Agenda item

To consider Investment Opportunity 12.

The Director – Finance and Corporate Services gave a summary of the report, which detailed an investment opportunity that would be built into the 2021/22 budget and modelled into the new Medium Term Financial Strategy (MTFS) that would be prepared as part of the 2021/22 budget setting process.

The Director – Finance and Corporate Services summarised the advantages of Investment Opportunity 12. The Council had an opportunity to acquire a forward funding deal for a headquarters building including warehouse and research space in an established location. On building completion the tenant would sign a 35 year lease with no break clauses and a tenant option for a 15 year extension. The build was scheduled to start in January 2021 and would take 19 months to complete.

The developer had an option agreement on the site that expired on 31 January 2021 and both they and the tenant were keen to find a funding partner.

He said that the Council had had a bid (conditional on formal Council approval) for the freehold investment accepted at £35,000,000 which when the purchaser’s costs of £934,500 had been added gave a total investment of £35,934,500. With rental income of £1,558,000 p.a. this would give a yield of 4.34%.

It was suggested that a contingency sum of £2,065,500 be allowed in the approval for additional costs associated with a new build. Any such costs would be reflected in increased rent to continue to provide a 4.34% return on investment. As this was a forward funding deal, the Council would on day one purchase the land at a cost of circa £8,000,000 and would then pay the remaining balance, in monthly sums based on performance and signed off by the Council’s Quantity Surveyor over the life of the build.

It was proposed that the funding would be on the same basis as other recent Council investments through £28,000,000 (80%) interest only borrowing and £7,000,000 (20%) fixed repayment loan for 40 years. The total cost of financing once long term and fixed was £334,980 per annum.

The risks had been identified and were debated by Members.

Concerns were expressed about the credit rating of the guarantor. The Director – Finance and Corporate Services agreed for a review of the credit rating of the parent company providing the guarantee to be undertaken ahead of the request for Council approval.

Due to the company’s involvement in the defence market, members debated the need to balance the importance of expanding the Council’s property portfolio with the ethics risks of the investment. During discussion, it was noted that Cllr Khan agreed to work with officers and the Chair, to discuss ideas for the development of an Ethical Investment Policy.  

Members called for a recorded vote to be taken. The vote on the recommendations was as follows:

AGREED to recommend to Cabinet that:

a.    The purchase as set out in this report is agreed up to the sum of £38,000,000; and

b.    The funding should be split 80% interest only and 20% repayment funding.

c.    The purchase costs of £934,500 as set out in paragraph 29 are capitalised.

d.    The purchase is made as a direct investment by Uttlesford District Council on the basis that the investment is to generate funds to underpin core service delivery; the Council is not undertaking the investment for yield.

e.    A review of the credit rating of the parent company providing the guarantee is undertaken ahead of the request for Council approval.

The Chair thanked officers and the Committee for their work over the year.

The meeting closed at 6:02pm