Continued operational and strategic delivery despite a rapidly changing market backdrop in H2.
Harworth Group plc, a leading regenerator of land and property for sustainable development and investment, is today providing a trading update in respect of its financial year ended 31 December 2022, ahead of the announcement of its Full Year Results on 14 March 2023.
The Company anticipates that EPRA NDV(1) as at 31 December 2022 will be within the current market consensus range and towards the lower end(2). Demand has remained resilient throughout 2022, as evidenced by occupier take-up in the Investment Portfolio and the completion of housebuilder land sales on attractive terms. However, EPRA NDV has been impacted by market-driven outward yield movements in the valuation of the Investment Portfolio and more mature industrial & logistics major development sites, amid rising interest rates and a softening of macroeconomic conditions.
“We continued to make significant operational progress in the second half, delivering across all four pillars of our growth strategy, through increased levels of direct development, accelerated land sales and targeted acquisitions. We ended the year in a strong financial position, with low gearing and significant available liquidity. Despite resilient demand and our management actions to drive value across the portfolio, a combination of rising interest rates, inflation and wider market and political headwinds have weighed heavily on investor sentiment in the second half. This has translated into a reversal of our first half valuation gains and a marginal net decline in valuations and therefore in EPRA NDV over the year.
“Continued economic volatility means that the market backdrop for the year ahead is challenging. Uncertainty is likely to remain in our markets until interest rates reach their peak, and inflation falls back to manageable levels, creating the conditions for growth and improved investor confidence. Against this backdrop it is important to highlight that our focus markets of residential and industrial & logistics are drivers of economic growth and continue to have robust fundamentals, and that there remains an acute shortage of high-quality consented land.
“Harworth is a long-term through-the-cycle business, which means that we look through near-term market conditions. We control our landbank, where and when we invest, and have a highly experienced management team who are focused on execution. We are confident that our strategy is the right one to deliver long-term value to stakeholders while making progress on our Net Zero Carbon commitments, and our strong financial position, differentiated products, and the scale and mix of our portfolio, position us well to realise the full potential of our sites.”
Lynda Shillaw, Chief Executive, Harworth Group plc
Continued direct development of Grade A space across 35.0m sq. ft industrial & logistics pipeline, with good occupier demand:
- Completed 332,000 sq. ft development at Bardon Hill in Leicestershire in September, which is targeting Net Zero Carbon in construction status and is now part of the Investment Portfolio: 57% of space currently let, with active discussions on remainder
- Completion after year-end of 110,000 sq. ft at Gateway 36 in Barnsley: 39,000 sq. ft already let, with significant interest received on remaining units
- After year-end, agreed terms for a 73,000 sq. ft built-to-suit unit at the Advanced Manufacturing Park in Rotherham, to be retained in the Investment Portfolio after completion
Robust housebuilder demand and management actions in line with strategy drove significant growth in residential plot sales, with potential to deliver a further 29,311 plots from pipeline:
- Completed residential land sales representing 2,236 plots (2021: 1,411 plots); H2 sales were at prices in line with, or ahead of, June 2022 valuations
- First residential serviced land sale at Ironbridge development in Shropshire, to Barratt and David Wilson Homes, for the delivery of the first 110 houses of the planned 1,000 at the site
- Placemaking continues across sites: planning secured for new retail provision at South East Coalville in Leicestershire and a medical centre at Waverley, and planning submitted for new schools at South East Coalville and Thoresby Vale in Nottinghamshire
- Preferred investment and construction partners selected for development by Harworth of a portfolio of up to 1,200 single-family Build to Rent homes
Acquisitions further strengthen pipeline, with planning determinations expected in the year:
- Acquisitions added 2,643 plots and 8.5m sq. ft to the pipeline; these included entering option agreements to deliver up to 3.0m sq. ft of industrial & logistics space at Fairburn in North Yorkshire, and up to 1.6m sq. ft adjacent to Junction 15 of the M1 in Northamptonshire
- Secured planning for 248 residential units across three sites during the year, and for 272,000 sq. ft of industrial & logistics space after year-end across two sites
- Applications for 2.8m sq. ft of industrial & logistics space continuing to progress through the planning system
Investment Portfolio was 18% Grade A at year-end, and maintains strong operational metrics, as a result of ongoing occupier demand and rising rents:
- Vacancy rate(3) of 8.3% at year-end, reduced to 2.7% by excluding recently completed Bardon Hill site (31 December 2021: 4.1%); 98% of rent collected for 2022 to date
- Leasing activity added £1.7m of annualised rent; new lettings at an average 10% premium to estimated rental values (“ERVs”), and renewals on average 8% ahead of previous passing rent
- After year-end, completed the sale of Moorland Business Park in Chorley for £5.3m, ahead of its June 2022 valuation, as part of strategy to transition the Investment Portfolio to Grade A
Maintained focus on sustainability and plans to be Net Zero Carbon by 2040 (and by 2030 for operations):
- All direct development constructed to Harworth’s sustainable commercial building specification
- Significant progress in measurement, monitoring and reporting of emissions, with Net Zero Carbon pathway to be published as part of Full Year Results
Strong balance sheet and financial position, with low gearing and significant available liquidity:
- Year-end net debt of £48.4m as at (31 December 2021: £25.7m), representing a pro-forma LTV based on 31 December 2021 valuations of 7.2%
- Available liquidity of £175.6m at year-end (31 December 2021: £128.0m); no major refinancing requirements until 2027
Notes:
(1) European Real Estate Association Net Disposal Value, an adjusted Net Asset Value metric which is one of Harworth’s key Alternative Performance Measures.
(2) Current consensus for 31 December 2022 EPRA NDV per share is 199p, comprising four analyst forecasts ranging from 190p to 205p.
(3) Calculated using the EPRA Best Practices Recommendations Guidelines, with comparator recalculated on the same basis.