North Lanarkshire Properties LLP - Performance Indicators- 13 January 2022 - 27 July 2022 and Financial Performance as at 22 July 2022
North Lanarkshire Council · 30 November 2022
Back to Finance and Resources Committee — 30 November 2022 and its agenda
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North Lanarkshire Council Report Finance and Resources Committee Does this report require to be approved? ☐ Yes ☒ No Ref NLP/IM/JMcK Date 30/11/22 North Lanarkshire Properties LLP – Performance Indicators: 13 January 2022 – 27 July 2022 and Financial Performance as at 22 July 2022 From James McKinstry, Head of Asset and Procurement Solutions E-mail martini@northlan.gov.uk Telephone Ian Martin Tel: 07966 397637 Executive Summary This report provides details of North Lanarkshire Properties LLP’s (NLP LLP) performance from 13 January 2022 to 27 July 2022 and provides an update on significant events and service delivery highlights during the reporting period. The report also provides details of the financial performance for the period from 1 April 2022 to 22 July 2022. Recommendations It is recommended that the Finance and Resources Committee: 1. Acknowledge NLP LLP’s operational performance against its 2021/22 targets for the period 13 January 2022 to 27 July 2022; 2. Acknowledge NLP LLP’s financial performance during the period from 1 April 2022 to 22 July 2022; and 3. Acknowledge the Service delivery highlights detailed within the report; The Plan for North Lanarkshire Priority Improve economic opportunities and outcomes Ambition statement (3) Maximise the use of our marketable land and assets through improved development in business and industrial infrastructure
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1. Background 1.1 NLP LLP is a limited liability partnership established in 2013 between the Council and its wholly owned company, North Lanarkshire Property Investments Ltd. It undertakes the marketing, leasing and management of the Council’s commercial property portfolio (shop units, office accommodation, business centres, industrial yards and storage units) and, on behalf of the Council, manages legacy properties which remain in the Council’s investment property portfolio. It also delivers services in relation to externally owned properties that the Council leases for its own operational use and provides general advice on lease transactions. 1.2 Governance, strategic direction and oversight of the limited liability partnership is provided by the Management Committee which comprises four elected members and one senior Council officer appointed by the Council and one member appointed by the limited company, NL Property Investments Ltd. Members to the Board of Directors of the limited company, NL Property Investments Ltd, are also appointed by the Council with five elected members and one senior officer appointed. The Management Committee meets quarterly and is responsible for ensuring NLP LLP’s services are delivered in accordance with the approved Service Level Agreement and company objectives. 1.3 The Management Committee undertook a number of measures to implement recommendations from the ALEO review completed in 2018/19, most significantly, the establishment restructure and enhancement proposals approved in February 2019. 1.4 The Management Committee at its meeting on 3 September 2020 approved a formal Minute of Variation to the SLA which included details of the of the Strategic Business Manager Support Services provided by Asset and Procurement Solutions and the associated charge of £74,000. It was also agreed that a review of this service should be completed by 31 March 2021. 1.5 At its meeting on 11 February 2021 the management Committee agreed to continue with the support services up to 31 March 2024. The service delivery model will be reviewed annually or at the request of the Management Committee to ensure that it continues to meet NLP’s requirements. 2. Report Performance Indicators 2.1 Following changes to the council’s Scheme of Administration, responsibility for oversight of service delivery by arm’s length bodies now rests with the relevant service committee. The functions delivered by NLP LLP on behalf of the council fall within the Terms of Reference of this committee and a six monthly performance report is be submitted in line with the Strategic Performance Framework considered by members in November 2019. The report will confirm where NLP LLP is fulfilling its contractual obligations and meeting the council’s service delivery expectations, as well as providing information from Financial Solutions on financial performance and overall financial standing within the company. This information will help give early warning of any financial risks which may give rise to operational or reputational risks for the council. 2.2 2022/23 Performance indicators are listed at appendix 1 along with actual performance for the period 13 January 2022 to 27 July 2022, which fulfil the reporting requirements
