revenue streams Unlocking the land value to capitalize on the appreciation of land value & people flow Revenue Options for Rail-related Operation Ticket sales for transport operations Revenue Options for Government Policy Business rate supplement (BRS) Community Infrastructure Levy Revenue Options for Non-Rail Operations Ancillary services Last miles transportation (Bus & Taxi) Property rental & management business Rental of Commercial & Retail Spaces at rail station Advertising at rail station, rolling stocks & other vehicles Telecommunication services Engineering Services 50

About Socio-Economic Modelling (SEM) 51

Introduction of Socio-Economic Modelling (SEM) Socio-Economic Model is a handy tool to creating development strategy for mega development projects such as HSR Development Mega Development Projects Socio-Economic Modelling An Excel-based model which simulates the potential socio-economic impact to the Economic, Federal/State, and Employment from the development and creating customized development strategies to: Optimizing land opportunities and land use Maximize potential socio-economic benefits And ultimately Ensure the development can meet the project vision Forecasted Socio-Economic Outputs $ Economic Economic Federal/State Federal/State Employment Employment Investment Net Benefits GDP Contribution GNI Contribution Tax Contribution Foreign Investment Dividend Employment Opportunity Income Level Economic Internal Rate of Return 52

Conventional Construction Modelling VS Socio-Economic Modelling (SEM): Traditional modelling only considered the costs & benefits arise directly associated to the construction Conventional Project Modelling for Construction or Major Developments Socio-Economic Modelling 17,500,000 15,000,000 12,500,000 10,000,000 7,500,000 5,000,000 2,500,000 - (ILLUSTRATIVE) Forecasted Construction Cost, RM Billion Forecasted Construction Costs, 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 Only focus on the direct project costs from the construction alone 17,500,000 15,000,000 12,500,000 10,000,000 7,500,000 5,000,000 2,500,000 - (ILLUSTRATIVE) Forecasted Cost & Benefits, RM Billion Forecasted Construction Costs, RM Bil 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 Looking at the Unconstrained Potential Developments Considered more aspects which contributed to the cost & benefits of the development 53

Methodology to built up the SEM The methodology to obtain the assumptions for building a SEM can be separated into two major category and a typical SEM would requires an interchange use of both Top-Down Approach SEM Bottom-Up Approach Benchmarking of similar developments, focusing on the resources required and outcomes delivered. Same type of project within the same vicinity in recent years is preferred. Developed & extrapolate assumptions based on the data gathered Lesser time required to construct the model but the accuracy and reliability might be slightly lower than the Bottom-Up Method Take into account all the associated costs related to future activities within the projection period (based on the current designs & planning and the targeted economic activities) Construct the cost profile base on the associated costs More reliable & provides more certainty in projection outcomes but requires more time to gather the accurate assumptions Both approaches will be used to obtain the critical assumptions required to construct the SEM that related to: Industry data (revenue size, operations cost, labour force requirement, and profit margin) Labour force requirement (construction & operations) Labour force requirement (businesses & commercial) Ratio of revenue to operating cost of the HSR 54

The True Value of SEM lies in its flexibility This allows strategy planning which aligned the forecasted project outcomes with the vision of a multi billion project The project is good to go as it is highly likely that the project will meet the expected project outcomes and Project Vision Design & Planning for the HSR Project Scenario 1: IF Projected Socio-Economic Benefits Targeted Socio Economic Benefits Socio-Economic Modeling (SEM) Input & Assumptions Scenario 2: IF Projected Socio-Economic Benefits < Targeted Socio Economic Benefits Strategy planning are needed to improve the forecasted project outcomes The project still requires more attentions on the design and planning as it is unlikely to deliver the expected project outcomes Strategies are needed to tackle the corresponding issues which are likely to cause the failure of project 55

Getting the right mix of cluster developments Comparing the Unconstrained Development & Constrained Development options Gross Floor Areas (GFA) for Different Development Components Unconstrained Development (ILLUSTRATIVE) 3,000,000 2,000,000 1,000,000 Hub Zone TOD Zone Station - Transportation Civic Mixed Commercial Industrial Residential Open Space Gross Floor Areas (GFA) for Different Development Components Constrained Development (ILLUSTRATIVE) 3,000,000 2,000,000 1,000,000 Hub Zone TOD Zone Station - Transportation Civic Mixed Commercial Industrial Residential Open Space 56

Level of Effort & Cost All successful developments start from the beginning of the project The Green Line The ability to impose a change on a development project is greatest at the beginning, and diminish as the project started. Ability to affect change The Red Line The cost of imposing changes to a development is lowest at the beginning, and gradually increase as the project started. Cost of Change The Area Curve The Blue Area Curve shows the amount of effort needed at the whole project life cycle for a successful development. It started off from the very beginning - predesign stage, which includes the architecture and engineering processes. But the extra effort pays off at the construction stage. Pre-Design Schematic Design Design Development Construction Documents Procurement Construction Administrative Operation Critical Success Factors Well-designed TOD Plan Incorporating the needs and demand of all potential users of the TOD, design not only for the current but also for future generations. Comprehensive SEM Assessment Stress testing the potential design and fine-tune a viable development plan which could deliver optimal socio-economic benefits to all stakeholders. 57

About Us 27Group of Companies 58

An introduction to 27Group of Companies Unlocking Potential. Delivering Results. Rebuilding Humanity 27Group is a network of strategic consulting and advisory firms with a shared vision of rebuilding humanity. The 27Group was founded by like-minded professionals with a shared vision on rebuilding humanity with a unique blend of consulting services. The founders have collectively accumulated more than 100 years of experience in corporate restructuring & recovery, corporate finance, management consultancy specialising in natural & built assets services. With their combination of corporate exposure & experiences in design & engineering of projects, 27Group s delivery model infuses human values into strategy, creates innovative funding solutions & implements development management to ensure your project success. 59

Our service offerings OUR ECOSYSTEMS & SECTOR Our core focus areas are Government & PPP, Cities & Real Estates, and Industrial Parks & Industry 4.0. We also support the ancillary segments around the core focus areas. OUR VALUE OFFERINGS We provide a wide range of services to complement each stage of a business life cycle 60

Why us? 61

End of Presentation GIRISH RAMACHANDRAN M +6012 690 9600 E girish@27advisory.com.my #RebuildingHumanity