CIFCO’s future plans top the agenda for councillors later this month, as the property investment company looks to increase the £1.4m annual income it already generates for services in Babergh and Mid Suffolk – the equivalent of increasing council tax by more than 12%.
CIFCO Capital Ltd, which is wholly owned by Babergh and Mid Suffolk District Councils, was established 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.
Now councillors are being asked to consider CIFCO’s draft business plan for 2019/20 which, subject to approval at full council meetings later this month, will form the basis of its trading over the next 12 months – including the investment of a further £50m agreed by both councils back in February.
The plan, endorsed by the Joint Overview and Scrutiny Committee earlier this month, describes a “strong first full year of trading” but CIFCO chairman Chris Haworth admits that the board has had to contend with a changing market.
“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. This has meant that the board has had to consider acquisitions very carefully to reflect this changing market,” he said.
The portfolio of 12 properties is spread throughout the east of England and balanced across commercial sectors to minimise exposure to any one sector or location.
Each potential acquisition is carefully considered by an expert team of advisors and where target acquisitions are deemed too risky or not cost effective they are not pursued. While 12 properties were acquired, dozens more were ruled out.
“Where we haven’t been able to find the right property at the right price, we’ve revised our acquisition guidelines,” Chris added.
“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 31 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.”
Babergh District Council will consider CIFCO’s draft business plan at its meeting on Tuesday 23 July. It then goes before Mid Suffolk District Council on Thursday 25 July. You can view the council papers on our website and watch both council meetings live via the councils’ social media links.