Harworth Group plc (UK6A.SG) Earnings Call Transcript & Summary

Good morning, and welcome to the 2020 Interim Results Presentation for Harworth Group plc. I'm Owen Michaelson, the Chief Executive of Harworth. I'm joined today by Kitty Patmore, our Chief Financial Officer, and Iain Thomson, our Head of Investor Relations. First of all, thank you for joining us on the phone, on this rainy Tuesday morning. I'm just sorry that we can't meet in person. I do hope that this format works for you. However, if you have any more detailed questions following the call, please speak to Iain Thomson from Harworth or the team's at Peel Hunt, Liberum. I know that most of you are familiar with our story. So our focus today will be on the key achievements in the first half of the year, the financial highlights on balance sheet valuation, the prevailing market conditions and the future outlook for the business. We will be taking questions at the end of the presentation, and the phone lines will be opened again by the call operator. You can also submit your questions online at any point during the presentation, and these will be presented by the operator. Now can we please start on Slide 4. This slide shows that Harworth is a fundamentally-sound business with our purpose being more relevant than ever in the post-COVID world. We remain very much open for business, and I'm pleased to say that we will be paying our interim dividend. Throughout the lockdown period, we kept all of our staff and contractors safe whilst continuing to make progress with all of our projects and asset management initiatives. We've collected 95% of the rent due in the period. We did not furlough any team members, and the team culture allowed us to make a highly effective transfer to remote working. We've continued to sell land throughout the summer. And 70% of our anticipated sales for 2020 are now exchanged, completed or illegal. We continued to make progress with all planning applications within our 30,000 home residential portfolio and a 25.4 million square foot commercial portfolio. The team have adapted well to working with remote planning committees, securing 2 major consents during the period. Our void rate is approximately half of the 6.8% national vacancy figure for industrial property voted on this slide. And this is the best proxy we can find for our own portfolio, but more on this later. We have GBP 63.3 million of financial headroom to fund our ongoing development program and to capture any buying opportunities, which might come forward from distressed vendors if we enter a prolonged down cycle. Now if you turn to Slide 5, I'll take you through the highlights. We've continued to grow the portfolio by adding 1,438 residential plots to the strategic land pipeline. We've added GBP 1.2 million to the annual rent roll. We've secured planning consent for an additional 1.1 million square feet of commercial space and 300 residential plots. We now have live applications for over 2,300 residential plots and almost 2.5 million square foot of commercial space. We've continued to sell down the noncore portfolio despite the lockdown restrictions, allowing all but 2 of our team members to focus on those sites with ongoing development or asset management potential. We've opened up our 2,000 unit Hugglescote Grange site in Coalville following the completion of the initial infrastructure works in the summer. We achieved our first sales of Redrow on this site at a price, which supports the 2019 year-end book value. We've also completed a GBP 13 million premium sale at our Skelton Grange site in Leeds. This is for large-scale energy from waste plant, capable of generating up to 42 megawatts of low-carbon electricity. This site was again sold at a premium to the 2019 book value. You will note that we've grown profit excluding value gains by 16% year-on-year to GBP 2.4 million. This goes some way to offsetting the adjustments we've been forced to make to the wider portfolio valuation. Our total return has been adjusted down by 4.5% to reflect the negative effects of market sentiment on our valuations. Kitty will give more granular details later in the presentation. With a vacancy rate of 3.7%, rent collection levels of 95% and a WAULT at 13.2 years, our income portfolio continues to outperform many of our peers. As I've always said during previous presentations, Harworth has been set up to trade through the inevitable down cycles in property. To judge the true worth of Harworth, we must always look at the long-term potential of the portfolio and the sustainability of our regional markets. We now turn to Slide 6. Slide 6 highlights the adjustments we have made to the carrying book value of the assets within our portfolio. You will note that the net asset value currently stands at GBP 148.6 per share, which is still slightly ahead of the equivalent valuation in June 2019. You'll also note from the bullets on this slide and the comments I've already made that our regional markets remain open, and we continue to make progress with all of our projects. If we move to Slide 