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

Good morning, everybody, and welcome to our Capital Markets Day. I'm Lynda Shillaw, Chief Executive of Harworth Group. Now for reasons that well known to all of us, it's been sometime since we were last able to host an event like this. So I'm really excited to showcase today the depth of the skills and expertise across our team and some really fantastic sites in our Midlands region. I'd like to thank everybody here in the room today for making the trip up to the Midlands and also everyone watching us on our webcast. I'd like to thank my Midlands team for arranging the weather because it's quite spectacular today. Today's session aims to explore in more detail some of the key elements of Harworth's investment case and really bring them to life. And you'll have seen from our trading update issued 3 weeks ago that we continue to make significant operational and financial progress. But today is about looking at the drivers of that success. We'll look at the strength of our focused markets of industrial and logistics and residential. We'll provide some more detail on our direct development strategy and we'll also touch on our regional model and the breadth of expertise, both in our head office and across our regions. Throughout the presentation, we'll also be highlighting how our commitment to sustainability runs through our business model and operations. And you'll see more of this on site as well. I'm delighted today to be joined by a number of my senior management team, some of whom may be less familiar to you. So shortly, you'll be hearing from Andrew Blackshaw, our Chief Operating Officer; and Jonathan Haigh, our Chief Investment Officer, both of whom were appointed in July 2021, having worked with the business previously. You'll also be hearing from David Cockroft, he joined Harworth in 2019 to head upon Midland's team. So alongside today's speakers we've got a number of other members of the Harworth team with us today. We've got Kitty Patmore, who many of you know, our Chief Financial Officer, Haroon Akram who joined us in January as our Director of Strategy, Business Development and Investment, the longest type of orders. And James Crow, our Head of Mixed Tenure. We're also joined by Tom Loughran , our Head of Investor and Stakeholder Relations. We'll have members of the Midlands team here throughout the day, and David will introduce you to them shortly. So the next slide shows our agenda for today, and it starts with this presentation, which we expect to last for around an hour. I'll begin with a quick update on the strategy before handing over to Andrew Blackshaw to talk about our markets. Andrew will then hand over to Jonathan to talk through our direct development strategy before finishing with David Cockroft talking to us about the Midlands region. We'll then open up to Q&A for attendees in the room and anybody submitting questions online through the webcast browser. And at the point all that call ends and everybody attending in person will have a pack lunch to go and we'll be taking on the coach to our South East Coalville and Bardon Hill sites. On route we'll also pass by our Ansty site, which some of you will remember we conditionally exchange on last year. And from our last site Bardon Hill we'll be heading to Leicester station in order to catch trains home. Before we jump into the main presentation, I just wanted to take you through the highlights of our AGM trading update from the 24th of May. We continue to see operational momentum in 2022 so far and delivering our strategy against an ongoing backdrop of robust demand for both our service residential plots and our industrial and logistics land products. And as you can see from this slide, our industrial and logistics land bank has increased in the year from just over 28 million square feet at year-end to over 32 million in May. And this increase has been driven by acquisitions during the period, which added just under 4 million square feet. The acquisitions are all part of wider land assembly works, and I look forward to sharing more details of these sites once these assembly works are complete. As you can see from the top right of the slide, our industrial and logistics development is really ramping up, and Jonathan will touch more on that shortly. And we've also made great progress with sales with almost 40% of budgeted land sales for the year now completed, exchanged or under offer. Our residential pipeline now totals over 30,500 plots. And you'll see this is a slight reduction from our year-end figures due to the significant progress we've made with the sale of service plots and other land and actually over 100% of our budgeted residential sales for the year and now have a completed exchanged or under offer. This is a fantastic achievement just 5 months into the year, and it demonstrates the continuing strength of our markets and our sites. Our investment portfolio continued to post robust operational metrics, and our balance sheet position remains strong, with LTV slightly ahead of our year-end position as we've improved our debt capacity, but increased our development spend. And finally, I've always said that it's not just about what we do but how we do it that matters at Harworth. And to that end, I was delighted to announce the appointment of our first Director of Sustainability, Peter Henry, who brings over 10 years' experience working in place making and development for Harworth to the realm. I was also pleased to welcome Marzia Zafar to our Board as a Non-Executive Director. Marzia brings with her over 20 years' experience of energy transition strategies in a number of international markets, and we are already benefiting from her expertise as we further develop and implement the Harworth Way. So this slide probably one of my favorites will be familiar to many of you, and it shows the key drivers of our growth strategy to reach GBP 1 billion of EPRA NDV by 2027. And you'll be hearing a lot more about some of these as we go through the presentation. You can see here in the middle column that we're making great progress towards our ambition with 635,000 square feet of direct development currently underway. 