Examination of Witnesses (Questions 140
- 159)
WEDNESDAY 3 MARCH 2010
MR ROGER
BRIGHT, CB
Q140 Sir Peter Viggers: I was going
to move on to the property joint venture partnerships in which
you have become involved. Note 18 on page 76 is the least happy
part of the annual report I think. Would you like to comment on
the Gibraltar Limited Partnership where your annual report states,
"Circumstances give rise to material uncertainty that could
cast significant doubt upon the partnership's ability to continue
as a going concern." Have you ventured outside your safety
zone in this area?
Mr Bright: The Gibraltar partnership
was very much a toe in the water for us then. In the terms of
the overall scale of the value of our portfolio, it is an extremely
small part of it. When we ventured into this, we had discussions
with the Treasury beforehand and they required us to limit the
extent of the gearing in which this vehicle could get involved
to 40% and also that such vehicles should not constitute more
than 10% of the overall value of our portfolio. Unfortunately
what has happened in the case of Gibraltar is it has been a victim
of market developments in the last year or two. I suppose you
might say we have learned a certain amount from that experience,
but we have also one or two other involvements in limited partnerships.
For example, the lend-lease partnership that owns the Bluewater
Shopping Centre. That has not caused us the particular difficulty
that arose here.
Q141 Sir Peter Viggers: Do you think
that lessons have been learned? I am looking at the last footnote
on page 76 which seems rather limp. It talks about the general
partnership—that is Gibraltar—having concluded that
it could cast significant doubt and then it goes on to say that
the general partnership, Gibraltar, may be able to realise its
assets. There is a lot of smoke being made here. Do you feel that
lessons have been learned?
Mr Bright: Yes, I think we have
learned the lessons of that and fortunately the exposure here
is pretty small. It was a useful experience.
Q142 Chairman: Just to be clear,
was the Gibraltar partnership allowed to borrow?
Mr Bright: Yes, it was allowed
to borrow.
Q143 Chairman: That was the purpose
of it, to get round the borrowing rule?
Mr Bright: No, it was not the
purpose of it. The purpose of our going into the partnership was
to be able to share some of our assets that we put into the Gibraltar
partnership to retail parks that were in our ownership. We joined
forces with the Hercules Fund which has experience of managing
retail parks; it is their core expertise. The other major component
that went into this partnership was the Fort Kinnaird Retail Park.
The principal purpose was to gain exposure to bigger assets than
perhaps we would normally have been able to acquire on our own
but also to gain experience and draw on the experience of other
people who were more expert in this particular field. The partnership
was geared as well but our purpose of going into the partnership
was not to get around our borrowing rules. We were quite clear
that that would not be an appropriate use of such vehicles.
Q144 Chairman: How much have you
lost through this partnership?
Mr Bright: What we have seen is
a depression in value. We have had to make—
Q145 Chairman: How much?
Mr Bright: What we have had to
do is put a payment in in order to make sure that the partnership
remains honouring its—
Q146 Chairman: I am asking for a
figure.
Mr Bright: I am just getting there.
Q147 Chairman: We have a lot of other
questions to ask today. How much have you lost, broadly?
Mr Bright: The figure we have
had to put in is £18 million.[1]
Q148 Chairman: You benchmark yourself
in the annual report against private companies. Do you think the
standards of good management for a leading private sector company
and a public body such as yourself are the same or are there extra
factors for a public body to consider?
Mr Bright: As I said in my opening
remarks, as a public body, we are acutely conscious of our wider
responsibilities, both to our tenants and our customers but also
to the areas in which we operate, where we are a major landlord.
The best property companies, like in many ways the best businesses,
would also have a keen sense of what constitutes good management.
Good management is important for good business. If you like, there
is a particular expectation on us that we always do the right
thing.
Q149 John Thurso: Can I just ask
you a question about your relationship with Government? The 1961
Act confers on the Chancellor and the Secretary of State for Scotland
a power of direction over the discharge of your functions. As
you said earlier, this has never, ever been used which, in the
context of your traditional estates, is perhaps understandable.
If you look at the new areas you are into—I am thinking
particularly of the marine environment—these are major areas
of government policy. Would you not welcome some formal direction
over how you take that forward?
Mr Bright: I suppose the first
thing is it is not for me to say whether ministers would wish
to issue a direction to us, but we have established very good,
close working relationships with the Government and the government
departments that are involved in these policy areas, particularly
in relation to offshore renewable energy. The relationship at
the moment works well. We have very frequent meetings with ministers,
both for example in the Department of Energy and Climate Change
and in the Scottish Government, and that is underpinned by very
frequent contact with officials in those departments, so we work
closely with them. We understand, we think, what their policy
objectives are and, as I said in my opening remarks, we always
seek to work with the grain of government policy, so I think we
are clear about what government wants to achieve.
Q150 John Thurso: The direction has
never been used so it rather seems as if it is regarded as a nuclear
option. If it gets used, it almost says you have failed. If you
look at a major area of government policy like this, at the moment
you listen to what they have to say, you then go away and decide
what you want to do and you do it. Is there not a role for government
to say, "It so happens that large chunks of the seabed happen
to be owned by this quaint leftover from northern Britain"
or whatever, "and therefore, we as a government need to say
this is what we want you to do." So instead of you listening
to their aspirations and then deciding what you want to do, they
tell you, "We want you to achieve this." There is a
subtle difference. Are you not surprised that they have not taken
that kind of an interest?
Mr Bright: I do not think so.