7. Aside from a supportive market, the government's continued ambition to build, build, build, support all of our activities and outlook. The government's ongoing and recent policy announcements show that housing delivery remains its key domestic priority alongside investment in regional infrastructure. Our portfolio is well placed to benefit from the national recovery plan. On a personal level, I currently sit as the Chair of the British Property Federation's Regional Policy Committee. And alongside their CEO, Melanie Leech, we reached out to all metro mayors and the chairs of all local enterprise partnerships in our regions over the summer. And when I hear about the emerging plans that all levels of regional government have are put together to respond to the U.K. government's recovery plan, I do feel that we are very well placed to benefit from this planned investment program. Also in the news is the Planning White Paper. And we also feel the changes proposed to the Planning White Paper will benefit our long-term and thoughtful approach to the promotion of large sites in our portfolio. So these changes will not be overnight, so please be patient as that feeds through. If we move to Slide 8, please. Slide 8 shows a small brownfield acquisition we've made in Bolton on an opportunistic basis earlier this year. We've already started site clearance, and an application for residential development has already been submitted to Bolton Council, extending our relationship with them following the success at Logistics North. The slide also gives some additional detail on what are the income acquisitions we made at Thorns Road in Dudley. Supporting key industries like Xandor, I have highlighted on the slide, goes to the heart of our purpose of supporting high-value employment in the regions. And of course, the economic well-being of the communities in which we operate. Whilst we have managed to achieve a 10% net initial yield on this acquisition, the site purchase also included some vacant land to the right of the photograph that We do intend to pursue an application for about 4 acres of housing on this land. If we are successful, this will be pure financial upside on top of the asset management work we're doing to increase the Reversionary Yield, but more on this later. Yes, we've already received unsolicited bids for this site from local social housing providers. However, we'll probably pursue an application on our own name and due to bringing the sites to the market in 2021. If we now move to Slide 9, please. Slide 9 provides some further color on the progress we're making in securing planning consent on all of our live projects. We secured planning consent at Woodville in Derbyshire for a 300-unit housing scheme and a 1.1 million square foot extension to our existing Gateway 36 sites in Barnsley. This shows the effectiveness of our long-term relationships with key local authorities. In both cases, we're amongst the first applications to be considered by their virtual planning committees. The slide also includes a photograph of the former Ironbridge Power Station, which some of you would have visited last year. Since this photograph was taken, the main powerhouse on [indiscernible] have both now been cleared. The large chimney you see in the photograph will be the last structure to come down. And this is programmed for early next year. And the team is working hard with both local councils to get this applications determined by year-end. We did have pushbacks on 2 applications earlier this year and that was at Gascoigne Interchange, just southeast of York and at Wingates in Bolton. Now these interventions by the Secretary of State should not be seen as an end to the process, but a slightly frustrating pause in the process to regenerate them. [indiscernible] sometimes forget that these delays caused local people jobs. Yes, frustrating, yes, but it's part of our day job. In terms of an update on the progress we're making, our date for examination in public for Wingates is now set for later this year. And the team is also working hard with Selby Council to secure a new way forward around Gascoigne's existing brownfield land and rail head. In simple terms, we will resubmit the original application on the brownfield land only and will pursue the greenfield elements of the application through the local plan review process. Now please move to Slide 10. This slide shows a photo montage of the 1.1 million square foot extension to our existing Gateway 36 site just off the M1 in Barnsley. The Phase 2 and 3 will provide a range of fantastically well-connected industrial and distribution units next to the M1. We are all very well aware of the demand for distribution space that can serve the e-retailing sector. Now this site will definitely feed into that demand. Work on site has now begun with the support of the Sheffield City Region's Mayoral Authority. And that's the work to prepare the first development platforms and access roundabouts. We will promote the scheme through a combination of land sales or by direct developments to