North Lanarkshire Properties LLP - Performance Indicators- 28 July 2022 to 11 January 2023 and Financial Performance as at 6 January 2023
North Lanarkshire Council · 24 May 2023
Back to Finance and Resources Committee — 24 May 2023 and its agenda
Text extracted from the council's PDF. Layout and reading order may differ from the original.
Some pages contain no extractable text. They may be blank, graphics or scanned pages. OCR has not been applied.
Page 1
North Lanarkshire Council Report Finance and Resources Committee Does this report require to be approved? ☐ Yes ☒ No Ref NLP/IM/JMcK Date 24/05/23 North Lanarkshire Properties LLP – Performance Indicators: 28 July 2022 to 11 January 2023 and Financial Performance as at 6 January 2023 From James McKinstry, Chief Officer (Assets and Procurement) 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 28 July 2022 to 11 January 2023 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 6 January 2023. 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 28 July 2022 to 11 January 2023; 2. Acknowledge NLP LLP’s financial performance during the period from 1 April 2022 to 6 January 2023; 3. Acknowledges 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
Page 2
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 28 July 2022 to 11 January 2023 , which fulfil the reporting requirements
Page 3
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 20 properties were let, renewed or assigned (12 Office; 1 Retail and 7 Industrial) and there were 9 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 increased from 10.57% in P4 22/23 to 13.62% in P10 22/23. This corresponds with annual trends for the same periods in previous years. Service Delivery Highlights 2.5 NLP have concluded the refurbishment of 4 industrial units at Netherbank Road in Wishaw and are currently negotiating new lease terms with NLC for three of the available units. The successful re-letting of these long-term vacant premises underpins the prudent strategy for investment where allowable and illustrates that there continues to be demand for good quality property within this sector. 2.6 NLP have partnered with NLP Growth Team to develop the existing Braidhurst Industrial Site in Motherwell where the development value is estimated to be in the region of £6m. Funding of £1.8m has been secured from the Scottish Government Regeneration Capital Grant Fund (RCGF) and a further £1.3m from Place Based Investment Programme (PBIP) for the construction of around 10 incubator units to bring and support small to medium sized local businesses. The project is being jointly funded by NLC and NLP where NLP has committed to provide up to 10% of the project value estimated in the region of £600,000, subsequent to an increase in the projected project costs. NLC have also committed to provide £2.8m towards the project. 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. 2.7 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. 3. Financial Impact Public Accountability Obligations – Financial year 2022/23 3.1.1 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. 3.1.2 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.
Page 4
3.1.3 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. 3.1.4 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. Financial Performance 1 April 2022 to 6 January 2023 3.1.5 Based on the financial performance to 6 January 2023 a projected transfer into reserves of £0.114m is reported to 31 March 2023. This is a favourable movement of £0.458m against a budget transfer out of reserves of £0.344m. A Projected Debt Service Covenant (PDSC) of 1.02 to 1 is projected at 31 March 2023. This is in excess of the revised ratio agreed with Barclays Bank of 0.5 to 1. Further details on financial performance are given in Appendix 2. 3.1.6 Appendix 3 provides key Balance Sheet balances at 6 January 2023 along with the previous year’s comparative figures and commentary. Indicators worthy of note include: - • Current asset ratio of 2.62:1 at 6 January 2023 which indicates that the company continues to have positive liquidity under its continued operating trading. • Cash backed useable reserves are projected to increase from £5.565m at March 2022 to £6.065m at March 2023 as a result of income generated from the sale of land. Projected Cashflow to January 2024 3.1.7 Appendix 4 provides the projected cashflow to 31 January 2024. The minimum balance of cash projected to be held was £7.560m in September 2023. This demonstrates that in the short-term NLP will continue to hold sufficient levels of cash. Budget 2023/24 3.1.8 NLP continue to operate in a challenging environment as a result of the current cost of living crisis, the war in Ukraine and the previous Covid-19 pandemic. Therefore, a range of budget planning scenarios were considered during the budget setting process. The budget, approved by the Board in February 2023, is based on assumptions which are in line with those used in North Lanarkshire Council medium term financial plan. 3.1.9 The NLP Board approved a budget transfer of £0.320m out of reserves and reporting a Projected Debt Service Cover Ratio (PDSC) of 0.92:1. The budget incorporates anticipated increases in rental income due to ongoing rent reviews and increased expenditure in employee and property costs as a result of anticipated pay awards and increases in utility charges. Further details of the 2023/24 Budget are given at Appendix 5. Performance against approved budget will continue to be carefully monitored throughout the forthcoming year.
