SCCLT has financially underperformed over the last two years. At the point the Society acquired its first property, it had already accrued costs of establishing the society of around £45,000; and the conversion of a listed building presented some challenges.
The income from rents covers servicing of debt (a mix of mortgage, low interest short term loans, and interest only finance) and other vital expenses, but this leaves a tight profit margin. By replacing the expensive share underwriting loan with share capital or a re-mortgage; gaining economies of scale from a larger number of flats; saving money with new builds (as opposed to conversion of a listed building); and acquiring further properties that represent good value, the Society is now seeking to recover the investment its members have made establishing the CLT.
In 2016 there was a major adjustment to the share register to correct errors in the previous year’s accounts, but even allowing for this there was a loss. In 2017 SSCLT made another loss, made up of several one-off costs that are not expect to recur:
- £3187.50 (invoices at-risk, conditional on new housing being built at East Reach)
- £3125 (additional interest charge to be eliminated with planned remortgage)
- £1925 (one off charge for an unsuccessful planning application)
- £3000 (legal and management costs resulting from a dispute with 9 East Reach)
- £500 (rents set too low, and cost of water charges not recovered)
- £326 (arrears of delinquent tenant written off)
The current liabilities include £7,882 that are loans due for repayment within the course of the year, the greater part of which have now either been paid or been rescheduled through a recent remortgage with Community Land & Finance. Similarly, a £10,000 loan from CAF Venturesome is due within the present year, but on the very last day - 31st December 2018.
The combined value of purchases and development exceeds the most recent valuation, which is just £300,000. Accrued losses also contribute to low shareholder funds. This would be remedied by securing planning permission for a development of flats in the vacant portion of the plot. SSCLT have spent the last year working with planners, surveyors, architects and other experts on a plan to do this.
11A East Reach combines with a garden to create a practical development plot of 0.3 acres, and is expected to deliver a consequential improvement in the value of existing assets.
The share capital issued by the society to date has been credited with interest at the rate of 2%. Withdrawals were last open in 2015/6, and some early investors did withdraw shares and interest then. However, withdrawals have been suspended since summer 2016 in preparation for the 2018 share offer.
While the new share capital will be on the same terms as the old, if the Society does not achieve enough funds to purchase both the sites that are available, they have an offer from a large investor to donate interest and shares back to them, at least until some planning gain from existing sites is achieved. This compensates for any shortfall in profit from the lost opportunity to carry out a development.