REG - Harworth Group PLC - £106.6 million land sale at Skelton Grange

HarworthAnnouncement

27/06/2024 07:00

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RNS Number : 0630U  Harworth Group PLC  27 June 2024

 

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

 

 ·    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
 ·     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
 ·    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
 ·   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
 ·     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
 ·    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
 ·   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
 ·     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

 

£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:

 

 ·    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.
 ·   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.

 

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

 

 Harworth Group plc
 Lynda Shillaw (Chief Executive)                                 T: +44 (0) 7436 167 285

 Kitty Patmore (Chief Financial Officer)                         E: investors@harworthgroup.com

 Luke Passby (Head of Investor Relations & Communications)

 FTI Consulting
 Dido Laurimore                                                  T: +44 (0) 20 3727 1000

 Richard Gotla                                                   E: Harworth@fticonsulting.com

 Eve Kirmatzis

 

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.

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