100% of budgeted residential land sales completed, exchanged or under offer. And in May, we launched Project Spur, bringing further diversification into our residential products. We've also grown our strategic land bank and as direct development works are complete, the proportion of Grade A space in our investment portfolio will significantly increase. Now as I mentioned already, Harworth prides itself on being a responsible business. And we've continued our work embedding the Harworth Way through our strategy and operations with particular focus on the design and carbon use in operation of the logistics assets that we build. Throughout last year, we've been working with our Board ESG committee to ensure that the ESG targets and metrics that we set and measure ourselves against going forward are right for Harworth. And this is culminated in identifying 8 focus impact areas against which we will measure our sustainability progress this year. Amongst these areas, there's a target to become operationally net-zero carbon by 2030 and to become a fully net-zero carbon business by 2040. Now our director of sustainability, Peter Henry, unfortunately can't be with us today, but you'll be hearing throughout the presentation, and you actually see on some of the site visits, the ways in which our work is supporting the Harworth Way pillars and our focus impact areas and ultimately, our focus UN sustainable development goals. Before I hand over to Andrew, I just want to reflect on the current market conditions because there is no doubt that it is very challenging -- challenging environment for both business and consumers. And despite this, demand for both our residential and industrial and logistics products has remained robust for the first part of 2022. And this is underscored by the progress that I've just mentioned. We believe one of the main reasons for this is the resilience in Harworth's strategy and operating model. So for example, the vast majority of our residential plot sales are serviced oven-ready plots, and this is a very attractive product to house builders. As it essentially provides derisk land, which can be developed straightaway and therefore, remains in demand throughout the cycle. As well as our business model is the contribution that we can make to local and central government agendas that sets us apart and leveling up provides an opportunity for Harworth to make a real contribution here. So with that, I'd like to hand you over to Andrew Blackshaw, who will be taking you through our markets and provide a quick update on Project Spur. Thanks, Andrew.

Thank you, Lynda, and good morning, everybody. I'm Andrew Blackshaw, I'm the Chief Operating Officer. I joined Harworth in January 2021 and assume the role of COO in July last year. Prior to that, I was the Managing Director of the Investment Asset Management division of Manchester Airport Group, and I've also held real estate advisory roles at Deloitte and PwC. I joined Harworth because I believe it has a fantastic track record, a highly skilled team and enormous potential to transform its existing and growing portfolio into sustainable new communities. Before I update you on what we're seeing in our markets, I wanted to cover the role of Chief Operating Officer. The role is centered around the implementation of group strategic plan, working across our 3 regional teams in order to bring forward and accelerate the delivery of our sites, to develop new products, to build and maintain our partnerships and critical to all of that, ensuring that Harworth as a business as the necessary resources and skills to succeed. I also run the valuation process with Jonathan as Chief Investment Officer. And alongside Jonathan and Kitty ensure that our teams are working effectively together throughout the business. Recently, I've had -- I've been heavily involved in Project Spur for the launch of Harworth's first single-family build-to-rent product, and I'll provide a little bit more color on this in a moment. I wanted to begin by looking at the industrial and logistics market. This sector saw a record year in 2021. The demand for industrial space has been driven by a wide range of factors some of which are long-standing structural drivers and others have emerged or at least been accelerated by external shocks such as Brexit and the COVID pandemic. Whilst online retail grabs a lot of the headlines, there are other important factors. Disruptions caused to supply chains in the form of border restrictions, lockdowns and access to labor, such as HGV drivers has increased the need for near-shoring, for re-shoring and for stockpiling. Recent