A council-owned property investment company’s plans to increase its annual income is due to be debated by two councils next week.
Babergh and Mid Suffolk District Councils will consider their joint-owned company CIFCO’s business plan at meetings on Tuesday and Thursday respectively.
The plan will form the basis of the company’s trading over the next 12 months – including the investment of a further £50million agreed by both councils in February.
CIFCO was formed in 2017 to generate income from property investment and plough it back into council services.
The 2019/20 business model describes a ‘strong first full year of trading’ but the company’s chairman Chris Haworth admits that there are further challenges to be faced.
“This year has presented a number of challenges, in particular the disruption in the retail sector and the growth in the warehouse sector, driven by the expansion of on-line shopping,” he said.
“This has meant that the board has had to consider acquisitions very carefully to reflect this changing market.”
The company has a current portfolio of 12 properties which is spread throughout the east of England and balanced across commercial sectors.
Any potential buy will be considered by an expert team of advisors before a decision is made whether to press ahead.
“Where we haven’t been able to find the right property at the right price, we’ve revised our acquisition guidelines,” said Chris.
“This has meant an overall portfolio yield of 5.75% – slightly below the original target of 6%, but with a lower risk profile than originally expected. In other words, it’s a safer portfolio in terms of risk, but because the stakes are lower, so are the potential rewards.”
The CIFCO accounts for the year ending March 2019 show a loss of £3.1m, with one-off costs of acquiring the assets (including stamp duty and fees of approximately £1.5m), which were anticipated, and an adjustment in valuation on some assets, particularly in the retail sector – reflecting the malaise in the High Street and validating the CIFCO board’s move towards the office and industrial sectors instead.
Cllr David Busby, cabinet member for assets and investments for Babergh District Council said: “In the short-term property values may fall but over the longer term we expect our quality investments to not only return a generous rental income but also show capital growth.
“If you buy a house to let, you know you’re going to have one-off costs in the first year such as legal fees and stamp duty. Over time you’ll also see the value of the house fluctuate – but the important thing is the income that you’re getting from the rent, which in the case of CIFCO, is £1.4m a year towards council services for our residents.”
Cllr Suzie Morley, cabinet member for assets and investments for Mid Suffolk District Council said: “Like all local authorities, we are under unprecedented financial pressure to deliver services to our residents. By careful investment through CIFCO we can generate alternative sources of income rather than make reductions to our services.
“We often hear the accusation we should be investing in our own districts rather than in property elsewhere – but it’s not ‘either/or’. The rental income we receive from the properties is reinvested within our districts, enabling us to invest in local regeneration and in meeting the needs of our residents.”
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