Harworth Group Plc - Latest Trading Update
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Harworth Group plc
Profitable disposals, robust rent collection and strong balance sheet provide platform for continued progress
Harworth Group plc ("Harworth" or the "Company"), a leading regenerator of land and property for development and investment, today provides a trading update covering the first half of the financial year to 30 June 2020 ahead of the Company's interim results which will be announced on 6 October 2020.
The Company has continued to deliver a number of key milestones across its portfolio in the first six months of the year, despite the challenges presented by the COVID-19 pandemic. Underlying demand for its residential and industrial land remains robust, evidenced by recent sales to national housebuilder Redrow at Hugglescote Grange, Leicestershire and to Wheelabrator Technologies at Skelton Grange, Leeds, achieved at or above book value. This ongoing demand underpins its decision to prioritise capital expenditure on seven major development sites where agreed sales are in place for later in 2020 as well as the Company progressing its infrastructure delivery programme to ensure that it has a pipeline of further sites ready for sale in 2021.
Harworth's income collection, generated from a predominantly industrial tenant base across its Business Space and Natural Resources assets, continues to be robust. As of today, 95% of Business Space rent, including a small number of tenants making monthly payments, has been received for the June Quarter Date, broadly in line with both Quarter 1 and historical performance. Income from the Natural Resources portfolio remains strong and ahead of both forecast and H1 2019 receipts. The Company's income base has also been strengthened through June's acquisition of the Thorns Road Industrial Estate in Dudley for £10.1 million plus costs at a Net Initial Yield of 10.2%.
The Company's strong balance sheet, supported by an extension of its banking facilities in May, sales progress and supportive market fundamentals, means that it is well positioned to mitigate any short-term market volatility and to take advantage of any land and property opportunities that arise as a result of present market conditions.
Furthermore, the Company has this morning separately announced the appointment of Lynda Shillaw as its next Chief Executive Officer. Her appointment will take effect on 1 November 2020, allowing time for an orderly handover with Chief Executive Owen Michaelson before his retirement from the Company on 31 December 2020.
GROWING AND REFINING THE LAND AND PROPERTY PORTFOLIO
- One strategic land acquisition in the North West and one PPA entered into in H1 with the potential to deliver a further 1,448 residential plots.
- Significant strategic land acquisition opportunities remain in the business' core regions, in line with pre-pandemic levels.
- Further progress made in the disposal of the non-core portfolio, with 9 sites totalling 899 acres sold in H1, allowing further management time to focus on key value-adding projects and reducing drag on the wider portfolio.
PREPARING LAND TO CREATE NEW COMMUNITIES AS MASTER DEVELOPER
- Infrastructure works progressing on seven major development sites to support the planned sales and direct development programme.
- Housebuilders have recommenced work on all of the Company's ten residential development sites after the temporary shutdown of their housebuilding sites in April.
- Planning consent secured at Woodville in Derbyshire, a 300 plot PPA site being brought forward with a third-party landowner.
- Planning consent also secured after period end for Phase 2 and 3 of our Gateway 36 development in Barnsley which will provide a further 1.1m sq. ft of employment space close to Junction 36 of the M1.
- This progress has been somewhat tempered by continuing planning headwinds on a handful of sites. This includes our Gascoigne Interchange site in Selby, North Yorkshire which is now being replanned around its existing rail connection, and the Secretary of State's call-in for the examination in public of our Wingates application in Bolton alongside three other non-competing third party employment sites in the North West.
DELIVERING SERVICED PLOTS FOR NEW HOMES AND INDUSTRIAL SPACES
Two major sales were achieved during the period:
- the sale of 15.99 acres of residential land at Hugglescote Grange, Coalville to Redrow in June, in line with its 31 December 2019 book value; and
- the sale of 19.5 acres of industrial land at our Skelton Grange site in Leeds to Wheelabrator Technologies for a total consideration of £13 million, in excess of its 31 December 2019 book value.
As at 30 June 2020, the Company's portfolio includes 30,049 potential residential plots (10,031 plots consented) and 25.00m sq. ft of potential industrial space (8.23m sq. ft of space consented).
GROWING THE INCOME PORTFOLIO
Two income-producing acquisitions made during the period, directly supporting the Company's strategy to grow the breadth and depth of its income portfolio:
- Thorns Road Industrial Estate near Dudley for £10.1 million plus acquisition costs, reflecting a Net Initial Yield of 10.2% and a Reversionary Yield of 12.75% ; and
- A Short Term Operating Reserve (STOR) facility in Gloucester for £1.2 million, reflecting a Net Initial Yield of 8.25%.
Harworth's income collection, generated from a predominantly industrial tenant base across its Business Space and Natural Resources assets, continues to cover all business overheads and interest on its loan facilities, reflecting the Company's asset management capabilities.
Vacant built space within the Business Space portfolio has further reduced to 3.7% (FY 2019: 6.2%) with a WAULT of 13.2 years (FY 2019: 13.5 years).
All of Harworth's live direct development programmes are on-track, including the projected practical completion in September of the UK Atomic Energy's new 22,300 sq. ft nuclear fusion research facility at the Advanced Manufacturing Park in Rotherham.
BALANCE SHEET AND LIQUIDITY
Harworth entered this unprecedented period in a strong financial position, with cash and undrawn debt facilities of £36 million (at 31 December 2019).
Following the increase in the Company's revolving credit facility by £30 million to £130 million that was documented in May, the Company has continued to exercise a prudent and disciplined approach to financing and as a result remains well capitalised, with net debt of £69.2 million (FY 2019: £70.9 million) and a net loan-to-portfolio value today (based on 31 December 2019 valuations) of 11.7% (FY 2019: 12.1%). In light of the COVID-19 pandemic and to provide further market confidence, the Company has also commissioned an independent half-year desktop valuation which will inform its Interim Results announcement on 6 October 2020.
With the Company now having substantial available liquidity of £67.5 million (comprising £7.5 million of cash and £60 million of undrawn facilities) alongside a strong track record for deal execution, it retains the ability to take advantage of suitable land and property opportunities.
PEOPLEThe Company has this morning separately announced the appointment of Lynda Shillaw as its next Chief Executive Officer, effective 1 November 2020. Lynda's appointment follows a busy period of recruitment, which has seen all posts within its core regions filled, alongside the recruitment in March of a new Director of Income to drive the asset management of the Income portfolio. With no staff furloughed at any point during lockdown, the Company remains at optimal operational strength to drive management actions across the business.
It remains too early to say with any certainty the extent to which the disruption caused by the COVID-19 pandemic will affect the Company's results for the financial year to 31 December 2020. However, the recently completed sales at or above book value are entirely consistent with the well-documented demand for logistics space and new homes, particularly in suburban areas, indicating that the residential and industrial markets in Harworth's core regions remain fundamentally sound. This is also supported by the Government's priorities to 'build build build' and to level up, including welcome regional financial investment in areas such as the £400m brownfield land fund and a range of short and long-term regional infrastructure commitments.
Against this backdrop, the Company's purpose of delivering sustainable places for people to live and work remains as relevant as ever to support the UK's economic recovery. The progress the Company has made in a very challenging first half, as well as the strength of its balance sheet and the opportunities and flexibility that gives the Company, provides it with confidence that the business remains well placed for the future.