further build our income portfolio. This is in accordance with the standard methodology that has worked really well in Logistics North. And we find it really works well to differentiate ourselves in the market by offering total flexibility on deal structure to potential occupiers. Please move to Slide 11. I've already referenced the GBP 13 million sale to Wheelabrator at Skelton Grange and the first sale -- the first phase sale at Coalville to Redrow. At Coalville, you'll see the extent of the earthworks, which are necessary to open up the site. These works did continue through lockdown. And we fully supported our contractors to maintain safe operating practice on the site in accordance with the government guidelines grew between the construction industry and government. We were part of that conversation. Following the completion of the sales of Redrow, we immediately tendered Phase 2. We received strong bids from a number of national housebuilders after, of course, they all allowed their own staff to return from furlough. We are now in exclusive negotiations with 1 national housebuilder. I'll be -- hope to exchange contracts and update you all on Phase 2 before the end of the year. Please move to Slide 12. Now Slide 12 provides a more recent photograph of the Coalville side, following completion of the initial infrastructure and drainage works. I think that this slide helps to emphasize the long-term value that can be released over the next decade as we work through the 2,000 home planning consent. Clearly, we still have lots more to do on placemaking and many more homes to sell. When we can start having investor tours again, this site will get top billing. So hopefully, you can all see the site to real in the near future. Just off the bottom of the photograph is our planned 350,000 square foot Bardon Hill industrial development, which was granted planning consent in 2019 following its purchase in 2018. It allows us to provide balanced growth to that part of Leicestershire in support of our underpinning beds and sheds strategy. Now our balanced approach is not lost on local planning authorities, and this combined approach of delivering new jobs and new homes at 1 location helps us to establish a highly effective working partnership with most of the local planning authorities. It also helps to open doors in new areas. Please turn to Slide 13. This slide shows the continuing resilience of our investment portfolio, with the new unit shown on the photograph, which we've just built, the U.K. Atomic Energy Authority. That's the photograph on the bottom right. This is a new nuclear fusion research facility. Now we achieved practical completion last week on this building 2 weeks ahead of schedule. U.K. AEA now entered into a new 20-year lease of the building, and it's a real credit to our team and our contractors [indiscernible] have managed magnificently during the lockdown and coming 2 weeks early. Now the Nufarm agrochemical plant in Bradford is shown on the top right of the slide. This is our largest single letting and the lease still has 35 years to run. We're now taking active steps to promote all of the vacant lands surrounding this facility as a strategic employment site for Bradford and the Leeds City region. Now this land was purchased for a nominal price alongside the income-producing asset in 2018. We've collected over 95% of the rent due across the portfolio in the March and June quarter dates. I'm sure that you'll all agree this is a great result in the current market. Our rent collection pattern following the September quarter date, which was last week, is still consistent with the previous quarters. We're still in active discussions with those tenants who still owe us money, but we continue to hold these discussions in accordance with the industry's agreed code of practice. Whilst the code of practice ties our hands, the majority of our tenants have been very professional in their discussions with us, and we're hopeful of a positive outcome. Our vacancy rates across the portfolio following a number of new lettings during the lockdown period is now 3.7%, which is a record low for the business. Overall, this is a magnificent performance from our income generation team. It increases the resilience of the business whilst delivering a revaluation gain of GBP 6.2 million at the end of the half year. Kitty will touch on its positive effect on the overall half year valuation later in the presentation. If you just move to Slide 14. Now this slide provides a little bit more detail on the Thorns Road Industrial Estate at Dudley, part of our continued West Midlands expansion. The slide sets out the asset management steps we are taking to drive the net initial yield from 10.2% to a reversionary yield of 12.8% while supporting one of the region's cornerstone industries. As already highlighted, this return will be further boosted if we're able to secure residential planning consent on the vacant open storage land. Anyway that's enough of me talking for now. I'll hand over to Kitty to talk you through our financials.

