long term financial strategy asset management planning · edinburgh – travelodge (march 2014)...

www.mansfield.gov.uk Kate Allsop

Executive Mayor

Long Term Financial Strategy Asset Management Planning


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Overall Programme Aim

To develop an understanding of the full context within which the Long Term Financial Strategy is

delivered.

This will further ensure that the content of the Long Term Financial Strategy is supported and

embedded across the District Council.


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Asset Management & Investment

Learning Outcomes

Understand the principles of sound asset management, specifically 5 Q methodology.

Apply this knowledge to create a balanced property portfolio.

Ensure delivery of Mansfield’s Investment Strategy is considered when making any key financial decision.


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MDC, along with many other local authorities, has not been immune from budget pressures

and with the financial outlook unlikely to change in the short to medium term, the council needs

to find new and innovative ways of creating additional revenue.


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Context

Create a balanced sustainable portfolio

Optimise the financial return, both revenue and capital growth.

To Identify Savings and/or New Income Streams.


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Balanced Sustainable Portfolio

• Property Sector

• UK Property Market

• Trends

• Property Cycles

• Investment Yields

• Risk and Reward


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Content

The 5Q Model

Background

Investment Strategy


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Fundamentals of Asset Management 5Q Matrix Model 1. Financial

2. Location

3. Building

4. Lease

5. Tenant


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Financial

- Return on Investment (Initial Yield)

- Tenure

- Vacant Space based on Income/ Occupancy Rate (Multi-let)

- Management Per Asset

- Asset Value/ Purchase Price

Location

- Location (a)

- Location (b) Quality of Location Relevant to Property Sector


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Building

- EPC Rating

- Property Condition

- PPW Liability (Estimated Costs)

- Future Let ability/ Alternative Use

Lease

- Unexpired Lease Term

- Break Option

- Rent Review Structure

Tenant - Tenant Covenant Strength


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5Q Methodology

• Consequences of not following the methodology

• Risks

• Rewards

• Potential financial impact


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Background

Property Portfolio Organically Evolved

Acquired Properties including Regeneration Projects

Limited Investment – Maintenance

Rent Roll

£5M+ Return Income per annum

Commercial Lettable Units

Investment strategy to streamline portfolio

Commenced New Acquisition Programme


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Modern Portfolio Acquired:

Edinburgh – Travelodge (March 2014)

Doncaster Lakeside – Travelodge (June 2015)

Clapham – Residential /Offices (Jan 2017)

Manchester (Gorton) – Pure Gym (Jan 2015)

Glasgow (Baillieston) – VW Group (Feb 2017)

New Revenue Income Stream £1.6M per Annum £23.9M Capital Investment (2014 – 2017)


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Learmonth Travelodge, Edinburgh

Cost - £8.23M

Rent - £546k pa

Rent Review June 2018 to £615K

Yield – 7.47%

Acquired in March 2014


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Pure Gym, Gorton, Manchester

Cost: £1.58M

Rent: £144k pa

Rent Review Sept 2018 £163K

Yield: 10.3%

Acquired in January 2015


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Lakeside Travelodge, Doncaster

Cost: £4.8M

Rent: £331k pa

Yield: 6.87%

Acquired in June 2015

Update: Rent increased to £358k pa from Dec 2016


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50-52 Bedford Rd, Clapham, London

Cost: £5.95M

Original Rent: £304k pa

Rent review annually – now £330K pa

Yield: 5.3%+

Acquisition completed January 2017


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Glasgow – VW Group

Cost: £2.98M

Rent: £156k pa and Rising to £172k pa Oct 2019

Yield: 5.25%+

Acquired Feb 2017


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5Q Disposals – Phase 1 – 100% Complete


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Disposal Considerations… Achieve ‘Best Consideration’

According to Sec.123 LGA

Budget Implications Timing of Disposals/Acquisitions Impact on Revenue Stream – Loss of Rent In-ability to Sell Assets at Asset/Capital Value

Identify Best Method of Disposal Demand/ Market Appetite Special Purchaser Interest Phased Approach – Not to ‘Flood’ the Market

Prepare Property for Sale Resource Management

Legal and Property Services


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Transformation Investment Strategy To invest in commercial property to generate a sustainable

income stream, preserve value and add opportunity for capital growth

To maintain a low risk profile To generate a gross income yield in excess of 4.5% across

the portfolio To manage risk across the portfolio by diversification To prudently invest additional capital of £55M over 4 years Appointment of Lambert Smith Hampton Investment

Management


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New Acquisitions

Cost: £6.5M

Rent: £335k pa

Yield: 5.15%

Acquired Oct 2018

Wickes – Loughton


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Direction of Travel Going Forward…

Improved Return from Investments

Secure/Sustainable Return Fewer Assets Less Management


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Review of Physical Assets

• Depots

• Civic Centre accommodation

• Parks and open spaces

• Residential development opportunities


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Summary

To do ‘More with Less’ by:

Review of underperforming assets Limited Potential for Rental or Capital Growth

Disproportionately High Resource Costs.

Create a resilient commercial investment portfolio Fewer assets

Generate a secure rental income stream with good prospect for long term growth (in rent and capital value)

Minimises exposure to risk

Minimises management costs/resources


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Recap

Learning Outcomes

Understand the principles of sound asset management, specifically 5 Q methodology.

Apply this knowledge to create a balanced property portfolio.

Ensure delivery of Mansfield’s Investment Strategy is considered when making any key financial decision.


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Any Questions?

long term financial strategy asset management planning · edinburgh – travelodge (march 2014)...

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