Harworth Group plc
("Harworth" or "the Group")
£106.6 million land sale at Skelton
Grange for development of a hyperscale datacentre
Proceeds will support increased focus on
Industrial & Logistics direct development, utilising extensive
landbank to grow Investment Portfolio and drive increased recurring
earnings
Highlights
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· Exchanged
contracts for the conditional sale of 48 acres of land at
Harworth's Skelton Grange site in Leeds for total consideration of
£106.6 million
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· The
disposal site comprises two adjacent land parcels, with completion
phased and expected in H2 2024 for plot 1, and H1 2026 for plot
2
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· Proceeds will
be reinvested into Harworth's Industrial & Logistics
development programme, and the Group intends to retain more
directly developed prime Grade A properties in its Investment
Portfolio
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· The Industrial
& Logistics sites in the Group's extensive pipeline total 38
million sq. ft., and with 5.5 million sq. ft. of that already in,
or about to enter into development, the pipeline has the potential
to deliver GDV of £0.8 billion over the next five years
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· The
Group is targeting an Investment Portfolio of £0.9 billion by the
end of 2029; this repositioning and growth is expected to create
the opportunity to enhance the income component of shareholder
returns
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·
The Group will continue to
create value from sales of serviced land for development, including
selectively acquiring and accelerating the delivery of Residential
sites to provide a steady funding platform for growth in its core
Industrial & Logistics portfolio
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· Harworth's
development of Skelton Grange clearly demonstrates the value
created by deploying its specialist skillset, and balance sheet,
and upon completion it is expected to deliver an internal rate of
return (IRR) of over 40% and estimated inward investment in excess
of £4 billion for the local economy
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· Placemaking to
create best in class schemes remains at the heart of Harworth's
approach to sustainable development, and Harworth remains on track
to deliver £1 billion EPRA NDV by the end of 2027
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£106.6 million
land sale at Skelton Grange for development of a hyperscale
datacentre
Harworth, a leading regenerator of land and
property for sustainable development and investment, has exchanged
contracts for the conditional sale of 48 acres of land (the
"Disposal Plot") at its Skelton Grange site in Leeds to MSFT MCIO
Limited ("Microsoft") for a total consideration of £106.6 million,
payable in cash in two tranches linked to phased completion of the
sale. The conditions are customary for a transaction of this nature
and the Group is confident they will be met. The disposal price
represents a premium to the Disposal Plot's book value.
The Disposal Plot comprises two adjoining land
parcels:
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· Plot 1, which
comprises 27 acres, will be sold on an unserviced basis for gross
consideration of approximately £52.9 million. Completion of the
sale is targeted for H2 2024. The book value as at 31 December 2023
was £39.0 million. Alongside completion of the sale of Plot 1, the
Group will be reimbursed approximately £0.5 million for the costs
it has incurred in securing additional power capacity for the site.
Servicing of Plot 1 is expected to be completed by Harworth as
development manager under a separate development agreement, which
would commence after the transaction completes.
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· Plot 2, which
comprises 21 acres, will be sold on a serviced basis for gross
consideration of approximately £53.2 million. Completion of the
sale is targeted for H1 2026. The book value as at 31 December 2023
was £12.9 million. The forecast total servicing costs are £5.1
million.
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There is no current rental or other income
associated with the Disposal Plot and therefore no reduction in
rental income for the Group as a result of the transaction.
The Group expects to recognise an increase in the book value
of the Disposal Plot at each reporting date as the transaction
progresses towards completion.
Harworth intends to use the net
proceeds to support an increased focus on the direct development of
Grade A Industrial & Logistics properties from its strategic landbank which will be
transferred to, and then retained in, its Investment Portfolio,
driving an increase in recurring earnings, alongside new investment
opportunities.
This sale constitutes a Class 2
transaction for the purposes of the Financial Conduct Authority's
Listing Rules.