Thanks, Owen, and good morning, everyone. So Slide 15 sets out the bridge between EPRA NDV per share at full year 2019 through to June 2020. EPRA NDV is our new primary EPRA measure, mapping straight across from EPRA Triple NAV, which we've reported in the past. In a change to prior years, we've had an independent valuation on the whole portfolio as at the 30th of June. We'll look at the breakdown of the valuation in more detail on the next slide, but the downward valuation movement reduced EPRA NDV by 7.3p per share. This gave a closing EPRA NDV per share of 148.6p, 4.5% lower than the closing 2019 NDV, but still ahead of June 2019. So on to Slide 16, which provides a breakdown of our value gains across the portfolio. In Half 1 2020, these were value losses of GBP 23.2 million when profits on disposal and revaluation losses are combined. The biggest movement in the portfolio was in our major development sites. All of the operational activity that Owen has highlighted has resulted in continued progression on our sites. And it's this, which provides the primary evidence to support the valuations. As at the 30th of June, it must be said that there was a prevailing cautious sentiment within the residential property market about short- to medium-term housing demand. And it is this that is reflected in the revaluation losses rather than wholesale changes in the long-term gross development value or cost to deliver on our sites. Notwithstanding these value adjustments, over the summer and into September, we've continued to see demand and bids for service lands on both our commercial and residential properties. Our strategic land portfolio delivered flat value gains with a smaller value reduction as a result of planning delays, but GBP 4.9 million of profit on sales from strategic land sites. The industrial and logistics market has been strengthened by the further growth and societal acceptance of e-tailing. The quality of our properties and asset management initiatives undertaken have driven an increase in value in this part of the portfolio in total of GBP 6.9 million across business space and natural resources. Slide 17 updates you all on how our portfolio continues to evolve following sales, letting, acquisitions and planning progress. The portfolio now has a total value of GBP 560 million diversified across our different sectors and types of properties. Turning to Slide 18 and 19. These should be taken together, as they show the breadth and depth of our investment portfolio in delivering profit excluding value gains, or PEVG, for short. Our PEVG reflects the underlying profits of the business excluding profits on disposal and gains or losses from the revaluation of our property portfolio. We have grown our PEVG in Half 1, 2020 to GBP 2.4 million as a result of the larger investment portfolio and strong rent collection. PEVG continues to cover all of the costs of running the business and our finance facilities. Although statutory earnings per share were minus 1.6p and on an EPRA NDV basis, which builds in the full revaluations on the investment and development properties, we have a loss of GBP 21 million. Excluding the impact of the valuation, the underlying business remains profitable. This gives us confidence in the long-term business model, and we'll be reinstating our dividend payments with an interim dividend of 0.334p, which represents a 10% increase on our 2019 interim dividend. We are retaining a commitment to review the year-end dividend to consider increasing this to reflect the canceled 2019 year-end dividend as well. Now Slide 19 provides a greater granularity again of our income portfolio. The rent from our income portfolio now totaled GBP 16 million each year. Our vacancy and business space is the lowest that it's ever been at 3.7%, and our WAULT is over 13 years, once again reflecting the robustness of this portfolio as a source of value gain and income. Our rent is diversified across principally industrial tenants and sectors, and we have no retail exposure in our portfolio. We continue to employ an active asset management strategy that resulted in a rent collection this far, which we are very proud. Moving on to Slide 20. As before, we continue our program of effectively managing our cash flows to fund our sustainable growth. Completion of sales, collection of deferred consideration and rents to fund the development spend and new acquisitions. Net debt reduced slightly over the period, and taking into account the revised valuations, we closed the period with a net loan to value of 12.4%, with increased debt and cash headroom as of the 30th of June of GBP 67.5 million. This headroom places us in an excellent position to take advantage of new opportunities to continue to deliver our purpose. Turning to Slide 21. This provides a further see-through of what you can expect from the business in the second half of the year, as we continue to execute our strategy. We have over 70% of budgeted sales completed or agreed, so we'll be focused on closing these and securing the final sales across our service land and noncore properties. We have planning applications in the system of around 2,400 plots and 2.4 million square feet across 8 different sites, and we continue to scrutinize a range of interesting acquisition opportunities. We remain focused on exercising clear capital discipline in our assessment of deals and only those with clear value-add opportunities will be taken forward. Slide 22 provides you with a running total of the consented residential plots and commercial floor space at the end of June, which is now our biggest ever pipeline. This reflects our land portfolio stands at over 30,000 identified residential plots and around 25 million square feet of identified commercial space, providing significant latent value across the portfolio. We remain anchored by freehold sites with planning promotion agreements, options and overages, enabling us to diversify our portfolio and work with different types of vendors. Moving to Slide 23. This gives a detailed summary of our business model and where our major sites sit within our value chain. I will just highlight a few key points for some added color. Firstly, we're in exclusive negotiations on a number of sites across the region, and we will bring these and the existing early-stage sites through the assembly, planning and remediation stages. We are also well progressed with our more mature sites. And these are now in plot sale and build-out mode. These will continue to deliver gains from place-making, housebuilder sales and commercial pre-let for sales. These sites have already proven themselves as great places for people to live and work. And finally, we will continue to drive the existing portfolio to maximize returns and effectively asset manage our investment portfolio, both as a source of value gain and to increase our recurring income base. Now Slides 24 and 25 should be taken together in emphasizing that our core markets of beds and sheds are supportive of sustained long-term growth to drive our future returns. Looking at residential first, there remains a fundamental shortfall within the U.K. of good quality, affordable market housing to meet occupier needs. The pandemic has highlighted both the benefit and attractiveness of homes with outdoor space in suburban locations and strong local communities. Our sites are ideally suited to take advantage of this trend, and we welcome the additional support currently provided to the industry by the government, including on stamp duty and Help to Buy. On the industrial side, with low vacancy rates and high demand driven by the acceleration of structural economic trends, the regional industrial and logistics market has strengthened as a result of the pandemic. We continue to target the small- to mid-box market through our development, and we will sell service land or develop ourselves to seek the local market. This is an exciting area where we expect to deliver an increase in activity over the next 12 months. I will now hand back to Owen for concluding remarks.