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agreed between the organisation and the council and further demonstrate where NLP LLP is contributing to the council’s strategic priorities. 2.3 During the reporting period a total of 41 properties were let, renewed or assigned (19 Office; 3 Retail and 19 Industrial) and there were 14 lease terminations over the corresponding period. 2.4 The percentage of vacant properties across the NLP portfolio over the corresponding period are shown at Section 12 in Appendix 1. The vacancy rates have decreased slightly from 11.55% in P13 21/22 to 10.57% in P4 22/23. This demonstrates that vacancy rates remain relatively stable coming out of the COVID-19 pandemic and in light of the current economic challenges and the position will continue to be closely monitored. Service Delivery Highlights 2.5 NLP worked jointly with Housing Services on a project at Buchanan Street/Hallcraig Street, Airdrie to refurbish the building including two retail units on the ground floor and create flats on the upper floors. The project is now complete and NLP are currently marketing the remaining retail unit for lease after successfully re-locating the existing tenant to one of the newly refurbished units. This project was key in maintaining a presence within the town centre for the retail units and NLP are supporting the existing tenant within the property who has plans to expand his own business on the back of the relocation into one of the refurbished units. 2.6 NLP worked jointly with Housing to redevelop an existing prominent building on Graham Street within Airdrie Town Centre with the former restaurant on the upper floors of the building being converted to residential use by Housing and the refurbishment of the ground floor commercial units by NLP. The project commenced June 2020 and was due for completion in June 2021, however the extent of repairs required to the building exceeded the original scope of works and this necessitated a re-design of the project, this resulted in a delay to the project which concluded in March 2022, subject to final meter connections. As part of the redevelopment four new flats were created on the upper floors and NLP have been able to alter one of the ground floor units to provide additional space for an existing tenant and secure a new lease commitment as a result. The tenant’s former premises have also now been refurbished and is currently being marketed. 2.7 NLP have partnered with NLP Growth Team to develop the existing Braidhurst Industrial Site in Motherwell. Funding in the region of £1.8m has been secured from the Scottish Government Regeneration Capital Grant Fund (RCGF) for the construction of around 10 incubator units to bring and support small to medium sized local businesses. NLC and NLP will also contribute circa £980,000 and £250,000 respectively. The project will also include the upgrading to the existing industrial units within the site and forms part of a larger project with the formation of a transport link at nearby Newhut Road and Bellshill Road. The project is currently at the design stage with works proposed to commence in early 2023. 2.8 NLP is actively supporting the Council’s Ambition Plan for Town Centre regeneration. This has taken the form of identifying properties which could be converted to residential use in Motherwell and Airdrie and which can be sold to the Council to further its plans.
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Financial Impact 2.9 Public Accountability Obligations – Financial year 2022/23 2.9.1 To satisfy the Council’s duty to ensure the organisation delivering property management services on its behalf is financially sound, the Council’s Section 95 Officer maintains appropriate and proportionate processes and procedures for scrutinising NLP LLP’s financial performance. 2.9.2 The Council’s Legal Agreements with NLP LLP specify the financial information which NLP must submit to the Council including an annual business plan, quarterly management accounts, audited financial statements etc., to enable Financial Solutions to assess and report any financial risk likely to arise as a result of the Council using NLP LLP to deliver these services. 2.9.3 The Council expends revenue resources annually with NLP LLP to deliver services which assist the Council in achieving its priority outcomes. The Council has a duty to continue to ensure this money is being properly used to deliver both the Council’s and NLP LLP’s key objectives. 2.9.4 For financial year 2022/23, the Council’s approved revenue spend includes property management services (£0.198m) and rental charges for properties utilised by the Council. 2.10 Financial Outturn to 31 March 2022 2.10.1 The 2021/22 Annual Financial Statements approved by the Board at the AGM on 30 September 2022 reported an Accounting Profit for the year of £2.395m which was a favourable variance of £1.385m against a budget of £1.010m. This was a result of increase in the annual revaluation of the property portfolio, FRS102 pension costs, increased over-recoveries within rental and grant income coupled with underspends within Supplies & Services and Admin costs. However, this has been predominately offset by increased repair charges with further details on financial performance are given on Appendix 2. 2.10.2 Appendix 3 provides key Balance Sheet balances at the 31 March 2022 along with the previous year’s comparative figures and commentary. Indicators worthy of note include: - • Current asset ratio of 2.02:1 at 31 March 2022. Values less than 1 indicate a company may have difficulty meeting current obligations. Therefore, Council representatives should be assured the company has a positive liquidity position under a continued trading operation. • Cash backed useable reserves are reviewed on an ongoing basis. 2.11 Financial Performance 1 April 2022 to 22 July 2022 2.11.1 Based on the financial performance 22 July 2022 a projected transfer out of reserves of £0.652m is reported to 31 March 2023. This is a favourable movement of £0.036m against a budgeted transfer of £0.689m. A Projected Debt Service Covenant (PDSC) of 0.68 to 1 is projected at 31 March 2023. This is in excess of the revised ratio agreed with Barclays of 0.5 to 1. As detailed in section 2.13.1 discussions are underway with Barclays to review this. Further details on financial performance are given in Appendix 4.
