Annual Review of the Investment Committee
The Deputy Chief Executive and the Development Manager (also covering Head of Landlord Services role) presented the Annual Review of the Investment Committee. Following the report, questions were invited:
A Member questioned the lack of options appraisal in the request to endorse a change in direction for governance arrangements and, constitutionally, how any new investment decisions will be made. The Member also queried the new regulations on borrowing for yield and annual review of existing investments for yield. In response, it was agreed that options appraisal will be included in the report to Council. It was explained that the Investments Committee was established with the intention to delegate a significant level of borrowing to deliver policy objectives and deliver yield.
Public Works Loan Board guidance infers that access to loans should not be made where significant modifications are to be made to existing commercial investments. It is important to consolidate existing portfolios maintained to the required standard.
A Member asked about the Broadway investment for rural broadband in hard to reach areas with wireless and wired access which changed to hardwired only. It was queried if the likely impact of the change in investment had been assessed and how progress is being monitored. It was explained that there are three investments referred to in the report: Broadway, Newport Leisure Park and Castlegate Business Park. The Broadway project involved a £1.9million commercial loan with Broadway Partners based on a policy decision reflecting that Monmouthshire had not benefitted from the Superfast Cymru rollout on an equal footing with the rest of Wales. This was due to the rurality of the County; the County was at 70% of the threshold of 30Mb+ speeds where other parts of Wales were at 95%+.
The commercial loan was predicated on four tranches of investment being released; each tranche triggered by meeting conditions. To date two tranches have been released. Credit facilities were made available due to the delays in receiving the funds from DCMS vouchers from UK Government on condition that the vouchers had been secured.
After this agreement, Broadway entered into negotiations with a Fibre Broadband market financier and attracted a significant amount of investment; a good proportion destined for Monmouthshire. The company has also changed its direction with the founder undertaking a new role and appointing a new chief executive. The Council will have to consider further release of investment or whether to recall the first two tranches of investment; discussions are in progress. In the interim, the credit facility has been made good and loan repayments are being made and the Council is receiving market rate interest on the commercial loan. The UK Government has moved to vouchers and funding for companies to invest in full fibre broadband. This will benefit Monmouthshire and the number of properties without the requisite connectivity has reduced from 11,000 to 2,000. The Council’s digital infrastructure plan will consider what it can/cannot do to reach the remaining 2,000.
A Member was concerned about the Newport Leisure Park and questioned if this asset might be better dealt with by the Investment Committee prior to its conclusion. An overview of Newport Leisure Park and Castlegate Business Park was provided. Castlegate was acquired in 2018 and the property was largely occupied by Mitel accounting for about 60% of the occupied space. A break clause was exercised in March 2022 creating a significant void to fill and a detailed marketing strategy commenced. In July an existing tenant (Wunda Group) expanded into 90,000sqft of the 138,000sqft vacated by Mitel. Ongoing live enquiries continue to reduce the remaining voids.
Newport Leisure Park was disproportionately affected by the consequences of Covid as most of the tenants were unable to trade for a period. Welsh Government's Covid hardship fund offset any rental losses that occurred for the for that period and now most tenants are back trading. Arrears have been settled with only two tenants with overdue rent for which negotiations are in hand. Planning approval has been granted for the letting of the former Frankie and Benny's unit to the Magic Bean Company (Starbucks). Unit 4 (formerly Pizza Hut) is the only vacant unit. Two prospective tenants are progressing terms. Despite recent news on Cineworld declaring bankruptcy in the United States, publicity has been issued that describes the UK situation as a company restructure with the impact to be borne by their shareholders and not by their customers or landlords. Two rental invoices have been paid in full and on time. The situation will be closely monitored.
As per the asset policy, the investment committee was asked to comment on whether these assets should be retained or disposed of should they fall below the target two percent return on investment. This was debated at Investment Committee and considering the impact of Covid has been significant, there remains a reasonable prospect of securing new tenants as evidenced by the lettings mentioned and there is a likelihood of return to the targets established by the asset investment policy. It was agreed both assets would be retained. Work to fill the voids would positively impact on the capital value of the asset should the Council wish to consider disposal.
As per the report recommendations:
1. The Committee has considered and scrutinised the performance review of the investment committee;
2. The Committee has reviewed progress against the investment proposals that were previously agreed by this committee and resulting from recommendations arising from the previous audit reports;
3. The Committee was satisfied with the verbal updates;
4. The Committee is content with the principle of dissolving the Investment Committee and to pass some elements of responsibility to the Performance and Overview Scrutiny Committee; details to be provided in a further report.
5. The Committee continues to assure itself that controls in place to maintain and monitor the Investment Portfolio remain as robust and appropriate.
6. Any future investment activity is subject to appropriate decision-making protocols as laid out in the Constitution noting that there will be further definition in due course.
- 20221107 Governance and Audit Committee - Investment Committee Performance Review v3 - covering report, item 8. PDF 383 KB
- 20221107 Governance and Audit Committee - Investment Committee Performance Review v3 - appendix A - Asset Inv Policy, item 8. PDF 815 KB
- Investment Committee Performance Review v3 - appendix B Capital Strategy and Treasury Management Strategy, item 8. PDF 680 KB
- 20221107 Governance and Audit Committee - Investment Committee Performance Review v3 - appendix C - Inv Committee ToR, item 8. PDF 159 KB