survey data from Satel suggests over 80% of respondents expected COVID to increase the need for onshoring. New uses such as data centers, a market which is well established in the U.S. is still in its infancy here in the U.K. and is contributing to demand as is population and housing growth, bringing new customers to shop and goods to manufacture. Against this backdrop of continued demand, supply continues to be limited. And this has been exacerbated more recently by the availability of labor and materials but also through the planning delays and the fact that development isn't always happening in the places that have highest demand. And as a result of that, we're seeing a mixed pattern of availability across the regions. Since the start of the year, the market has faced headwinds in the form of rising inflation, the war in Ukraine and the prospect of an economic downturn. These headwinds have potential to impact development costs and, of course, the demand for space. However, we believe the majority of these demand factors are resilient to softer market conditions and that these supply constraints are here to stay, if not tighten further in the face of economic pressures. The chart on the left shows the take-up of industrial units over the past 10 years. You can see how strong demand has been for both '20 and '21 when take-up reached an all-time high of 55 million square feet. '22 has gotten off to a flying start but I think there's wide expectation that whilst the markets are in for another strong year, it may not reach the high seen previously. The chart on the right shows the categories of occupiers that have been taking U.K. space over the past 15 years, right up to the first quarter of this year. It paints an interesting picture of how the occupational market has changed over time and I'd quite like you to draw out a few points. Firstly, the continued growth in third-party logistics sector, the likes of the DHLs, the [ Wing cantons ], Royal Mail, Clippers. This sector has gone from accounting for around 15% of the market just over 10 years ago to around 30% in the first quarter of this year. Secondly, while online retailers continue to be a key contributor, their share of take-up is decreasing. Amazon understandably receives a lot of attention as it has been one of the largest individual takers of U.K. space, but its influence is often overstated us even in a record first quarter this year, Amazon only accounted for around 3% of take-up. Finally, manufacturing businesses have long-standing component of demand and the share of that market is increasing. It looks likely that this will be further fueled by the onshoring and near-shoring activity I've always been touched on. This chart takes the previous take-up figures and drills down into the regions. It shows that the record growth in demand in '21 was driven by Harworth's focused regions, and in particular, the West Midlands and the Northwest. In fact, the 4 regions highlighted here are the only ones that saw take-up growth compared to a year earlier. In many ways, of course, these regions are playing catch-up to a very strong market in the Southeast and London and offer all the key ingredients in terms of proximity to work in centers, skilled workforces and transport links. Data from the first quarter this year shows that these regions continue to be amongst the fastest-growing with the 4 regions highlighted here, accounting for almost 2/3 of that total demand. One of the consequences of this demand is a record low levels of availability. And as you can see from the chart on the left here, that is at its lowest level on record in the first quarter of this year, having fallen consecutively for the 6 previous quarters. The chart on the right uses data for just the industrial market, showing that vacancy fell to below 6% in '21. Average rents continue to rise above GBP 7 per square foot for the first time. So far in '22, we know that vacancy has fallen to just 2.7% across the industrial and logistics market overall and rents have continued to grow. So what are occupiers looking for? There aren't really any surprises here. They're looking for somewhere with good accessibility to motorway or paved road access and ability to serve markets within a reasonable drive time. But they're also looking for a skilled workforce and they want affordable rents. Perhaps one of the characteristics, which often gets overlooked is the importance of power, power capacity and power resilience is often one of the biggest issues for manufacturers and logistics facilities. Installing it from scratch where it's even possible, can be incredibly slow and incredibly costly. Thankfully, because of the very energy-intensive former uses of many Harworth -- former Harworth sites or Harworth sites, we have that connectivity already in place. These are the long-standing priorities for industrial logistics occupiers. But then we are seeing the importance of some of these factors on the right driven by an increased focus on environmental impact, on automation and, of course, on employee well-being. The focus on climate resilience, in particular, is driving an even greater emphasis on the type and amount of power delivered to our occupiers, represented here by power plus, plus, plus. There's also rising demand for intermodal connectivity that is sites that are not just service by roads, but by rail, air and waterways too. And again, Harworth's