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2.11.2 Appendix 5 provides key Balance Sheet balances at the 22 July 2022 along with the previous year’s comparative figures and commentary. Indicators worthy of note include: - • Current asset ratio of 2.57:1 at 22 July 2022 which indicates that the company continues to have positive liquidity under its continued operating trading. • As per 2.10.2 cash backed useable reserves are reviewed each period. 2.12 Projected Cashflow to July 2023 2.12.1 Appendix 6 provides the projected cashflow to 31 July 2023. The minimum balance of cash projected to be held was £6.464m in July 2022. This demonstrates that NLP will continue to hold sufficient levels of cash. 2.13 Bank Covenant 2.13.1 Barclays Bank consented to relax the bank covenant ratio from 1 to 1 to 0.5 to 1 until 30 September 2022. In recognition of the current cost of living crisis NLP are entering into discussions with Barclays Bank with a view to extend the reduction in the covenant to the end of the loan agreement. 2.13.2 NLC continue to monitor NLP financial performance closely with updates provided to the Corporate Management Team. 3. Measures of success 3.1 The financial position of the company is being monitored closely and the temporary reduction in the covenant ratio to the end of the loan agreement will ensure that NLP LLP will continue to meet its loan obligations. 3.2 The successful completion of the joint projects at Buchanan Street/Hallcraig Street, Airdrie and Graham Street, Airdrie provides new social housing and refurbished commercial space for rent. 3.2 The re-development of Braidhurst Industrial Estate will provide new and refurbished industrial units for let, supporting new and expanding business and contributing to the overall vision for the area. 4. Supporting documentation Appendix 1 Appendix 2 Appendix 3 Appendix 4 Appendix 5 Appendix 6 Performance Update – 13 January 2022 to 27 July 2022 Financial Outturn to 31 March 2021 Overall Financial Standing – Balance Sheet as at 31 March 2022 Financial Performance Year to Date 22nd July 2022 Overall Financial Standing – Balance Sheet as at 22nd July 2022 NLP Cash Flow Forecast to July 2023
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James McKinstry Head of Asset and Procurement Solutions
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5. Impacts ( http://connect/report-template-guidance ) 5.1 Public Sector Equality Duty and Fairer Scotland Duty Does the report contain information that has an impact as a result of the Public Sector Equality Duty and/or Fairer Scotland Duty? Yes ☐ No ☒ If Yes, please provide a brief summary of the impact? If Yes, has an assessment been carried out and published on the council’s website? https://www.northlanarkshire.gov.uk/your-community/equalities/equality-and-fairer- scotland-duty-impact-assessments Yes ☐ No ☐ 5.2 Financial impact Does the report contain any financial impacts? Yes ☒ No ☐ If Yes, have all relevant financial impacts have been discussed and agreed with Financial Solutions? Yes ☐ No ☐ If Yes, please provide a brief summary of the impact? The financial performance of NLP is closely monitored by the council’s Section 95 Officer and the financial performance from 1 April 2022 to 22 July 2022 along with other key financial information detailed within the report. As part of the audit process, NLC confirmed that they will provide additional financial support if required. 5.3 HR policy impact Does the report contain any HR policy or procedure impacts? Yes ☐ No ☒ If Yes, have all relevant HR impacts have been discussed and agreed with People and Organisational Development? Yes ☐ No ☐ If Yes, please provide a brief summary of the impact? 5.4 Legal impact Does the report contain any legal impacts (such as general legal matters, statutory considerations (including employment law considerations), or new legislation)? Yes ☐ No ☒ If Yes, have all relevant legal impacts have been discussed and agreed with Legal and Democratic Solutions? Yes ☐ No ☐ If Yes, please provide a brief summary of the impact? 5.5 Data protection impact Does the report / project / practice contain or involve the processing of personal data? Yes ☐ No ☒ If Yes, is the processing of this personal data likely to result in a high risk to the data subject? Yes ☐ No ☐ If Yes, has a Data Protection Impact Assessment (DPIA) been carried out and e- mailed to dataprotection@northlan.gov.uk Yes ☐ No ☐
