8 comments on “A Great News Story? – I Think So!

  1. A very clear explanation, that makes perfect sense. I am deeply disappointed in the press reporting in this country. It seems sloppy and salacious. All they want is headlines, they don’t care about the truth.

  2. I wholeheartedly support the EHDC initiatives. If other areas of government were as creative and positive as this much of the ‘austerity’ would not have been needed.

    Many ‘local newspapers’ are editoriallly lazy and frequently in financial trouble. The sad fact is that they are fast becoming irrelevant in this digital world.

    • Sadly there was no apology in the local paper this week, merely a reference to a new page on EHDC’s website listing these investments.

      In my view EHDC is to be congratulated on a sensible investment policy, I would like to see more investments in EHDC’s area, but RoI (Return on investment) & security must be paramount.

  3. What about the risk profile of these investments? In a relatively buoyant economy it is fine. However we are already hitting choppy waters ahead of a Brexit-led tsunami. Look at the portfolio… 75% is in just five properties – four outside our area, not a problem in itself if we really understand the economic forces in these other areas. Over 38% of the portfolio is in just one – a Tesco store. It is vastly over-propertied sector (the groceries talk about the ‘S’ word – ‘saturation’ with real trepidation… with online and discounters very real threats. The most recent (£11.5m) is basically an internal call-centre for Rolls-Royce plc – the aero engines and ‘power solutions’ company that competes with a massively bigger US rival (GE) and has been reducing its UK workforce for the last 20 years.
    It is great if all these properties remain occupied with tenants who are able to pay the rents agreed. Almost every retail company is trying to reduce rents. Empty properties (‘voids’) are a huge risk – Liphook services being a case in point. Thank heavens that that is one of the ‘minnows’ in the portfolio. The whole point about managing risk is to spread it… ask any investment expert. What EHDC has done is to take a massive gamble on the UK commercial property market. Fine while it lasts. What is the contingency plan for a crash in that market?

    • Hi Steve

      Every building we purchase has a ring fenced pot where 2% of the capital is held each year. So, for Tesco during the next 11 years they are tied into their lease aside from the revenue we generate we also bank 11 x 0.02% x £45m = £9.9m to pay off the equity. It is difficult to see Tesco in this strategic location disappear as it has a massive catchment area.

      Our investment portfolio has a blended mix of sectors and you are distorting the figures here – our fund total is about £230m so £45m of this is 19% not 38%.

      Each of the properties we purchase, including Rolls Royce, is with a strong walt. we are not looking to buy up anything that comes along and for the 12 or so buildings we have recently acquired we have rejected a further 200. Rolls Royce infact has been growing several markets including jet engines with Airbus and other market sectors.

      We will also have properties that become vacant – that is inevitable. A proportion of the income is also taken to fund a vacancies pot (as well as a maintenance and a contingency pot).

      Some of the properties we have also purchased with a view to redevelopment in the short term future by changing the land use to residential. It is also worth noting that £30m of the property we own outright with no debt.

      Finally we are audited by several external organisations, have direct advice from large commercial property fund operators and employ key people with a working career in building up successful portfolios.

      As to the risks of Brexit – voting to leave the EU was a damn silly thing for us to do and it is inevitable that there are some consequences. Like every other public and private organisation we need this to have as least damaging an outcome as possible.

      I hope this helps, Guy.

  4. Thank you for replying Guy. Whilst there is some reassurance from the safeguards you mention they still don’t answer my fundamental objection: such a big exposure to the UK commercial property market. I haven’t ‘distorted’ anything – just used the information on the EHDC website accessed via the link you kindly provided. It shows an investment total of almost £103m. If there is something wrong with that information it needs to be updated/corrected. You mention a total of £230m – so what is the other £117m invested in? Even if it is not in UK commercial property, that still means almost 45% of the portfolio is. What proportion of the existing UK property portfolio is earmarked for residential development, over what timescale, with what chance of successful planning consents? There is risk after risk here. What do the independent audit reports say about the total level of risk and the appropriateness of a public body adopting such a risk profile?
    Couldn’t agree with you more about Brexit… however, it does change the risk environment and surely demands more cautious investment strategy until there is more certainty.
    I suspect we are not going to convince each other on this!

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s