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Somerset Co-operative Community Land Trust

Financial performance

SCCLT is looking to raise a maximum of £534,000 through this share offer to finance the development of 8 high quality units at East Reach, Taunton, as well as the purchase of the former Exmoor Ales site at Wiveliscombe.

 

Financial History

The profitability of SCCLT has been poor over 2017-18. At the point that they acquired their first property, they already had accrued costs of establishing the society of around £45,000; and the conversion of a listed building presented some challenges.

At the start of 2019 they took steps to put finances on a more stable footing by replacing the expensive share underwriting loan with share capital and a re-mortgage; gaining economies of scale from a larger number of flats; investing in new builds (as opposed to conversion and renovation, our previous approach); and acquiring further properties that represent good value. This had the desired effect and 2019 now shows a comfortable profit for the year.

Financial performance 2015 - 2019

The approach SCCLT are taking is one of creating value for the community by securing sites, finding their untapped potential and developing robust plans for implementing developments.

The combined value of purchases and development does exceed recent valuations, which is just £470,000.

However, the valuations did not have any way to take account of the recent improvements, the potential for planning gain, or securing access to a site, (such as the ‘option to buy’ for Exmoor Ales). These will increase the value of the asset register by reflecting the way that funds have been used to prepare them for improvement – in effect, a portion of the finished value of the properties. This is detailed in the business plan, which ultimately provides for development gain more than sufficient to create capital reserves.

The share capital issued by the society to date has been credited with interest at the rate of 4.5%. For more than a year now, SCCLT has been able to enable shareholders to withdraw their funds as they wish to (though a cap has been placed on withdrawals approaching this share issue of £2,500 per quarter, in order to protect liquidity). So far, all investors wishing to exit have been able to do so within a timescale acceptable to them.

Forecasts

SCCLT has prepared some monthly cost analyses to establish how to achieve positive cash flow and a return to profitability by 2022. These examine several different scenarios; the optimum scenario is detailed here, and the minimum and maximum in the appendices of the offer document. Apart from the maximum scenario, which allows for no sale of completed properties, the scenarios all include:

  • acquisition of the Exmoor Ales site, in line with the option agreement in place
  • planning permission granted for construction at East Reach
  • construction of eight flats at East Reach
  • planning permission secured for development of the Exmoor Ales site
  • purchase of The Greenhouse, subject to sufficient long term tenancies being secured
  • selling a small number of units from the Exmoor Ales site at full market value

Their goal for this phase of development is to significantly increase their asset base, and further reduce the proportion of income needed for overheads.

SCCLT do not have fixed price contracts in place for any construction. For this reason build costs have been estimated using local averages, adjusted for factors such as site access (a challenge at East Reach) and economy of design (a common, rectilinear floor plan has been used to simplify construction). The risks are higher for the Exmoor Ales site as considerable site investigation remains to be carried out. If build costs are higher than forecast, this will trigger the sale of additional units, over and above those planned, at market prices to ensure the affordability of rental units.

While managing the interest burden is important, the Board of Directors recognise the importance of establishing a track record of paying interest on share capital at a level sufficient to attract and retain investment.

While accumulated losses remain on the balance sheet, this is based on the conservative assumption that the properties do not appreciate in value, and new buildings are valued not at market prices, but much more cautiously at no more than the cost of their construction.

Annual return

SCCLT expects to continue to pay 4.5% interest on shares.

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