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5.6 Technology / Digital impact Does the report contain information that has an impact on either technology, digital transformation, service redesign / business change processes, data management, or connectivity / broadband / Wi-Fi? Yes ☐ No ☒ If Yes, please provide a brief summary of the impact? Where the impact identifies a requirement for technology, has an assessment been carried out (or scheduled) by the Enterprise Architecture Governance Group (EAGG)? Yes ☐ No ☐ 5.7 Environmental / Carbon impact Does the report / project / practice contain information that has an impact on any environmental or carbon matters? Yes ☐ No ☒ If Yes, please provide a brief summary of the impact? 5.8 Communications impact Does the report contain any information that has an impact on the council’s communications activities? Yes ☐ No ☒ If Yes, please provide a brief summary of the impact? 5.9 Risk impact Is there a risk impact? Yes ☐ No ☒ If Yes, please provide a brief summary of the key risks and potential impacts, highlighting where the risk(s) are assessed and recorded (e.g. Corporate or Service or Project Risk Registers), and how they are managed?
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North Lanarkshire Properties LLP Appendix 2 Outturn to 31 March 2022 Income & expenditure 2022 2022 2022 Commentary Annual Budget Actual Outturn Variance £m £m £m Rental, SLA income and Insurance Income 6.215 6.349 0.134 Favourable variance due to proactive approach in relation to rental income Investment and other income (0.060) (0.106) (0.046) Adverse variance in relation to proceeds received from Motherwell Town Hall. Total Income 6.155 6.243 0.088 Expenditure; Employee costs (0.645) (0.666) (0.021) Minor adverse variance. Property Costs (1.926) (2.711) (0.784) Adverse variance primarily as a result of increased repairs charges. Supplies & Services & Admin Costs (0.677) (0.510) 0.168 Favourable variance is largely due to decrease in bad debt provision coupled with minor underspends within other budget headings. Financing Costs (1.896) (1.905) (0.008) Total Expenditure (5.145) (5.791) (0.646) Trading Profit 1.010 0.452 (0.558) Year end Accounting adjustments not included in budget (No Covenant impact): Grant Income 0.000 0.232 0.232 Grant Funding for construction of Orbiston Industrial Units FRS102 pension costs 0.000 0.567 0.567 Provided by Strathclyde Pension Office Unrealised gain/(loss) on investment portfolio 0.000 1.144 1.144 Accounting Profit 1.010 2.395 1.385 Loan Principal Repayments (1.258) (1.258) 0.000 Profit Transferred to/(out) Reserves (0.248) 1.137 1.385 Covenant Ratio based on Cash Flow 1.05 1.05
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North Lanarkshire Properties LLP Appendix 3 Overall Financial Standing - Balance Sheet as at 31 March 2022 Balances/ Indicator As at 31 March 2022 As At 31 March 2021 Variance Commentary £m £m £m Fixed Assets 68.946 68.735 0.210 Cost of Construction offset by sales and revaluations Current Assets: Trade Debtors 1.113 1.120 (0.007) Decrease year on year due to timing of payments and COVID impact Bad Debt Provision (0.274) (0.401) 0.127 Decrease primarily relates to a reduced provision within COVID related debt Prepayment and Other Debtors 0.000 1.366 (1.366) 31 March 2021 balance contains COVID grant debtor £0.300m, Orbiston Grant Monies due £0.786m Bank and short term investments 9.101 7.133 1.968 Increased rental income as part of Covid recovery plan 9.941 9.218 0.933 Current Liabilities: Creditors (2.610) (2.276) (0.334) Increase in creditors balances at year end Other Creditors inc. VAT & other taxes (0.946) (1.035) 0.089 Decrease in VAT liability at year end offset by minor movements within Other Creditors Loan payments due in <1 yr (1.376) (1.258) (0.118) Loan Repayment Schedule agreed with bank (4.932) (4.568) (0.363) Net current Assets/(liabilities) 5.009 4.650 0.359 Loan repayments due in > 1 yr (33.686) (35.062) 1.376 Loan Repayment Schedule agreed with bank Defined scheme pensions liabilities 0.000 (0.449) 0.449 Per Strathclyde Pension Office Net Asset / (Liabilities) 40.268 37.874 2.394 Current Ratio 2.02 2.02 A current ratio exceeding 1 indicates the company has sufficient resources to meet its current commitments.
