Agenda item

The Cabinet received a report which provided an overview of how the joint venture Aylesbury Vale Estates (AVE), which was 50% owned by the Council, operates. It also summarised how AVE was performing against the current business plan and presented the draft business plan for 2021-2024 and the strategy for delivery. The Cabinet was invited to provide comments on the future business plan for consideration by the AVE Board.   It was noted that if the Board felt unable to make any changes required to the plan as a result of the feedback, this would be reported back to the Council.

RESOLVED –

i)                    That the performance of Aylesbury Vale Estates against the Strategy and Action Plan for 2020-21 be noted; and

ii)                  That the Strategy and Action Plan in the draft Business Plan for 2021-24 be agreed.

J Chilver, Cabinet Member for Property and Assets, introduced the report which provided an overview of how the joint venture Aylesbury Vale Estates (AVE), that was 50% owned by the council, had operated.  It also summarised how AVE was performing against the current business plan and presents the draft business plan for 2021-2024 and the strategy for delivery.  The Cabinet was invited to provide comments on the future business plan for consideration by the AVE Board.  Further information in support of the recommendation was contained in the commercially confidential Appendix 1 to the report.

The report included information including:

-          An overview of Aylesbury Vale Estates (AVE) and the background to the formation of the joint venture between the council and private investors who collectively form Akeman Partnership LLP.

-          That at inception, most of the AVDC’s property portfolio had been transferred to AVE but operational buildings assets had been  excluded. Several community assets such scout huts, doctors’ surgeries were also transferred but no sale or development could take place without AVDC approval.

-          That as part of the joint venture formation with Akeman Partnership LLP, the management was also contracted at the time of formation from AVE to Akeman Asset Management LLP. The latter was granted a 20-year contract to operate the portfolio from rent collection, asset management, debt management, accounting and reporting.

-          A Members’ Agreement, signed by both sides of the Partnership, set out in detail how the Partnership operated including the process if the council and the private sector partnership did not agree on a voting issue.

-          The management contract provided for quarterly asset management and financial reports to be presented at a meeting of the AVE representative members, with interim monthly reports as necessary. The agreement sets out in detail the delegation process, responsibilities, fee calculation, Key Performance Indicators and Key Performance Targets. Akeman report on these quarterly with an annual review.

-          As an LLP, AVE did not have a “Board” of Directors as such but representatives of both parties had 3 seats at the table.  The Council was currently represented by two Cabinet Members and one officer.  Each side of the JV had one vote at any decision making stage.

-          On the stated aims of AVE.

Financially, AVE was designed to distribute surplus profits both from revenue and capital sales, but it was not allowed to distribute any of the original equity. This meant that an asset acquired for £1m if sold for £1.25m, then £250,000 could be distributed but the remaining £1m must be reinvested.

AVE was now nearly 10 years old and overall has performed well over this period.  The starting portfolio was valued at £36.1m and the purchase by the JV had been financed by non-interest bearing loans from each member of £4m plus two loans from AVDC.  The senior loan was for £27.08m at 6% interest and the second £3.61m of mezzanine loan at 20% pa interest.  After set up costs this gave the members a combined net asset value of £5.9m.  The senior loan was not repayable for 20 years but did have amortisation at known rates commencing in year 3 of the partnership. The mezzanine debt had no amortisation but was repayable after 5 years.  AVE paid down the expensive debt as soon as it was able.

A further loan had been made to AVE to enable it to purchase the Hale Leys Shopping Centre. The acquisition was felt to be important (particularly by AVDC) to the longer term regeneration plans of the town centre and recognised, Hale Leys strategic location and its adjacency to other AVDC assets.  The first loan was for £2.9m at 7% interest.  £1m of this has already been paid back.  The second loan replaced the HSBC loaned at point of purchase - £5.5m at 4%.

The portfolio was valued annually and at the end of March 2019 had been valued at £44.94m with total debt of £32.42m giving members a net asset value of £12.5m an increase over the 9 years of 111% or £6.59m.  When considering returns to members over the life of the JV, the total return earned (income distributed plus value gained) comes to 11.2% per annum average over those 9 years.

AVE produced an annual 3 year rolling business plan towards the end of each calendar year for the members to agree.  Comments from the council democratic process were fed back to the AVE Board where the private investor partnership had the opportunity to review and raise any concerns. If this were the case, the matter would be referred back by the AVE Board to the council. Once agreed the plan is instituted for the following financial year which commences at the end of March. The AVE portfolio i.e. the assets included in the original transfer, is always reported separately to Hale Leys which has a separate account.

Summary of the 2020-2021 business plan and performance to date

The overall aim for the past few years had been to produce a self-sufficient portfolio, not reliant on sales, which paid all the AVE overheads, all amortisation and distributed £600,000 pa and still retained an annual profit.  The strategy in 2020-2021 to achieve this was:

-          Maintain high levels of occupancy across the commercial industrial and wider portfolio.

-          Maintain current tenants at Hale Leys.

-          Target annual distribution of £600,000.

-          Sale of high value land with low income - £300k for the council.

-          Improve Raban’s Lane management

Information on how the strategy had been delivered was included in the report, Notably, a distribution of £600k for 2019/20 had been paid in November 2020, and a further distribution of £600k for 2020/21 was forecast to be paid in March 2021.

It is difficult to predict with great certainty (because of the on-going Covid impact), what the final performance of the portfolio would be at 31 March 2021.  However, demand for industrial units continued to be high and as and when a unit becomes vacant, new potential tenants were quickly coming forward.  AVE expected to be able to meet its on-going amortisation payback commitments to the council.  The risk of not being able to do this was considered by AVE to be low.

Summary of the 2021-2024 business plan and strategy

The objectives for 2021-2024, remained the same as the current business plan.  However, there are some variations in the proposed strategy to achieve these:

-          Sale of high value/low income assets, for reinvestment in the portfolio through redevelopment of current sites.

-          Redevelopment of key assets and renewal / upgrade of old industrial stock.

-          Pay off expensive debt to reduce cost of finance and reduce amortisation.

-          Target a distribution of £600,000 pa.

-          Maintain current levels of occupancy within the industrial portfolio.

-          Hale Leys - maintain current tenants, let vacant units and improve future income stream.

-          Review all non-core and Category B (community assets) and sell/develop where possible.

In the 2021-2024 draft business plan, AVE was presenting a base and enhanced case for the AVE portfolio but just a base case for Hale Leys.  Each case was based on a different set of assumptions relating to the above strategy.  The assumptions were largely based around timing, value and market conditions, and were detailed in the report and in the confidential appendices.  These covered aspects such as the base case for 2021-22, anticipated sales, re-investment, development, letting assumptions, capital expenditure,

It would be important that the planning applications for the Stocklake and Raban’s Lane sites were processed in a timely manner. A pre-app agreement had already been entered into for the Raban’s Lane scheme. The Stocklake application would be submitted in the coming months.  The timing of any decision would impact AVEs ability to fund re-development of the above sites which are fundamental to improving portfolio revenue flows.

The impact of Covid would require on-going proactive management of the portfolio by the Asset Managers to support and retain existing tenants and where vacancies occur, attract new tenants. AVE will seek to continue to diversify the offer within Hale Leys as it has done in the last few years.

RESOLVED –

1)                      That the performance of Aylesbury Vale Estates against the Strategy and Action Plan for 2020-21 be noted; and

2)                      That the Strategy and Action Plan in the draft Business Plan for 2021-24 be agreed.