Background to the Skelton Grange development
The former Skelton Grange power
station site was purchased by Harworth in December 2014 for c.£3
million, with remediation and enabling works commencing shortly
after. The site is located to the south-east of Leeds and the work
undertaken by Harworth as master-developer since acquisition is an
integral part of the regeneration of the area, bringing in
significant investment.
Since acquisition, Harworth has
optimised the planning status of the site, securing approval in
November 2023 for 800,000 sq. ft. of Industrial &
Logistics space, and most recently in May
2024, a reserved matters approval for a further
320,000 sq. ft. of Industrial &
Logistics space. Previous transactions that have contributed to the creation and
realisation of value at this development include a 19.5-acre land sale
to Enfinium in 2020, on which it is
developing a 49MW energy-from-waste ('EfW') renewable electricity
generation facility for its own operation, and the grant of a lease in 2021 to facilitate the
development of a c.100MW Battery Energy
Storage System ('BESS') facility on a
5.7-acre demise.
Harworth acquired a further 21 acres
of adjoining land in 2023 to enhance the
development potential of the overall scheme.
Upon completion of the transaction, including
anticipated cost plan spend, Harworth will have invested c.£36.7
million in the site and generated £135.7 million of sales. The
Group will retain 16 acres
on which to promote c.250,000 sq. ft. of employment space.
This is in addition to the c.77 acres owned by way of joint venture
with The Aire Valley Land LLP at a neighbouring
development, Gateway 45.
Once the development is
complete, Skelton Grange is expected to
provide c.250,000 sq. ft. of Grade A
Industrial & Logistics space, a
hyperscale datacentre, a BESS facility, an EfW facility, and
c.28 acres of land returned to a natural habitat alongside improved
green travel infrastructure, which Harworth estimates will
represent in excess of £4 billion of inward investment providing a
substantial boost to the local economy.
Increased focus
on Industrial & Logistics direct development, utilising
extensive landbank to grow Investment Portfolio and drive increased
recurring earnings
As the Group moves into the second half of its
growth strategy to deliver £1 billion EPRA NDV by the end of 2027,
Harworth believes there is a clear opportunity to maximise
shareholder value by focusing on growing its Investment Portfolio
through the development of its next generation of Industrial &
Logistics sites which combine high quality logistics space with
complementary energy uses. Sites of this nature are well-suited to
high value use classes such as datacentres and advanced
manufacturing, and are critical to the growth of the UK
economy.
The Group's Industrial & Logistics pipeline
totals c.38 million sq. ft. of which sites with the potential to
provide up to 5.5 million sq. ft. are in, or about to enter
into, their development phase, and sites with the potential to
provide up to a further 12.8 million sq. ft. have an allocation in
a local plan or are awaiting determination, forming the next wave
of sites to move into development. The Group's extensive
Industrial & Logistics pipeline is expected to
deliver potential GDV of £0.8 billion over the next five years with
a targeted yield on cost of 6-8% for the vertical build stage.
Going forward, Harworth intends to acquire, develop
and retain on completion more of its prime Grade A Industrial
& Logistics developments to increase the size of its
Investment Portfolio and drive growth in recurring earnings from
rental income. The Group expects the Investment Portfolio to grow
in the outer years of the current plan and accelerate in the years
beyond, targeting a total Investment Portfolio of approximately
£0.9 billion by the end of 2029, through a combination of retained
developments and selective acquisitions as the core portfolio is
refined to be 100% Grade A. The planned growth of the Investment
Portfolio is expected to create an opportunity for the Group to
enhance the income component of shareholder returns as improved
recurring earnings will allow increased dividends to be declared.
The Group, therefore, intends to review the dividend policy on an
annual basis as it delivers on the planned growth of its Investment
Portfolio.
Alongside development for retention and investment,
Harworth will continue to manage its Strategic Land portfolio to
create value from sales of serviced land for development, including
selectively acquiring and accelerating the delivery of Residential
sites to provide a steady funding platform for the growth of its
core Industrial & Logistics portfolio, and will
continue to utilise capital light funding and partnership
structures to maximise returns for shareholders. The Group now
expects its balance sheet to be weighted more towards
Industrial & Logistics assets, reaching over 85%
of its total land portfolio by the end of 2029 (currently over
60%).
