Results for the six months ended 30 June 2024
Strong NDV and Total Return growth; well positioned for increased development and investment activity in Industrial & Logistics sector
Highlights
- EPRA NDV(1) increased 3.5% to £687.0 million (31 December 2023: £662.9 million) with the Group on track to reach £1 billion by the end of 2027
- Total return of 4.0% (H1 2023: 0.1%)
- Operating profit increased 164% to £21.1 million (H1 2023: £8.0 million)
- Net LTV of 9.8%, available liquidity of £154.2 million and net debt of £80.5 million reflecting the profile of higher drawdown mid-year
- Extensive existing land pipeline has the potential to deliver 38.8 million sq. ft. of Industrial & Logistics space and 26,639 plots for new homes
- Planning permission achieved for 1.8 million sq. ft. and 500 plots, plus a further 1.5 million sq. ft. and 500 plots post period end, alongside new draft allocations or allocations in local plans for 5.7 million sq. ft. and 2,875 plots
- Completed, exchanged, or in heads of terms on 145% of budgeted land sales for the year
Key financials
Lynda Shillaw, Chief Executive of Harworth, commented:
“Harworth continues to consistently deliver strong progress against its strategic objectives and we remain on track to reach £1 billion EPRA NDV by the end of 2027. In June we announced that the Group would increase its focus on Industrial & Logistics direct development, with an intention to grow the Investment Portfolio, through direct development and selective acquisitions, to £0.9 billion by the end of 2029. This reflects the opportunity we see to deliver into a sector which is key to economic growth and where there is critical undersupply of high-quality space, in order to grow recurring income and underpin sustainable shareholder returns.
“The first half saw significant progress on planning approvals, adding further capacity to our near-term Industrial & Logistics pipeline and driving a strong revaluation performance. We are ahead of budget for land sales, with the standout transaction, as well as our largest sale to date, being the conditional £106.6 million serviced land sale to Microsoft at Skelton Grange, announced in June. The sale of serviced land provides a stable funding channel for the planned growth in our Industrial & Logistics development programme.
“Sustained demand for Harworth’s serviced land and employment spaces, alongside management actions, has underpinned EPRA NDV growth of 3.5% and we expect further growth in the second half as we continue to develop out our existing sites.
“Our current Industrial & Logistics pipeline has the potential to deliver future Gross Development Value(5) of £5 billion which contributes significantly to the £1 billion EPRA NDV target. The near term pipeline has the ability to deliver up to £0.8 billion of Gross Development Value by the end of 2027. Our recent transactions, both for Commercial and Residential use, are evidence of the underlying market demand for Harworth’s high-quality land and property.
“We are cautiously optimistic that a combination of improving economic stability and supportive government policy will be beneficial for both the real estate sector and Harworth. In the near term we recognise market confidence could potentially be tempered by the extent of the steps taken by the Government to address the public funding deficit, but as a long-term investor Harworth is well versed in delivering performance through different policy environments.
“Ultimately, Harworth is a long-term through-the-cycle business and its extensive land pipeline, track record, specialist skillset and strong balance sheet sets us apart from our peers and enables us to maximise the value created from our sites for our shareholders.”
Management actions drive enhanced value gains and profitability
- Value gains totalled £47.0 million (H1 2023: £7.5 million), driven by sales, development of sites and planning permissions against the backdrop of relatively stable markets
- Operating profit increased 164% to £21.1 million (H1 2023: £8.0 million), reflecting increased land sales, revenue from development management, and other gains relating to the valuations of investment properties and assets held for sale
- Annualised rental income for the Investment Portfolio increased to £14.4 million, growth of 2.4% on a like-for-like basis
- Dividend per share up 10% at 0.489p (H1 2023: 0.444p), consistent with the Group’s existing dividend policy
Robust cash generation from residential land sales and strong balance sheet position
- Completed 357 plot sales of serviced land for proceeds of £24.0 million, in line with December 2023 book values, and a further 132 plots post period end
- Net debt of £80.5 million (31 December 2023: £36.4 million), representing a Net LTV of 9.8% (31 December 2023: 4.7%)
- Available liquidity of £154.2 million (31 December 2023: £192.2 million), with no major refinancing requirements until 2027
- Continuing to use capital light funding structures, including Option and Planning Promotion Agreements (“PPAs”), to facilitate growth and maximise returns
Growth targets underpinned by strong planning progress and extensive land pipeline
- Land pipeline now has the potential to deliver 38.8 million sq. ft. of Industrial & Logistics space and 26,639 plots for new homes, the largest Industrial & Logistics pipeline in the Group’s history