Thanks, Kitty. Please move to Slide 26. In summary then, the business is well positioned for long-term growth. Our technical skill and financial position supports us to capitalize on the new opportunities created by the renewed political focus on the Midlands and North. This is why we have the confidence to pay our interim dividend. The accelerated structural changes in the beds and sheds market post-COVID-19 is also supporting our underlying strategy. Our housebuilding customers have reported significant house buying activity over the summer months underlining the shift in demand from city center living to suburban housing. This should help to prevent any further downward pressure on our residential valuations. Whilst the downward valuation adjustment is frustrating, the long-term potential of the portfolio is still underpinned by ongoing land sales, which continue to be made at or above book value. Any site, which can support the e-retailing sector is also in high demand. We will continue to drive forward our near-term employment site in strong market locations to capture this demand. Our strategic pipeline continues to grow. Our place-making capabilities are embedded within each of our regional teams. This will continue to add value at all stages of the development process and essential points in considering the new normal post-COVID. Our investment portfolio remains an essential part of our business and continues to grow by robust asset management, new acquisitions and direct developments, covering group overheads and strongly contributing to value gains. Again, I repeat, we've already collected 95% of the rent due from Q1 and Q2, with the outlook for Q3 looking to be in line. Finally, the strength of our balance sheet and the GBP 63 million of cash and facilities following the extension of our RCF in April, gives us a very flexible warchest to acquire new opportunities at discounted prices, if the anticipated recession brings wholesalers to the market. Finally, a short personal reflection. This is my last formal presentation as the Chief Executive of Harworth Group before Lynda Shillaw takes the reins from the 1st of November. She will be joining a motivated and high-performing business in fundamentally good shape. I'm fairly proud of what the business has achieved in my decade as Chief Executive, and I have full confidence that it will continue to deliver great places for people to live and work in the future. It has been an absolute pleasure, and I will always look back at the last 10 years with a smile. I will now hand back to the moderator and welcome any questions you may have. Thank you all for listening.