Placemaking to create best in class schemes, and
sustainable places where people want to live and work, remains at
the heart of Harworth's approach to development, and the Group
remains on track to deliver £1 billion EPRA NDV by the end of
2027.
Lynda Shillaw, Chief
Executive of Harworth Group, commented: "Since re-listing in
2015 Harworth has successfully completed a number of significant
transactions that create value for our shareholders but this sale
at Skelton Grange is the Group's largest to date and is yet another
exemplary case study that demonstrates the successful regeneration
of brownfield land. It highlights Harworth's capabilities in
identifying and acquiring complex sites, creating planning-friendly
masterplans that maximise site potential, and deploying timely and
effective investments into remediation and infrastructure. This
transaction further builds our expertise to include datacentres and
evidences the growing spectrum of industries that continue to be
attracted to the schemes that Harworth brings to the serviced land
market.
"Over the last three years and, despite volatile
market conditions, we have been successful in implementing our
strategy, scaling the business and continuing to deliver market
leading returns. We remain confident that we will reach our goal of
growing our business to £1 billion of EPRA NDV by 2027 and in our
ability to continue to scale the business beyond this. Despite this
operational resilience, elevated share price discounts persist
across the listed real estate sector, and so with the aim of
maximising both total accounting returns and total shareholder
returns for our investors, we have undertaken a detailed evaluation
of our strategy to determine where our focus should be in the
second half of our strategic plan period.
"Today, over 60% of the value of Harworth's business
is in the Industrial & Logistics sectors, and as
we move into the second phase of our growth strategy we expect this
weighting to increase, to over 85% by the end of 2029. The
continued successful delivery of our Residential sites is integral
to our strategy as the proceeds from land sales provide a steady
funding platform for the Industrial & Logistics
development programme. We will retain more of our own prime Grade A
Industrial & Logistics directly developed
properties and therefore expect to see our Investment Portfolio
grow in coming years, reaching around £0.9 billion by the end of
2029. We see this increased focus on Industrial &
Logistics development as an opportunity to both maximise
shareholder value, and position the business for longer term
sustainable growth and returns as we create an Industrial
& Logistics business of significance in the UK market
and within our regions."
Financial calendar
key dates
Harworth is scheduled to provide a trading update for
H1 2024 on 24 July 2024, followed by its Half Year results on 12
September 2024.
For further
information
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Harworth Group plc
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Lynda Shillaw (Chief
Executive)
Kitty Patmore (Chief Financial
Officer)
Luke Passby (Head of Investor
Relations & Communications)
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T: +44 (0) 7436 167 285
E:
investors@harworthgroup.com
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FTI
Consulting
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Dido Laurimore
Richard Gotla
Eve Kirmatzis
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T: +44 (0) 20 3727 1000
E:
Harworth@fticonsulting.com
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The information contained within
this announcement is deemed by the Company to constitute inside
information as stipulated under the Market Abuse Regulation (EU)
No. 596/2014 as amended by The Market Abuse (Amendment) (EU Exit)
Regulations 2019. The person responsible for making this
announcement on behalf of Harworth is Chris Birch, General Counsel
and Company Secretary.
About
Harworth
Listed on the Premium Segment of the Main
Market, Harworth Group plc (LSE: HWG) is a leading sustainable
regenerator of land and property for development and investment
which owns, develops and manages a portfolio of over 14,000 acres
of land on around 100 sites located throughout the North of England
and Midlands. The Group specialises in the regeneration of large,
complex sites, in particular former industrial sites, into new
Industrial & Logistics and Residential developments to create
sustainable places where people want to live and work, supporting
new homes, jobs and communities across the regions and delivering
long-term value for all stakeholders. Visit www.harworthgroup.com
for further information. LEI: 213800R8JSSGK2KPFG21.