CIFCO to continue to generate vital funds for councils
Posted by Jessica Metcalfe, Babergh & Mid Suffolk District Council
24 July 2020
Councillors at both Babergh and Mid Suffolk District Councils have this week approved plans for property investment company CIFCO to continue to bring in funds to support the districts’ recovery.
Councillors at Mid Suffolk District Council approved CIFCO’s business plan at its Full Council meeting last night (Thursday), following Babergh District Council’s green light on Tuesday.
CIFCO Capital Ltd was established jointly by Babergh and Mid Suffolk Councils in 2017 to generate income through property investment which is then ploughed back into council services within the districts to offset reductions in funding from central Government. Since its launch, almost £3m has been reinvested into council services.
Last year it generated £1.633m of net income for the councils – equivalent to 10% of the councils’ annual staff costs or a 13.5% increase in council tax – and continues to generate revenue at a time when the coronavirus outbreak has significantly affected other ‘traditional’ income streams, such as council tax and business rates.
Despite fears that the pandemic would leave CIFCO exposed, the company has succeeded in making all repayments to date in full, citing rigorous risk management and a diverse portfolio for helping them to collect a higher proportion of rent from their tenants than the current industry average.
Cllr John Ward, Leader of Babergh District Council said:
“The company’s performance, despite the coronavirus crisis, shows the resilience of our portfolio – and this is a testament to the board, and also to the value of our overview and scrutiny process. It shows that the commitment to further investment that both councils made is the right way forward: allowing further diversification of the portfolio which is continuing to provide steady and much needed income for the benefit of both councils and our residents – ensuring we can continue to provide services without reductions or cuts.”
The company’s investment strategy for the forthcoming year focuses on industrial and office space as the main targets for investment. Its purchase of a health centre in Nottingham earlier this week, brings the total number of properties in the CIFCO portfolio up to 15 – and further diversifies its range of tenants to minimise exposure to any one sector, tenant or location, although properties are largely based in the East of England.
CIFCO Chairman Sir Christopher Haworth, said:
“The impact of Covid-19 has been felt up and down the country and while CIFCO is not immune, our investment strategy has resulted in better than industry average rent collection at the current time. Rents received exceed any borrowing costs that need to be covered by the councils and continue to provide a net income. Our business plan is setting the parameters for investment over the next 12 months meaning we can move swiftly, invest wisely and continue to bring in income for the councils to support service delivery and aid the districts’ recovery post-Covid.”
Councillors also heard how the company’s accounts for 2019/20 show a paper loss of £3.5m, made up of expected acquisition costs (including stamp duty and fees) and a revaluation of the portfolio in March – reflecting the uncertainty of the market during the coronavirus outbreak.
Mid Suffolk District Council Leader Cllr Suzie Morley said:
“As with any investment, there will be initial, one-off costs and over time property values will fluctuate – but these losses would only be realised if we wanted to sell in the current market. We have no plans to do this for as long as they are bringing in valuable, regular income to the council and helping us stave off reductions to our services for residents.
“Our long term goal is to hold a valuable portfolio, producing income and capital growth, as a legacy for future generations. In the meantime, CIFCO is generating income that can already be seen in our districts – enabling us to invest in local regeneration, including social housing and economic growth, and help our region’s recovery.”
The plan also received endorsement by cross-party Joint Overview and Scrutiny last month.