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.
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.