[Operator Instructions] We will now take our first question from James Carswell from Peel Hunt.

Just a quick question for me on potential acquisitions. And Owen, you mentioned at the end, you're kind of -- you've got the firepower to take advantage as and when you see things. Just wondering if you've seen any signs of those kind of distressed sales to date? And I guess, also when you think about acquisitions, are you focused particularly on either the income-producing side or the kind of the more capital growth side or is it depending on what comes along?

Yes. Good question. Have we seen signs yet? The very simple and honest answer is almost no. When I was looking at this at the start of the year, I -- only speaking to the Board, and I gave my predictions for the stress coming to the market because it what naturally happens after a cycle. I initially said that I expected to see distressed income assets coming to the market by sort of Q4 and -- but there's a longer leading time to the sort of distressed strategic land assets. People need to feel the pain before they get pushed out of the market. So we wouldn't anticipate any of the sort of big land sales until next year anyway. I say almost no because actually we have the first sort of hint of an opportunity in the last week or so. And it's a site, which I personally first looked at 15 years ago, which sort of has been tumbling around. It's a potential 2,000-unit scheme, big industrial complex, not far from Nottingham. It was -- yes, it was counted around by the owners and then they wanted to do it themselves, which is one of these ones that people forget how difficult it is. And the owner of that, which is a sort of retail-backed business, is clearly suffering now. And we did suddenly hear that it might be coming back to the market, which is the first sign. I think when it comes to sort of the income assets, I think there'll still be a further delay on that because at the moment with all of the support that's being given, the banks are still sort of holding the counsel and certainly not pushing out -- well, they're not putting pressure on people yet provided they can get by. The unfortunate reality of life is as furlough ends companies start to suffer, companies start to make redundancies. They will then look at cash generation opportunities. Also what has surprised me is there is still more capital in the market than I anticipated. In the last lockdown, a lot of investors just sort of bolted down the hatches for a couple of years. But there still seems to be a lot of investment market chasing yield out there. So any normal investment property out there is still being snapped up. Obviously, we look at assets, which have an element of distress, distressed vendors, processes which have failed just [indiscernible] quit in them. So if you look at everything we bought, there's always a back story when we bought something to do with the vendor. So the honest answer is not yet. But I think we need to see what the next 3 months brings in terms of the extra pressures on businesses as furlough unwinds and the -- well, banks starting forcing their loans.

James, it's Iain. Just 1 additional thing from me. And again, it comes back to Thorns Road at Dudley. I mean, again, the 1 thing that keeps the business in good stead of future acquisitions is, number one, the speed of how we take forward transactions. But also, again, just being a solid counterparty and the use of our strategy code, which I'd like to emphasize.

Yes. So it's a good point Iain is coming in on there. Sorry, I forgot real just didn't answer the second question. Income on capital gains, yes, entirely opportunistic driven really. I mean, it's where we can see both value, both acquisitions work for us. Clearly, the big ceded land acquisitions have a much longer timeframe. If we make the income acquisitions, the returns tend to be a lot faster, but then once we've done the asset management initiatives and we've done what we can do to them, it would then just collecting the running yield, but -- and that's good in itself with some of the yields we are buying. But as these sites mature, we will -- and we've delivered everything, we will churn them through and do the same thing again. So we have to look at each opportunity on its merits. But Iain is right, I mean, what we have built the reputation in the market for very clear dealing and very fast dealing. And certainly most of the income acquisitions from first notification to buying them is typically, yes, 6 to 8 weeks, I would say max. Operator, next question, please?

[Operator Instructions] We will now take our next question from Colm Lauder from Goodbody.

Iain and Owen, first Owen, if I just may congratulate you on your last set of results, and obviously, wish you the very, very best for the future from everyone here at the Goodbody team. Just a couple of questions from my side. I thought maybe one on the business base portfolio and one on the residential side. Just last -- looking at the broader industrial and logistics market over the last quarter, the agents are reporting record levels of take-up. Indeed Savills were saying yesterday that the take-up in the first 9 months of the year has beaten annual records. So obviously very strong underlying market. And we've also sort of seen obviously your vacancy in the portfolio pretty much have over the last 6 months. I was just kind of curious to sort of gauge your appetite at this stage for speculative development to be held. So has this -- has your appetite changed, increased or decreased over the last 6 months? And obviously, there's a wide range of consents in the existing portfolio, including obviously, Gateway 36. So what is your appetite perspective development and your risk appetite for these sort of schemes?

Yes. Now that is an interesting question because I'd say my thinking has evolved, and we had a very interesting discussion on this with our investment committee sort of 6 weeks back when we were looking at these figures. And further enough, we do use a lot of Savills data as well. They've got a good research team there. I mean, it's one of these things in research. It will always be wrong, but it does give a good background. But you are right. And those figures -- I think I lost some of the figures a couple of weeks ago, but I was absolutely staggered that the largest amount of take-out was sort of Yorkshire and the Northeast, which [indiscernible] in our home territory. Huge take-up in that area. But -- so -- and you are correct, our voice has sort of dropped to record lows. As we went into COVID back in March, obviously, we decided to be a little bit cautious. We delayed the start on site until we have visibility on house sales, et cetera. But clearly, there is strong take-up. We've got virtually no void left in our portfolio. So we do have ongoing appetite to build, absolutely have ongoing appetite. As ever, where we will place the money, it's down to where we can get the best banks for bucks in our capital and sensibly deploy it. But where we have fully consented size in strong market areas, we will look to bring those forward. We have speculatively built in the past, both on our own balance sheet and working from the partnerships. I highlighted in the presentation Barton Hill development, which is Junction 22 of the M1 and which is about 1.5 miles from the junction, 350,000 square feet, absolutely over and ready to go. Now we will look to bring that forward, hopefully, early next year. And we will continue to take speculative development risk. Yes. Obviously, we'll always be cautious with this. Clearly, we keep looking at the market, keep making sure the take-up is there, but we will continue to take that. I think you had a question on residential. You didn't bring one in.

