Agenda item

To receive a report by the Head of Resources regarding the Commercial Investment Strategy Business Plan.

Approves the:

 i.  Commercial Investment Strategy Business Plan attached as Appendix 2 of the Officer’s Report;

ii.  transfer of £6.8m from the Council’s General Fund balance to the Capital Investment Earmarked Reserve;

iii.  potential to borrow up to £35m from 2016/17 onwards to support the Commercial Investment Strategy. However, there will be ‘head-room’ to borrow a further £25m if commercial opportunities arise; and

iv.  That the Cabinet notes the Minimum Revenue Provisions Policy.

The Cabinet further instructs Officers as follows:

•  that the revenue investment of £2.5m, detailed in the Investment Schedule (attached as Appendix 3 of the Officer’s Report) for Quarter 3 of 2015/16 Financial Year, be invested without delay;

•  that the capital investment of £5m in respect of capital property shares and/or Real Estate Investment Trusts (REITS), subject to relevant due diligence, be invested without delay;

•  that an Action Plan be developed to ensure that the capital investments of £5m in respect of Direct Assets (Local Area) are acquired by the end of Quarter 4, 2015/16;

•  that Table 1, as contained within the Officer’s Report titled ‘Estimated Revenue Returns from the Commercial Investment Strategy’, be included in the Medium Term Financial Strategy; and

•  that, without delay, to complete a review of the Estates Service to enable the requirements of the Commercial Investment Strategy to be achieved.

RECOMMENDS

that Council approves the Minimum Revenue Provisions Policy for the Commercial Investment Strategy as detailed below:

‘For each capital investment undertaken under the requirements of the Council’s Commercial Investment Strategy, Minimum Revenue Provision will be made that is equal to the principal repayment for any loan finance supporting the investment’.

By way of a report from the Head of Resources (a copy of which is appended in the Minute Book) the Cabinet noted and recommended the Minimum Revenue Provisions (MRP) Policy for the Commercial Investment Strategy (CIS) to Council for approval.

The capital propositions included within the Business Plan that were to be financed from external borrowing were modelled on being financed by repayment loans. Consequently the annual principal repayment would equate to the MRP requirement.  As this was a new approach to MRP a new Policy was required to be approved by Council.

It was noted that through the operation of the CIS, there might be occasions when investment assets were sold. Within the Reserve Review Report, Minute No. 66 of these Minutes refer, the Cabinet approved that such capital receipts would be ringfenced for future CIS reinvestment in line with the Reserves Strategy.

The CIS was approved in October 2015 and the Cabinet had now needed to approve the CIS Business Plan.  Although the CIS covered a 9 year period with three distinct phases of development, the approved Business Plan related to Phase 1 and the period from now until the 31st March 2019.

The Council currently had existing investment assets (property) totalling £20.9m and it was proposed to invest a further £50m in commercial assets. The primary aim of the CIS was to generate a future income stream with a secondary objective of capital growth. After the payment of £2.2m in asset completion costs, the Councils total commercial asset portfolio at the end of the Business Plan period would be £68.7m, divided as follows:

Type 1: Existing Assets:    £20.9m

Type 2 and 3: Investment Fund and Property Shares:   £14.7m

Type 4: Direct Assets (Local Acquisitions):    £18.9m

Type 4: Direct Assets (National Acquisitions):    £14.2m

Regarding investments up to the end of the current financial year, it was proposed that these should not be financed from external borrowing.  Therefore the Cabinet approved the transfer of £6.8m from the Council’s General Fund to the Capital Investment Earmarked Reserve. By making investments directly from in-house resources meant that the Council could maximise returns and would not need to set-aside revenue funding in respect of the Minimum Revenue Provision.

In subsequent years the Council intended to borrow externally and the Cabinet approved the potential to borrow up to £35m from 2016/17 onwards to support the CIS. However, there would be ‘head-room’ to borrow a further £25m if commercial opportunities arose. 

It was noted that local government was only permitted to invest in one revenue property investment fund.  This was operated by CCLA Investment Management Limited and the CIS Business Plan included the investment of a total of £4.7m by the end of 2016/17.

The intention of the Council was to reduce reliance on Central Government funding and to create a sustainable financial platform.  This would negate the need for discussions about funding the Council was likely to obtain and the resulting impact on the Budget and its services.  In order for the Council to produce a yield at the earliest opportunity, to achieve its aspirations, the Cabinet agreed to instruct Officers as follows:

•  that the revenue investment of £2.5m, detailed in the Investment Schedule (attached as Appendix 3 of the Officer’s Report) for Quarter 3 of 2015/16 Financial Year, be invested without delay;

•  that the capital investment of £5m in respect of capital property shares and/or Real Estate Investment Trusts (REITS), subject to relevant due diligence, be invested without delay;

•  that an Action Plan be developed to ensure that the capital investments of £5m in respect of Direct Assets (Local Area) are acquired by the end of Quarter 4, 2015/16;

•  that Table 1, as contained within the Officer’s Report titled ‘Estimated Revenue Returns from the Commercial Investment Strategy’, be included in the Medium Term Financial Strategy; and

•  that, without delay, to complete a review of the Estates Service to enable the requirements of the Commercial Investment Strategy to be achieved.

The Cabinet was mindful of wanting to provide the best service for the residents of the District whilst at the same time mitigating risks in investing Council Tax money.  The Cabinet was informed that borrowing was expected to be from the Public Works Loans Board and the investments within the CIS Business Plan repayment loans were expected to be the preferred form of loan finance.  If loan rates were found to be cheaper at other financial institutions the Council would take appropriate advantage, providing that the institutions were included within the Council’s Treasury Management Strategy.  It was noted that investments had been developed around a medium term financial return. 

Having expressed appreciation to the Executive Councillor for Resources, Corporate Director (Services) and Head of Resources, the Cabinet

RESOLVED

to approve the:

 i.  Commercial Investment Strategy Business Plan attached as Appendix 2 of the Officer’s Report;

ii.  transfer of £6.8m from the Council’s General Fund balance to the Capital Investment Earmarked Reserve;

iii.  potential to borrow up to £35m from 2016/17 onwards to support the Commercial Investment Strategy. However, there will be ‘head-room’ to borrow a further £25m if commercial opportunities arise; and

iv.  That the Cabinet notes the Minimum Revenue Provisions Policy.

The Cabinet further instructed Officers as follows:

•  that the revenue investment of £2.5m, detailed in the Investment Schedule (attached as Appendix 3 of the Officer’s Report) for Quarter 3 of 2015/16 Financial Year, be invested without delay;

•  that the capital investment of £5m in respect of capital property shares and/or Real Estate Investment Trusts (REITS), subject to relevant due diligence, be invested without delay;

•  that an Action Plan be developed to ensure that the capital investments of £5m in respect of Direct Assets (Local Area) are acquired by the end of Quarter 4, 2015/16;

•  that Table 1, as contained within the Officer’s Report titled ‘Estimated Revenue Returns from the Commercial Investment Strategy’, be included in the Medium Term Financial Strategy; and

•  that, without delay, to complete a review of the Estates Service to enable the requirements of the Commercial Investment Strategy to be achieved.

The Cabinet also RECOMMENDED

that Council approve the Minimum Revenue Provisions Policy for the Commercial Investment Strategy as detailed below:

‘For each capital investment undertaken under the requirements of the Council’s Commercial Investment Strategy, Minimum Revenue Provision will be made that is equal to the principal repayment for any loan finance supporting the investment’.