Risk
The risks of acquiring land, property and infrastructure may be mitigated through the acquisition of assets with secure, long term income streams, although this risk will be weighed up against the social and economic benefits of acquisitions to support commerce and trade in the District. Each opportunity’s risk profile will be appraised individually and mitigated or accepted accordingly.
Acquisitions are to be made in a careful and controlled manner, aligned to the corporate strategy, with specific analysis of risk criteria carried out in the ‘due diligence’ stage prior to the completion of each purchase.
The Council’s due diligence procedures are set out in detail in Section 5.3 of the Council’s Investment Strategy. The Council’s Investment Strategy also sets out Investment Indicators such as debt to net service expenditure ratio and regeneration and income to net service expenditure ratio.
Each unique project will have its own set of risks and challenges, but where tenants are a feature those with strong financial standing and long unexpired lease terms will be preferred. It is recognised however that some regeneration projects are centred around poor tenant strength and typical high street issues. These criteria will be considered on a case by case basis and in order to meet the strategy objectives.
Risk of loss (Para 41 SGLGI) shall be assessed on a case by case basis as part of the acquisition or investment due diligence and will be a criteria considered throughout the approval process. Risk of loss during the management phase of the investment shall be reported in accordance with the criteria below.
In accordance with Para 23-25 of the Statutory Guidance on Local Government Investments (SGLGI), quantitative indicators or risk and portfolio performance will be reported to Audit Committee. The frequency of this reporting is anticipated to be every 6 months and will include the following indicators (as applicable):
- Rental value by property (or land parcel)
- Rental value by tenant
- Sector split by purchase price
- Purchase price
- Rental income profile
- Tenant lease length
- Gross Yield
- Management, Maintenance and Risk Mitigation Reserve (MMRM) value
- Current value
- In the case of an SPV, relevant criteria shall be reported depending on the nature of the SPV.