Perhaps if I could approach this the other way round, if I could
go back to our duty under the Act, which is to maintain and enhance
the value of the estate and the return we earn from it, it is
obviously in our interest to seek to realise a return from our
assets where it is there to be realised. That is one factor in
all this. In the case of the marine environment in particular,
we are of course acutely conscious that we are the monopoly owner
of the seabed and therefore, if you like, the need to work with
the grain of government policy is even more important here. There
is a need for us to make sure that we are not doing anything other
than supporting the achievement of government policy in this instance,
but also we are realising a return from our assets which is our
statutory duty.
Q151 John Thurso: The Calman Commission
recommendation 5.8 was that the Secretary of State for Scotland
should more actively exercise his powers of direction. What is
your view of that recommendation?
Mr Bright: I know that in the
Government's response they said they thought that was not an appropriate
recommendation. If the power of direction were to be exercised,
the Act says that the Minister has to consult the Crown Estate
board before he exercises his power of direction. The other point
I think I would have to make is that the power of direction cannot
be used to override or to direct us to depart from the requirements
of the Crown Estate Act. Any power of direction, if it were to
be used, would have to be consistent with the duties imposed upon
us by the Crown Estate Act.
Q152 John Thurso: Is there a role
for a sort of sub-power of direction with a small "d"
as opposed to the capital "P" power of direction, capital
"D"? Would that not be useful?
Mr Bright: I am not entirely sure
what form that might take. Maybe you are thinking in terms of
some sort of memorandum of understanding. We would obviously be
receptive to that if it was felt that that would be helpful. It
seems to be working well at the moment.
Q153 Chairman: We are now going to
turn to the different operations you have, the urban estate, the
marine estate and the rural estate. We are going to start with
your urban estate. Obviously you are now selling off a large number
of properties in London. Could you just explain why you are doing
this? Is this to help finance commercial development elsewhere
or to recoup losses? Why are you suddenly seeking to raise £250
million?
Mr Bright: The first thing to
say is that we are not suddenly seeking to do this. Over a number
of years we have bought and sold properties and this is about
making sure we have the balance of the portfolio.
Q154 Chairman: On this scale?
Mr Bright: Yes indeed. In the
last financial year, our net sales and disposals were in the region,
I think I am right in saying, of something like £500 million.[2]
If I can just say a brief word about our investment strategy,
which is where this derives from, we have said that in our investment
strategy we are aspiring to have a balanced portfolio that will
produce sustainable returns in the medium to long term. Specifically
in relation to where the estate is at the moment, we have said
that we want to concentrate on core holdings which, in the case
of central London, are primarily Regent Street and St James's
and also properties in Regent's Park and Kensington. Separately
from that however, we have said that we are very heavily exposed
to central London offices; we have been. That is office buildings
outside those core areas. That traditionally has been a volatile
market. In the last few years of the property boom, those properties
did very well but historically they are particularly volatile.
So we have been pursuing a strategy of reducing our exposure to
central London offices and seeking to re-invest both into our
core holdings and also into diversified properties outside London
where we think there is a more sustainable return. It is all about
getting the balance of the portfolio right to try to make sure
we sustain a strong revenue performance.
Q155 Chairman: There is no direct
link between this proposed sell off and the commercial developments
that you are undertaking in Regent Street and elsewhere?
Mr Bright: When you talk about
"this proposed sell off", are you referring to the affordable
housing?
Q156 Chairman: Yes, the residential
sell off.
Mr Bright: It is part of a wider
strategy.
Q157 Chairman: I know, but is it
linked to the redevelopment of Regent Street or not?
Mr Bright: It is linked to the
investment into Regent Street and it is also linked into investing
in diversifying properties outside London.
Q158 Mr Love: Let us just be absolutely
clear about that. We are told in various reports that are before
us that there is a need for significant capital investment in
your Lower Regent Street development. Is there a direct link between
the money you will raise from this sell off and that particular
development?
Mr Bright: There is not a direct
link, no, but obviously the capital we realise from any sale—and
I would stress that we have not taken a decision to go ahead with
the particular disposal you are talking about yet—and the
disposals that we make—and this one, which as I said we
have not reached a view on yet, is but one of them—the capital
then becomes available for re-investment elsewhere in the portfolio.
There are a number of priorities for that re-investment elsewhere.
Q159 Mr Love: We received a memorandum
from the local residents' association and the first point that
they made was that the residents are overwhelmingly opposed to
this proposal. Do you accept that?
Mr Bright: Certainly what we are
hearing is that there is obviously a good deal of concern amongst
the residents. Perhaps, if I may, I could just say a few words
about this because this has happened since our submission was
put in to the Committee. I hope it follows from what I was saying
about both our statutory duty and our investment strategy priorities,
that it is necessary that we review all parts of the portfolio
from time to time to see how they are performing and whether it
makes sense for us to retain them in the long term. At the same
time, this is the particular question of the possible disposal
of housing. It is not one of our core assets and it is not a core
area of expertise for us. Therefore, we thought it right to explore
the possibility of selling it to a more focused housing provider
who would have that expertise. We are very keen however—it
goes back to my remarks earlier—and we like to see ourselves
as a responsible landlord. We do take very seriously the concerns
of our tenants. That is why we are conducting a consultation period
at the moment where we are very anxious to hear what our tenants
feel about this and also to give an opportunity to explain more
of the thinking behind this proposal. That consultation process
is in train at the moment but I do stress we have not yet taken
a decision.
1 Ev 116 and Ev 122 Back
2
Ev 122 Back
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