Councils eye further property investments despite faltering income

CIFCO managing director Emily Atack said losses were only paper losses, and would not be realised unless the properties were sold. Picture: CIFCO (Image: CIFCO)

CIFCO Capital Ltd – owned by Babergh and Mid Suffolk district councils – invests borrowed money in commercial property to bring in vital income to the authorities and prevent cuts to services.

Despite a £3.5million loss last year, the company is pressing on with its plans to invest £40m borrowed last year that has yet to be used, and said it is targeting the industrial sector as well as supermarkets and drive-in units as part of efforts to spread the risk across different sectors.

MORE: CIFCO business plan eyes more investment despite two years of lossesBut during a joint scrutiny committee by the two councils on Monday where the 2020/21 business plan was assessed, it emerged that the expected level of rent collected across the portfolio of 14 properties was likely to be only 45-50% for the June quarter as a result of coronavirus.

Emily Atack, managing director of CIFCO, said: “We are estimating somewhere in the region of 45-50% but we all appreciate these are very uncertain times.

Councillor Kathryn Grandon raised fears that the deferred rental income could be lost entirely. Picture: KATHRYN GRANDON (Image: Archant)

“That rent is deferred, so we are expecting that rent to be received it’s just effectively being re-profiled to receiving that at a different time.”

It means that income for the three months to the end of June is likely to be limited after borrowing costs have been taken into account.

For the quarter ending in March, CIFCO bosses said that 70% of rent had been collected and explained that a further 5% was being collected on payment plans while around 20% had been deferred, meaning it would be paid but at a later date.

Scrutiny committee member Keith Scarff said: “How do we know that deferment of rent will eventually materialise? We have no guarantee that would materialise if a company’s trading position weakened in the next six-to-nine months.”

Councillor Kathryn Grandon added: “I am concerned these deferments may also be deferred [again] and end up simply not paying this rent.”

Last year, CIFCO income from property rent totalled around £1.6m.

The company has proved controversial as £100m has been borrowed to date, and largely invested outside of Suffolk – just one property is in the county.

But the company said it was spreading the risk by investing in a range of locations, as well as different sectors such as offices, retail and warehousing.

The business plan for the year ahead aims to invest the remaining £40m not yet spent, with a focus on the supermarket, drive-in and industrial sector to spread the risk.

Ms Atack said the company would “refocus away from high street retail” and added: “The board recognises the Covid-19 challenges, and in many ways these are mitigated by that balanced and diversified portfolio.”

Questions have been raised over holding office properties, as many companies were continuing to use working from home during the pandemic, but advisor to CIFCO Nigel Golder said it was their view that it would not materially change.

The company has also faced questions on why acquisitions were being made outside of Suffolk, with the company pointing to its business plan of there being a bias towards investing in East Anglia.

However it emerged that 40% of the portfolio was outside of the region.

MORE: What are the properties CIFCO owns?Ms Atack said that was money that “effectively comes from property that maybe outside of our district but that money was being brought into our districts and spent in our districts.”

Advisor to CIFCO Neville Pritchard added that there was no intention of investing in areas as far as Scotland, Wales or the north east of England.

The company generated a £3.5m loss last year, following the £3.1m loss in year one, and was expecting another loss at the end of this year because of the costs such as stamp duty and professional fees associated with acquiring property.

Ms Atack said the properties were long-term investments designed to bring in income, which they were doing, and added: “It’s in effect a book loss – they would only be realised in the event the assets are sold.

“CIFCO continues to deliver an income to the council, and that was the purpose of CIFCO being established.”

Councillor Jmes Caston said he thought the portfolio was “well chosen” but councillor Keith Welham said that the losses were still a concern for him.

The business plan will now go before each authority’s full council meeting for further debate.