Harworth Group plc (“Harworth” or the “Company”)
AGM Statement
Good progress continues in 2018
Harworth Group plc (“Harworth” or the “Company”), the leading regenerator of land and property for development and investment, will hold its Annual General Meeting at 2pm today, when it will provide shareholders with an update on its operational performance. Owen Michaelson, Chief Executive, will make the following statement:
“Harworth has continued to make good progress in the first five months of the year in delivering on its strategic priorities. Anticipated full year results continue to be in line with the Board's expectations.
“Strong advances have been made in replenishing the strategic land bank with the purchase of four new sites for £45 million, a significant move that supports our stated commitment of broadening our presence in our core regions.
“Our focus remains on expanding and maximising the value of our strategic land bank to deliver further long-term value to shareholders, whilst growing and improving income through a combination of new lettings and the selective recycling of the portfolio. This is alongside maintaining low gearing and financial headroom to support the continued growth of the business.
“Underpinning our strategy is the continued undersupply of new homes and high-quality commercial space in our regions where demand remains strong. This provides a range of value-add opportunities for the Company to explore both within its existing portfolio of approximately 21,000 acres of land and within our future acquisition pipeline.”
DEVELOPMENT
The Capital Growth team has continued to deliver value growth, principally through planning progress and sales realisations. Since the start of the year, planning consent has been secured for 530 new residential plots across three sites in the Midlands, with 445 of these from the Company's first two Planning Promotion Agreement successes. Two large applications for a total of over 3m sq. ft of commercial space will be submitted in the second half of 2018.
Progression of these sites through the planning process has been complemented by the team selectively disposing of developments to crystallise value gains from our portfolio, with 132 residential plots sold to housebuilders generating an overall profit on sale. In addition, over 80% of budgeted sales for the year have already been completed or agreed. Harworth's consented portfolio now stands at 10,846 plots and 12.13m sq. ft of commercial space.
INVESTMENT
The Income Generation team has continued to improve the resilience of Harworth's recurring income. 14 new lettings and re-gears have been agreed across its Business Space portfolio in 2018, generating in excess of £1.8m per annum. These have included letting the remaining space at its 51,750 sq. ft 'R-evolution Phase 2' at the Advanced Manufacturing Park in Rotherham and letting the first unit at 'Multiply Logistics North' at Logistics North in Bolton, its joint venture with the Lancashire County Pension Fund. This success has underpinned the Company's decision to develop speculatively 'R-evolution Phase 3' at the Advanced Manufacturing Park, totalling an additional 55,750 sq. ft of commercial space, whilst also constructing 'Multiply Phase 2' at Logistics North for a further 270,000 sq. ft of commercial space.
To improve the quality, diversity and resilience of its portfolio income, Harworth has committed to dispose of non-core assets on a selective basis, commencing with the sale of Harworth Business Park in North Nottinghamshire to a single owner-occupier at book value. The Company is also accelerating its programme for selling its remaining agricultural sites with limited development potential to free-up management time and capital to devote to sites with the highest value enhancement potential.
As a result of this operational activity and acquisitions, the WAULT to expiry across the Business Space portfolio has now increased to 14.7 years (from 7.5 years at 31 December 2017), whilst the vacancy rate of the built space has reduced to 11% (from 13% at 31 December 2017).
ACQUISITIONS
The Acquisitions team continues to identify and acquire attractive land and property opportunities within the Company's core and adjacent regions. As announced at the start of May, Harworth purchased four sites totalling 299 acres to grow the strategic land bank for a total consideration of £45 million plus acquisition costs. These sites provide the potential for the development of up to 3,000 homes and over 1m sq. ft of commercial space, whilst two of the sites generate recurring income of £3.1 million, reflecting net initial yields of 6.2% and 10.9% respectively.
FINANCING
These acquisitions have been funded from internal cash reserves and the Company's existing Revolving Credit Facility (“RCF”), recently extended from £75 million to £100 million, with Santander UK PLC providing an additional £25 million commitment to sit alongside the existing commitment from The Royal Bank of Scotland plc. The terms and covenants of the RCF remain unchanged with a margin of LIBOR plus 210bps and expiry in February 2023.
PREMIUM LISTING
The workstreams to support the Company's application to transfer its shares to the Premium List are nearing conclusion and the Company expects to announce its intention to transfer very shortly.
OUTLOOK
Demand for new affordably-priced housing and commercial space, particularly for units under 100,000 sq. ft, remains strong within the Company's core regions of the North of England and the Midlands.
As in previous years, residential and commercial sales together with value gains are expected to be weighted towards the second half of the current financial year. Overall, trading remains in line with management's expectations.