Councils to consider CIFCO Business Plan for 2020/21 as investment company helps them to weather the COVID-19 storm
Posted by Jessica Metcalfe, Babergh & Mid Suffolk District Council
14 July 2020
Property investment company CIFCO has met payments to Babergh and Mid Suffolk District Councils in full again this quarter – providing vital funds for services, as traditional income is hit by COVID-19.
Despite fears that the coronavirus pandemic would leave CIFCO exposed, the company succeeded in making last quarter’s payment to the councils in full, citing rigorous risk management and a diverse portfolio for helping them collect a higher proportion of rent from their tenants than the current industry average.
The income received from CIFCO allows the councils to meet loan repayments plus provides extra income on top to plough back into council services – at a time when the virus has significantly affected other ‘traditional’ income streams, such as council tax and business rates.
CIFCO, which is wholly owned by Babergh and Mid Suffolk District Councils, is due to present its third annual business plan to councillors at Full Council meetings later this month, detailing its performance over the last year and its investment strategy for the forthcoming year – with industrial and office space as the main targets for investment – with the plan endorsed by Joint Overview and Scrutiny last month.
Both councils will also consider motions (from Green party councillors in Mid Suffolk and Green and Labour party councillors in Babergh) calling for a halt to further CIFCO investment. These motions will be considered as part of the same Full Council meetings.
Through CIFCO, the councils benefitted from £1.633m of net income after costs in 2019/20. This is the equivalent to 10% of the councils’ annual staff costs or a 13.5% increase in council tax.
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.
Cllr John Ward, Leader of Babergh District Council, said:
“CIFCO’s performance is providing significant returns to the council, even in these unprecedented times. We have become far more efficient over recent years, achieving savings of £17.4m since 2011 through improved efficiency, better technology and the ‘working together’ partnership between ourselves and Mid Suffolk District Council, but we still need to be imaginative in looking for additional income sources.
"We can no longer depend on Government support, business rates are set centrally and are beyond our control and we are limited by law in setting council tax rates. All local authorities are facing similar challenges and are becoming more entrepreneurial in response.”
Over the last 12 months, CIFCO has acquired two additional properties taking the total number in the portfolio up to 14, located largely in the east of England and balanced across commercial sectors to minimise exposure to any one sector, tenant or location. Throughout the year the CIFCO Board considered almost 80 opportunities, rejecting most, and only progressing those that best meet the investment criteria and most benefit the balance and risk profile of the portfolio as a whole.
Councillors are now being asked to consider CIFCO’s performance and business plan for 2020/21 which, subject to approval at Full Council meetings later this month, will continue to provide a framework and guidance for trading over the next 12 months.
Commenting on the company’s performance and impact of coronavirus, 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.”
Last year the councils approved the CIFCO fund being increased from £50m to £100m. To date, approximately £60m has been invested by CIFCO. Within this year’s business plan, the timescale within which to invest the remaining £40m has been adjusted from April 2021 to October 2021 due to COVID-19 market impact.
The CIFCO accounts for the year ending March 31 2020 also show a paper loss of £3.5m which is made up of one-off acquisition costs for the two new assets (including stamp duty and fees) as well as a re-adjustment on the value of the portfolio as whole. This loss would only be realised if the investments were sold in the current market.
Cllr Suzie Morley, Leader of Mid Suffolk District Council, 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 anything. 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 will go before Full Councils on 21 and 23 July.