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North Lanarkshire Properties LLP Appendix 4 Year to date 22 July 2022 Income & expenditure 2022/23 2022/23 Year to date 2022/23 2022/23 Commentary:- 2022/23 Annual Budget vrs 2022/23 Projected Outturn Annual Budget Budget Actual Variance Projected Outturn Variance £m £m £m £m £m £m Rental, SLA income and Insurance Income 6.104 1.967 1.983 0.016 6.103 (0.001) Investment and other income 0.000 0 0 0.159 0.001 0.001 Total Income 6.104 1.967 2.142 0.174 6.104 0.000 Expenditure; Employee costs (0.662) (0.169) (0.167) 0.002 (0.626) 0.036 Favourable variance is short term vacancies Property Costs (1.905) (0.239) (0.431) (0.192) (1.905) 0.000 Supplies & Services & Admin Costs (0.689) (0.137) (0.121) 0.017 (0.689) 0.000 Financing Costs (1.817) (0.430) (0.421) 0.009 (1.817) 0.000 Total Expenditure (5.073) (0.975) (1.139) (0.164) (5.036) 0.036 Trading Profit 1.031 0.992 1.002 0.010 1.068 0.036 Loan Principal Repayments (1.720) (0.348) (0.348) 0.000 (1.720) 0.000 Profit Transferred to/(out) Reserves (0.689) 0.644 0.654 0.010 (0.652) 0.036 Covenant Ratio based on Cash Flow 0.68 0.68
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North Lanarkshire Properties LLP Appendix 5 Overall Financial Standing - Balance Sheet as at 22 July 2022 Balances/ Indicator As at 22 July 2022 As At 31 March 2022 Variance Commentary £m £m £m Fixed Assets 68.946 68.946 0.000 Current Assets: Trade Debtors 1.020 1.113 (0.094) Timing of payments received Bad Debt Provision (0.274) (0.274) 0.000 Prepayment and Other Debtors 0.000 0.000 0.000 Bank and short term investments 8.482 9.101 (0.618) Timing differences 9.228 9.941 (0.712) Current Liabilities: Creditors (1.651) (2.610) 0.959 Part year charges Other Creditors inc. VAT & other taxes (0.539) (0.946) 0.407 Year end prepaid income adjustments now cleared Loan payments due in <1 yr (1.407) (1.376) (0.031) Loan Repayment Schedule agreed with bank (3.596) (4.932) 1.335 Net current Assets/(liabilities) 5.632 5.009 0.623 Loan repayments due in > 1 yr (33.307) (33.686) 0.379 Loan Repayment Schedule agreed with bank Defined scheme pensions liabilities 0.000 0.000 0.000 Net Asset / (Liabilities) 41.271 40.268 1.002 Current Ratio 2.57 2.02 A current ratio exceeding 1 indicates the company has sufficient resources to meet its current commitments.
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Appendix 6 0.0 1.0 2.0 3.0 4.0 5.0 6.0 7.0 8.0 9.0 Jul-22 Aug-22 Sep-22 Oct-22 Nov-22 Dec-22 Jan-23 Feb-23 Mar-23 Apr-23 May-23 Jun-23 Jul-23 Balance -£m NLP Cash Flow Forecast to July 2023 Operating Accts Rental Acct Debt Service Reserve Acct Total Balances Short Term Investments