Yes, I do. I'll follow on with the residential question. Kitty, did you want to come in there or will I jump straight into regulation?

I was just going to add to Owen's comments that obviously when we're going through the analysis on each of our sites, it is very site-by-site driven. So if we can see that we've got consent on that side, we can see that end market demand. Then that's the prime research decision-making factor for us and whether to bring forward development either on a pre-let or a speculative basis?

Okay. Perfect. So I had a slightly more difficult question, let's say, on the residential portfolio and particularly just digging into the residential valuation write-downs during the period. And it does seem to conflict a little bit with some of the transaction evidence on your side. So obviously, your transactions in that space over the last 6 months were noted as being either at or above your December 2019 book value. So I was trying to gauge. Obviously, your sentiment was pretty weak, as we moved into sort of May and June for valuations, but your transactions are in line with book or above book. So I'm just curious as to what sort of view the valuers took in terms of the evidence they would have used to build up these write-downs? And perhaps was it a case that they were building in weaker residual valuations on the expectation of lower exit prices in terms of housing units? Or were there transactions in the market around you, I suppose, which were weaker than your own?

It's actually not a difficult question, it's a very easy one to answer. I mean, I'll open my answer by saying, I'm under a strict gagging order on this because I have particularly strong views on this. And a lot of this is down to the fact that the valuation date is in June. And when the values came in reported, as you'd imagine, we grilled them extensively on this because, quite frankly, I didn't believe the valuations at all. But as I say, they have to follow a process. And the market sentiments in June had huge amount of nervousness about the residential market going forward. There is no transactional evidence around us that would take the valuations down. It was -- the adjustments, as Kitty has highlighted in her slide, is entirely down to market sentiment, with the value of saying, we have to reflect market sentiment because my simple argument was, well, how come I am still selling land at better than 2019 book value? As of June, they had to create a model, which assumes that there could be a significant reduction in house price sales over the next few years. And you all know how NPV models work. So if you model out a size and just add several more years, the delivery pipeline, it reduces the current net present value, hence, why you get a sort of a technical adjustment to the figure. But that's why I sort of very much emphasized through this. The housebuilders on our sites have continued to sell sites throughout the summer. We're all reading in the press about will that continue? Is it a summer bubble? But, yes, we're ideally placed for people who want to sort of move out of the cities to suburbs and have more land. So I think it's very much a reflection of the situation in June, which is what they have to look at. They can't look at how it now looks in September because the valuation date is in June. So I think that gives you the answer. Does that?

Yes, good answer and a good view in terms of the look forward as well. So if we assume the sentiment what the key driving factor for the weaker valuations in June, obviously, that's improved considerably. So I thought that was a read for Q3 and Q4. I suppose we were looking at things slightly more optimistically. But yes, that's all for me.

Yes. I will -- perhaps, Colm, I will just slightly add, but in accordance with all of the valuations every year before I get pumped by the brokers later. Obviously, there's some pluses and minuses because some sites have moved forward, some backwards, but they tend to balance each other out, but the majority is along the lines I said. Moderator, do you want to go to the next question?

[Operator Instructions] As there are no further questions over the phone. I'd like to turn the call back to Iain for questions over the web.

Thanks very much for that. There was 1 question that was submitted, but that has been answered by Owen through his response to Colm. So we won't take that forward. So no further questions from my side.

Thank you. I'd like to hand the call back for any additional or closing remarks.

I don't think we have any closing remarks. I mean, thank you, I should say. Thank you for all your time and patience. Thank you for your trust in the company. Thank you for your trust in the management team, and thank you for your trust in me. As I've already said, I think the company is well set up to trade through any recession that might come forward. Yes, we have a really good portfolio that is still being driven forward by the team. Yes, we have to sort of deal with sort of the cycles in property, but there's still a lot to go at. And thank you for the last 10 years.