Interim results tend to be quite placid affairs – giving a good update on performance and market commentary but not much else. This week, however, property development specialist Harworth Group bucked the trend by outlining its intentions to double in size to more than £1bn over the next five to seven years.
Chief executive Lynda Shillaw promised a material shift in the pace and scale of development, having completed her review of the business after joining in November 2020. Harworth has a twin sector strategy focused on bringing forward industrial & logistics and residential developments, as well as an investment portfolio worth £271m.
This injection of energy and enthusiasm is just what the £522m market cap group needs. It is sitting on a landbank of 15,000 acres across 100 sites. Since it listed in 2015, it has built just 1.3m sq ft of industrial & logistics space. It now plans to quadruple the rate of development in this sector, building on average 800,000 sq ft every year between 2022 and 2026.
The 3.2m sq ft of developments, mainly located in Yorkshire and the North West, has a gross development value (GDV) of around £440m. Its wider 9m sq ft of consented industrial & logistics landbank has a GDV of £1.1bn.
The timing for logistics development couldn’t be better. It is a structurally undersupplied sector and benefits from significant occupier demand due to an exponential increase in online retailing. Harworth said development risk would be managed through a combination of pre-letting and speculative development.
On the residential side, another structurally undersupplied sector, Harworth plans to accelerate sales and broaden its range of products to include build-to-rent homes (new build properties that have been designed for the specific purpose of renting rather than selling). An initial single-family rental portfolio of 600 units will be developed in 2022 and forward-sold to investors. A potential 1,500 further build-to-rent homes could be added in the coming years. In all, with an acceleration of plot sales of traditional homes for sale, the group’s ambition is to double annual sales to around 2,000 plots by 2026.
Land replenishment will be key to the longer-term strategy. This will take place through a combination of freehold site acquisitions, options over land and planning promotion agreements. Of its current 15,000 acre landbank, two-thirds is unconsented and the timeline to secure planning and fully develop extends beyond 2035.
The final prong to its growth strategy is to reposition its investment portfolio, mainly through retaining most of its industrial & logistics developments and dispose of assets from its existing portfolio.
Sales will contribute to the funding of the strategy, while the group has raised its target gearing to a maximum of 25% (still a nice conservative level but more supportive to the growth plans than its current 13.4%).
It’s an exciting proposition for shareholders that for so long have seen the group plod along. It will be interesting to see how the strategy develops over time.
QD view – Harworth-y plan