Page 5
Bank Covenant 3.1.10 In recognition of the current cost of living crisis a meeting was held with representatives of Barclays Bank and it was agreed to extend the realignment of reported covenants to a level of 0.5:1 until the end of the Facilities Agreement in October 2023. 3.1.11 NLC continue to monitor NLP financial performance closely with updates provided to the Corporate Management Team. Refinancing October 2023 3.1.12 NLP’s financial borrowing agreement with its current lender, Barclay’s Bank plc, ceases in October 2023 and a new funding arrangement requires to be put in place to fund the remaining balance. 3.1.13 External advisors, Azets, were appointed to support the internal project team in the preparation of documents outlining the borrowing requirements and terms for issue to lenders. 3.1.15 Progress of the project will continue to be reported to the Finance and Resources Committee at the appropriate timescales. 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 refurbishment of the units at Netherbank Road will bring previously unlettable units back into productive use and provide additional letting income for the company. 3.3 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 Performance Update – 28 July 2022 to 11 January 2023 Financial Performance to 6th January 2023 Overall Financial Standing – Balance Sheet as at 6th January 2023 NLP Cash Flow Forecast to January 2024 Approved Budget 23/24 JAMES MCKINSTRY Chief Officer (Assets and Procurement)
Page 6
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 Finance? 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 6 January 2023 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 Resources? 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? 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 ☐ 5.6 Technology / Digital impact
Page 7
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 significant technology change, has an assessment been carried out (or is scheduled to be carried out) 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? 5.10 Armed Forces Covenant Duty Does the report require to take due regard of the Armed Forces Covenant Duty (i.e. does it relate to healthcare, housing, or education services for in-Service or ex- Service personnel, or their families, or widow(er)s)? Yes ☐ No ☒ If Yes, please provide a brief summary of the provision which has been made to ensure there has been appropriate consideration of the particular needs of the Armed Forces community to make sure that they do not face disadvantage compared to other citizens in the provision of public services.
Page 8
No embedded text on this page.
Page 9
No embedded text on this page.
Page 10
No embedded text on this page.
Page 11
No embedded text on this page.
Page 12
Appendix 2 North Lanarkshire Properties LLP Financial Performance to 6 January 2023 Income & expenditure 2022/23 2022/23 2022/23 Commentary Annual Budget Projected Outturn Variance £m £m £m Rental, SLA income and Insurance Income 6.104 6.477 0.373 Favourable variance due in relation to rental income and ongoing rent reviews Investment and other income 0.000 0.001 0.001 Minor favourable variance Total Income 6.104 6.478 0.374 Expenditure; Employee costs (0.662) (0.597) 0.065 Favourable variance due to vacancies Property Costs (1.905) (1.966) (0.061) Adverse variance due to increasing utility and security patrol costs offset by a reduction in property insurance charges. Supplies & Services & Admin Costs (0.689) (0.609) 0.080 Favourable variance due to underspends within marketing, IT maintenance costs and software licence fees. Financing Costs (1.817) (1.817) 0.000 Total Expenditure (5.073) (4.989) 0.084 Accounting Profit 1.031 1.489 0.458 Loan Principal Repayments (1.376) (1.376) 0.000 Profit Transferred to/(out) Reserves (0.344) 0.114 0.458 Covenant Ratio based on Cash Flow 0.91 1.02
Page 13
Appendix 3 North Lanarkshire Properties LLP Overall Financial Standing - Balance Sheet as at 6 January 2023 Balances/ Indicator Balance as at 06 Jan 2023 Outturn 31 March 2022 Variance Commentary £m £m £m Fixed Assets 68.946 68.946 0.000 Current Assets: Trade Debtors 1.220 1.113 0.107 Variance mainly due to timing of rent runs and 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 9.211 9.101 0.110 Increase predominately as a result of higher interest rates 10.157 9.941 0.217 Current Liabilities: Creditors (2.158) (2.610) 0.452 Year end accountancy adjustments in predominately in relation to reserve projects. Other Creditors inc. VAT & other taxes (0.623) (0.946) 0.322 Year end accountancy adjustments Loan payments due in <1 yr (1.095) (1.376) 0.281 Loan Repayment Schedule agreed with bank (3.876) (4.932) 1.056 Net current Assets/(liabilities) 6.282 5.009 1.273 Loan repayments due in > 1 yr (32.591) (33.686) 1.096 Loan Repayment Schedule agreed with bank Defined scheme pensions liabilities 0.000 0.000 0.000 Net Asset / (Liabilities) 42.637 40.268 2.368 Current Ratio 2.62 2.02 A current ratio exceeding 1 indicates the company has sufficient resources to meet its current commitments. Cash Backed Reserves available for use Projected Balance at 31 Mar 2023 Actual Balance at 31 Mar 2022 £m £m Useable Reserves 2.865 2.865 0.000 Working Capital Reserve 2.700 2.700 0.000 Proceeds From Property Disposals 0.500 0.000 0.000 Proceeds from sale of land Total Available Cash Backed Reserves 6.065 5.565 0.500
Page 14
Appendix 4
Page 15
Appendix 5 North Lanarkshire Properties LLP Approved Budget - 23/24 Income & expenditure 2022/23 2023/24 Approved Commentary Annual Budget Annual Budget Movement £m £m £m Rental, SLA income and Insurance Income 6.109 6.409 (0.300) Budget increased as a result of ongoing rent reviews and proactive approach by NLP to let vacant properties Investment and other income 0.000 0.000 0.000 Total Income 6.109 6.409 (0.300) Expenditure; Employee costs (0.662) (0.710) 0.048 Budget increased to reflect actual pay increases arising from pay awards during 2022/23 and estimated additional pay awards for 2023/24. Property Costs (1.905) (2.132) 0.227 Budget increased to reflect increasing energy costs and estimated inflationary increases on contract cleaning, building management and security. Supplies & Services & Admin Costs (0.694) (0.694) 0.000 Financing Costs (1.817) (1.817) 0.000 Total Expenditure (5.078) (5.353) 0.275 Accounting Profit 1.031 1.056 (0.025) Loan Principal Repayments (1.376) (1.376) 0.000 Current loan ends on 31/10/23 and current refinancing negotiations are ongoing, therefore assumed same repayment will be required for 2023/24. Profit Transferred to/(out) Reserves (0.344) (0.320) (0.025) Projected Debt Service Cover Ratio (PDSC) 0.91 0.92
Page 16
No embedded text on this page.