Selling a research park near Cambridge makes for good business, explains the district council’s portfolio holder for Finance and the Economy
Uttlesford District Council is selling one of its seven commercial investments – Chesterford Research Park.
I thought it would be useful to explain why and what the benefits are.
There is a significant capital gain to be made and the government requires that such assets be sold. The rental income from it, compared against its selling price is less than half the return from some of our more recently purchased assets, so it is also a good time to sell.
An attractive buy
CRP is a magnificent facility and a new owner with different financial objectives, bigger resources, and without the government restrictions on councils, will find it an attractive buy. The total value of the commercial portfolio is about £20m more than was paid for it and every tenant has paid every rent on time. Further, its value is £269m but the external borrowings are only £209m. So the investments are worth about £60m more than the borrowings.
This difference is made up of the £20m capital gain, internal borrowing from cash in hand, and paying down of the borrowings. The sale proceeds after tax, assuming a satisfactory price is obtained, will be used to pay off more shorter-term loans. The resulting reduction in interest payments will be a benefit to the General Fund which pays for vital council services.
Not an urgent sale
The sale has not been included in the 24/25 the budget as it is not urgent. The commercial portfolio is showing a £1m profit after interest, rising in 25/26 to £2.8m and £6.1m in 28/29. Unfortunately, the government requires that much of these profits be used to reduce borrowings to zero instead of the intended use on council services. This implies a belief that freehold land and buildings with top quality tenants, and upwards only rent reviews, may become worthless. Even with these mandatory debt repayments we are on track for a usable surplus of £3.1m, and if the asset sale goes ahead the surplus will be greater.
The council is in a sound financial position, with a budget for 2024/25 balancing income and expenditures and some use of savings, and cautious plans for the next five years, factoring in another £7m of government funding cuts. But there is no complacency, and we will press on with our projects to improve incomes, service efficiencies and cost control, and which have already brought over £2m of financial benefits.
Neil Hargreaves is a district councillor for the Residents for Uttlesford party and has responsibilities for Finance and the Economy at the local authority.