County council trading arm This Land says 550 homes for Soham on track - but new report reveals growing list of financial pressures
PUBLISHED: 11:48 11 September 2019
A committee overseeing the arms length development company set up two years ago to buy county council owned land and then deliver major projects such as 570 homes at Soham will be told of a growing list of financial pressures facing it.
The county council commercial and investment committee that meet on Friday will hear that This Land Ltd - which has received £100m from the council to kick start its programme - has been obliged to re-shape its "financial modelling".
A report to the committee says This Land Ltd - that lost its finance director Corné van Tonder who was appointed last October - has indicated "increased costs from planning and construction as well as interest caused by delays".
These are put down to delays in reaching the construction stage and an overall increase in the borrowing the company will require.
"Within this the largest sensitivity and uncertainty the company faces is building costs," says the report.
This is put down to "the relative immaturity" of the construction supply chain to This Land, inflation, price volatility in the sector and current economic uncertainty.
"The council has requested a full financial review and refresh of projections and the committee will be approached for further loan advances on that basis," says the report.
The report says This Land remains in a "cash positive" position and able to repay and service the loans but there is an acceptance that not all sites within its portfolio will be profitable and the levels of risk are increasing.
Two actions are discussed in the report, firstly This Land's appointment of external advisors and secondly the council's own decision to appoint an external advisory firm to undertake a retrospective review of the Milton Road, Cambridge, development by This Land that included a new library.
The report notes that three quarters of the money loaned to This Land to date is not repayable until 2028-2029 but that in the meantime there will be "significant further loan financing arrangements going forward to enable the company to meet it overage obligations to the council". This will be used to develop and build sites and to service the interest arising on the total loan advanced.
The report says acquisition of land from the council has been completed for the foreseeable future but This Land reported problems with planning authorities.
"There are significant delays arising from this apparent in the summer of 2019 programme compared to plans as at October 2018," says the council report
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A confidential appendix being discussed by the committee will reveal details of the pressures on each site This Land is working on.
Although these have not been identified, a separate document leaked to this newspaper - This Land's 2019 business plan - reveals details of 23 sites that they had acquired from the council when the report was written at the end of last year.
This Land refuses to acknowledge the business plan as anything but "a draft" and insists it has "not been adopted by This Land" although it provides an insight into how the company is operating.
It also refers to delays on the Soham Gateway project and warned of the risks of acquiring land from the Bishop Laney charity and also what is termed Hobbs land.
Had this land not been acquired it could have dented the viability of the scheme but This Land said that while not wishing to "discuss confidential commercial matters, suffice to say the Soham project is on programme and on budget". A planning application can be expected shortly.
However the method of financing This Land reveals a fascinating projection of how the county council will reap its investment reward. In 2018 This Land anticipated borrowing at 5.75 per cent from the council for land loans but this has now risen to 7.05 per cent and to 8.72 per cent for development financing.
Lawyers at Shire Hall took legal advice on state aid and with the adjusted rates the 'draft' report said finance charges for This Land would rise from £60.4 million to £157 million.
But the financial director's report says the increase will not affect the overall return to the council. A "significant change to the format of the returns" for the council will mean overall returns will not be impacted.
"Returns are now in the form of finance charge repayments throughout the loan period, rather than less predictable dividends from the overall profits," noted the financial director.
A spokesperson for This Land™, said: "The committee report is a commercially sensitive, private document that is for discussion in the committee meeting and it would be inappropriate to discuss it publicly.
"As the company evolves, there are bound to be changes to the assumptions within the original business plan.
The spokesperson added: "We remain confident that we will deliver a large pipeline of high quality homes for the people of Cambridgeshire, whilst returning profits that positively impact the community."