Cabinet Member for Assets & Investments

119.1         The Chair welcomed Chris Haworth, Chair of CIFCO Capital Ltd., Henry Cooke, CIFCO Director, Mark Sargeantson, CIFCO Director and Nigel Golder, Director – Strategic Asset Management, Jones Lange LaSalle.

119.2         She advised that she like to deal with this item mainly in the open session and asked Members not to refer to individual tenants.

119.3         She then invited the Cabinet Member for Assets and Investments to introduce the report.

119.4         Councillor Gould said that the report detailed CIFCO Capital’s performance over the last 12 months and the proposed business plan for the next 12 months. The business plan was a fundamental part of CIFCO’s governance and ensured accountability to its shareholders. CIFCO had provided Babergh and Mid Suffolk Councils with approximately £3m of net income since its inception in 2017. Approximately £1.6m was received in the last financial year. CIFCO had collected over 70% of the March quarter rent and consequently were able to make the full debt repayment to the Councils in March. Whilst difficult times remain ahead with the continued impact of COVID 19, the proposed business plan sought to continue the investment of the 2^nd tranche of funds approved by Council last year and in doing so to further diversify the portfolio away from High Street retail focusing on the industrial and alternative sectors and to continue to deliver and grow this important revenue stream for the Council and create a long term legacy for Council.

119.5         Councillor Gould MOVED recommendations 3.1 and 3.2 in the report, which was SECONDED by Councillor Meyer.

119.6         Councillor Matthissen questioned the value of the equity and if the value supported the loan of the properties. The Assistant Director – Assets and Investments responded that the equity value was 10% and the loan value was 90%. The property value had been established on the 31^st of March, then end of the financial year and the capital expenditure was greater than the value of the property listed.

119.7         In response to further questions from Members, she continued that the costs of the acquisition was approximately £3.5m to date, the value of the portfolio was less than the debt incurred, however the rental income had been sufficient to repay the debt owed to the Council.

119.8         The Assistant Director – Assets and Investments would respond outside of the meeting to Councillor Mellen’s further questions regarding the reduction of equity and portfolio.

119.9         Henry Cooke explained that the value of the equity had been reduced but this was a paper loss, and he expected this to improve over the next few years.  He added that the impact of the Covid-19 Pandemic had been relatively low, and the portfolio was still generating an income.

119.10      Councillor Eburne asked that only Mid Suffolk figures were quoted.  She then queried which was the largest proportion of the £545K administration costs and how recent changes in the investment market had changed the remainder of the investments for CIFCO.

119.11      The Assistant Director – Assets and Investments responded that the largest part of the administration costs were management costs and third-party advisors.

119.12      Chris Haworth responded to the second question and explained that the strategy was revised every year to reflect changes in the investment market. The retail market had changed enormously, however the industrial market was a strong market.  At each Board meeting, the property market was assessed, and the best opportunities were sought for investments for CIFCO.

119.13      Nigel Golder said that diversity was key and that only 15% of the portfolio was invested in retail property. However, consideration for the quality of tenants was important and not to have too many investments in one particular area, sector or tenant.  He added that the June rent collection had improved.

119.14      Councillor Amorowson enquired about the cost of the acquisitions and the Assistant Director- Assets and Investments responded that until the investment period had been completed, acquisitions costs would continue to be incurred. It was expected that the company would break even, when full investment had been completed in accordance with the Business Plan in October 2021. She expected that the impairment would continue until end of the financial year in March 2021.  She was unwilling to predict the value of the portfolio ahead of time and it was not possible to forward predict the market.

119.15      Councillor Scarff enquired when the deferral rent would be collected by CIFCO and Chris Haworth responded that it was expected to be fully collected up to a maximum of two years. He continued that CIFCO was working with tenants to solve the issues, but he recognised that some businesses were in genuine difficulties.

119.16      Upon the request of Councillor Morley, the Board Members provided a brief summary of their professional careers and experiences and the process for acquisition, as detailed in paragraph 10.9.

119.17      Councillor Welham asked why the timescale was being debated before the annual accounts were available, as the decisions were based on accounts which were twelve months old.  He also asked why there was not a strategy for the sale of assets for CIFCO.

119.18      The Assistant Director – Assets and Investments responded that the Business Plan used the information for the financial year ending 31^st March 2020.  As a registered trading company, the annual accounts were published at Company’s House and the accounting information was used for the planning of the business and consolidated with the Councils’ own account.  With regards to an exit strategy or divestment for the assets, the shareholders had sought the company to build a portfolio but had not asked CIFCO directors to consider divestment of assets at this point. Although the directors would consider this if appropriate/opportune. However, any sales at this time would realise losses and it would be a better strategy to hold on to the assets until the market improved.

119.19      Chris Haworth added that the role of the Board was to evaluate the best possible way to manage the assets, and when it would be the a good time to sell, he thought it was too early now to sell any assets, however this would not prevent CIFCO from doing this in the future.

119.20      Councillor Stringer referred to the original Strategic document and asked for confirmation if CIFCO only invested in sites, which could easily be changed in planning terms. 

119.21      He then asked about the rental income in March, which was impacted by the Furlough scheme, business rates grant and the uncertainty of the exit from the EU.  He wondered if the collection of rents would be harder once these issues had been resolved.

119.22      Chris Haworth explained that the Board of Directors considered all aspects of the assets when acquiring them, including the possible change of use.

119.23      The Assistant Director - Assets and Investments added that the rent collection in March was influenced by the Covid-19 Pandemic and it was difficult to predict the market under these circumstances.

119.24      In response to Councillor Pratt’s question regarding the re-evaluation of equity, The Assistant Director – Assets and Investments, responded that the equity element and the re-evaluation was a percentage of the overall portfolio value as a whole, and was valued on the 31^st of March.

119.25      Members debated the report and Business Plan on issues including:

·    That some Councillors and the public were poorly informed, partly due to the media put out from the Council, which some Councillors felt did not present a balanced message.

·    Whether the approval of the Business Plan could be deferred until the next set of accounts became available, albeit the business plan had been prepared using the draft accounts to 31^st March 2020.

·    That the Council should not be investing in an arms-length vehicle such as CIFCO.

·    That the performance of CIFCO was not solely due to Covid-19 and that the loans were still outstanding, and that the equity value had depleted significantly.

·    That investing outside the Eastern region was not acceptable, as this had been the original purpose of CIFCO.

119.26       Councillor Mansel asked if the recommendation could be voted on separately and the Chair agreed to this.

119.27       Councillor Gould summed up the debate and thought that the issues had been debated thoroughly.  He thanked the Board of Directors and the Assistant Director for their work and contributions made at this meeting.

119.28       Recommendation 3.1 was put to Members for voting and the vote was TIED.

119.29       The Chair used her casting vote and the vote was CARRIED.

It was RESOLVED: -

1.1       That Council notes CIFCO Capital Ltd.’s trading activity and performance for the year to 31^st March 2020.

119.30      Recommendation 3.2 was put to Members for voting and the vote was TIED.

119.31      The Chair used her casting vote and the vote was CARRIED

It was RESOLVED: -

1.2       That Council approves CIFCO Capital Ltd.’s 2020/21 business plan for adoption by CIFCO Capital Limited.