Why The Ralph was a purr-fect choice for South Somerset District Council’s latest investment

24 September 2019 | District

South Somerset District Council is “feline” good about its latest investment deal, acquiring the site of veterinary referral hospital The Ralph for £5.95m as part of the Council’s commercial strategy.

The aim of the strategy is to invest in a diverse range of assets and generate income which will mitigate a significant reduction in central Government funding.

It will also ensure SSDC can protect the wide range of much-valued services our communities receive.

Details of the deal

South Somerset District Council has acquired the site of The Ralph for £5,950,000 with a net initial yield of 7.09%. The deal was made possible with the assistance of Eitan Ben Zion, at investment firm Ereira Mendoza, and Luc Algar at regional law firm, Moore Blatch.

The Ralph, situated in Marlow, Buckinghamshire, is named in memory of the rescue cat cared for by Founder Shailen Jasani. The referral hospital opened its doors to the public in February 2019 and it is the only one of its kind located between the M4 and the M40 motorways. It offers a wide range of services and has an outstanding reputation as a compassionate and innovative provider of veterinary services.

The 25,550 square foot property began life as a hybrid office and industrial building in 1989 and was occupied by Emerson Network Power. The Ralph then took the lease and spent £3.2M on fitting the site out to a high standard.

The Ralph’s occupation will provide a guaranteed income stream for at least 14 years. With the rising numbers of household pets and insurance, the Council believes that The Ralph has been launched at an excellent time to take full advantage of this while it also adds sector diversity to our investment portfolio.

The location of the referral hospital allows the Council to diversify geographically into a region that has historically benefitted from greater capital growth than the rest of the UK.

The Council’s Portfolio Holder John Clark said: “The security of income at The Ralph is key and it joins a strong portfolio designed to achieve the commercial strategy of generating income to continue the provision of public services. We are pleased to report that we are continuing to meet our ambitious commercial targets.”

FURTHER BACKGROUND AND CONTEXT

How does the council pay for these deals?

The Council uses a range of funding sources including investments utilising its reserves (sums of money that are held so that there is a financial cushion to meet sudden unexpected costs) and internal borrowing, a process through which SSDC can borrow from itself and charge itself interest.

This means that money that was previously in bank accounts is generating a higher rate of return with the proceeds used to protect services and deliver important projects in South Somerset. It does not involve investing money that would have been spent on services. And in the highly unlikely event that we do need to access to funding quickly in an unplanned way, our careful approach to investment means we can still do this.

Why is South Somerset District Council becoming more commercial?

The Council is currently operating in a complex financial climate where it needs to deliver savings rising to £6 million per year until 2022. This is in addition to having to cut its costs substantially since 2010.

SSDC has sustained a 70 per cent reduction in its Government grant funding since 2010 and further reductions are likely in the future whilst demand for and costs of many services continues to rise. It became clear that SSDC needed to make the most out of its assets and look for new opportunities which could generate income to protect the wide range of services our communities receive and create opportunities to fund new projects.

It has seen the Commercial Services and Income Generation team given a significant ongoing annual income target for commercial investment income and great progress is being made.

This is about making prudent financial decisions which will create significant income to get the best results for South Somerset but still, where possible, supporting the local economy.

In the future, we will have countered the loss of grant funding from Central Government though sensible investment and we will continue to deliver vital services, parks and open spaces as well as exploring new opportunities to make South Somerset an outstanding place to live, play and work.

How does the council decide on where it invests?

Every decision that is made is being rigorously tested and checked. The Commercial Property Team is working to ensure that SSDC does not overpay for property due to the lack of supply, and is not exposed to undue risk, for example within the retail sector, where significant changes are currently occurring nationally. A huge and diverse range of opportunities have been considered and rejected in the past year from a car showroom in Newcastle to an industrial estate in Poole. Reasons for rejection can include the asking price not matching our valuation, unacceptable risk to income, non-compliance with our commercial aims and objectives, and over-exposure to a particular market.

SSDC is investing in a diverse range of locations and asset types to ensure that it spreads any risks attached to investments which reflects sound investment practice. This includes assessing whether an investment outside the district will deliver a better rate of return for our communities than a similar opportunity in South Somerset.

The new asset forms part of South Somerset’s growing portfolio, which includes High Street retail, in town and out of town offices, industrial, energy storage and a residential development site.