- Planning permission secured for 1.8 million sq. ft. and 500 plots, plus a further 1.5 million sq. ft. and 185 plots post period end
- New draft allocations or allocations in local plans for 5.7 million sq. ft. and 2,875 plots
- An additional 6.4 million sq. ft. and 2,269 plots progressing through the planning system and awaiting determination
Increased strategic focus on Industrial & Logistics Major Developments programme
- As at 30 June 2024, the consented Industrial & Logistics land portfolio increased to 8.1 million sq. ft., of which 5.9 million sq. ft. is in Major Developments (31 December 2023: 4.6 million sq. ft.), following transfers of 1.3 million sq. ft. from Strategic Land
- 0.5 million sq. ft. of Grade A space is currently in development or expected to start in the next 12 months, following practical completion post period end of 0.1 million sq. ft. of pre-let space
- Enabling works currently underway for 2.2 million sq. ft. of direct development on several Major Development sites, plus further enabling works underway at Skelton Grange in relation to the Microsoft serviced land sale
- The current Industrial & Logistics land pipeline has the potential to deliver £5 billion of Gross Development Value (GDV)(5)
- By the end of 2027 the consented Industrial & Logistics pipeline has the ability to deliver £0.8 billion of GDV
On track to achieve 100% Grade A core Investment Portfolio by the end of 2027; targeting £0.9 billion portfolio by the end of 2029
- The Investment Portfolio value increased 4.4% to £231.2 million, of which 37% is Grade A (31 December 2023: £221.4 million and 37% Grade A)
- Net initial yield increased to 5.9% (2023: 5.7%) whilst net equivalent yield reduced marginally to 7.0% (2023: 7.1%) continuing to provide reversion potential
- 83,000 sq. ft. of Grade A Industrial & Logistics development completed in the 12 months prior to 30 June 2024 was retained in the Investment Portfolio, with 100% now let, exchanged or in heads of terms, broadly in line with or at a premium to, December 2023 estimated rental values (ERV)
- 94% of the 0.5 million sq. ft. of Grade A space currently in development, or due to start in the next 12 months, is expected to be retained in the Group’s Investment Portfolio, of which 38% is pre-let or being constructed for an owner-occupier, and is anticipated to generate additional annualised rental income of £5.4 million
- EPRA vacancy rate of 6.3% (31 December 2023: 9.9%), reduces to 3.9% excluding units completed in the last 12 months (31 December 2023: 1.2%), and 98% of rent due in H1 2024 collected
Committed to sustainable development
- In April, Harworth published its 2023 Net Zero Carbon (NZC) Pathway Progress report, alongside its Communities Framework, laying out its commitment to local communities and the progress made against its sustainability target of being operationally NZC by 2030 and NZC for all emissions by 2040
- Completed the planting of over 108,000 trees in collaboration with the Forestry Commission at its Chevington North site in Northumberland and recently opened a new 350-acre Country Park in Thoresby Vale
Strategy evolution
Evolution of strategy to increase the focus on Industrial & Logistics development and retain more prime Grade A properties in the Group’s Investment Portfolio, which is now targeted to grow to £0.9 billion by the end of 2029, with growth accelerating from 2026 onwards as the next generation of Industrial & Logistics sites move through the cycle.
- Increased retention of directly developed Grade A properties will be the main driver of growth in the Investment Portfolio, supplemented by selective acquisitions to support this strategy and accelerate the transition to Grade A across the existing portfolio
- As the Investment Portfolio grows the Group expects the increase in recurring earnings to allow increased dividends to be declared in future years
- Whilst the Board intends to continue to review the dividend policy annually, anticipated dividend growth is not expected to impact the Group’s ability to deliver capital growth and maximise returns
- With this increased focus on Industrial & Logistics assets, the Group expects its balance sheet to be weighted over 85% towards Industrial & Logistics by the end of 2029, compared to just over 60% at 31 December 2023
- To provide a steady funding platform for the growth of its core Industrial & Logistics portfolio Harworth will continue to create value from sales of high-quality serviced land
Analyst and investor presentation
Harworth will host a presentation for analysts and investors at 9:30AM today, 12 September 2024. A live webcast and playback can be accessed by clicking this link.
NOTES:
(1) European Public Real Estate Association (‘EPRA’) Net Disposal Value (‘NDV’)
(2) Harworth discloses both statutory and alternative performance measures (‘APMs’), a full description of, and reconciliation to, the APMs is set out in Note 2 to the condensed consolidated interim financial statements and the appendix
(3) The Ex-dividend date, Record date and Payment date for the 2024 interim dividend can be found in the Shareholder Information section of this announcement
(4) Source: JLL UK Big Box Industrial & Logistics Market Update
(5) Gross Development Value (GDV) is an estimate of value to be delivered on completion of the building or development