portfolio is very well placed to provide many of these features. Turning now to residential. We've outlined some of the key demand drivers, which are again a mixture of long-term structural and some short-term factors. The rates of space, driven by the pandemic has contributed as of government incentives for homebuyers, such as [indiscernible] holidays last year and, of course, the homes guarantee. Despite rising interest rates, which they remain relatively low by historical standards, and there remains healthy competition in the mortgage market, so where we are yet to see any tightening of lending there. And then there is the fact that the housing market is changing and build to rent is growing as I'll come on to in a moment. The factors limited to supply are largely the same as in the industrial market, availability of land, planning delays and more recently, the availability of labor and materials. We haven't listed here the rising cost of materials has a constraint because the pricing that we've seen and we've seen continuing this year seems to indicate that house price growth is outpacing inflation, although, of course, we continue to monitor that very carefully. This chart uses data from nationwide and shows that since the start of 2013, U.K. house price shown here in blue, has been in positive territory even in the height of the COVID pandemic. Since then, growth has continued. And despite some fluctuations of short-term, government incentives are switched on and off, growth remains high by historical standards. We've also added in green the consumer price index. And that actually includes owner occupiers housing costs. And you can see here that house prices are still continuing to outpace rising inflation. Focusing on build to rent for a moment. This is one of the fastest-growing sectors of the residential market, driven by many factors, including population growth, mortgage affordability and increasingly mobile workforce and, of course, lifestyle changes. The chart on the left uses historical data from DLUHC and shows the gradual uptick in the development of the private rented sector. The hollow bars on the right show Savills forecast. They expect the annual development of PRS units to triple over the next 5 years. The chart on the right shows how the investment market has responded with investment volumes into BTR in Q4 '21 by far the highest on record and with a healthy level of deal activity continuing into the first quarter of this year. For a long time, the BTR market has been characterized by multifamily units. That is large developments of apartments in urban centers, with commune facilities and generally catering for mainly younger people. However, this market doesn't reflect the wider private rental sector. In that sector, over half the homes are in areas outside of city centers, and around 60% of renters are over 40 years old and have families. And therefore, private renters are becoming older as generation rent enters its late 30s and early 40s. So the market is responding to the opportunity to deliver institutional quality family homes to meet that demand. On the right here, we've listed some of the key characteristics of single-family housing sites, suburban locations on the periphery of employment hubs, good access to schools and other amenities and open spaces. These characteristics are exactly what we provide through the place-making skills on Harworth sites, and that is why we've launched Project Spur, Harworth's first single-family BTR portfolio. Spur launched last month represents a unique forward funding and long-term investment opportunity for a prospective partner to deliver up to 1,200 homes across 10 sites in Yorkshire, the Midlands and the Northwest. These sites have benefited from Harworth investment as well as its master planning and placemaking expertise, which we have delivered green space, recreational facilities and well-designed public realm. For existing residents, the introduction of the BTR product is expected to further add to the vibrancy of attractiveness of those communities. This allows us to accelerate the delivery of our residential sites because the BTR product can be built out alongside service residential plots that we traditionally sell to house builders rather than having to phase the development to take account of local absorption rates. And as Lynda mentioned at the beginning, it's also a great diversification in the event that we see a softening in the traditional build-to-sell market. This slide takes Waverley as an example, where we have over 150 homes allocated as part of Spur. The proposed development site highlighted here in blue would provide residents with access to all of the features that are desirable in single-family BTR. You have a primary school on your doorstep, over 310 acres of green space employment opportunities at our advanced manufacturing part next door and closed by the cities of Sheffield and Doncaster, has a supermarket up the road and further amenities will be provided by the future development of our Olive Lane. We have received really strong levels of interest from prospective investors since we launched Spur. The deadline for the first stage bids passed last week, and we are now working through the process to select a partner. We have a target date of the end of this year to exchange contracts with the build-out and phase handovers to take place over the next 3 years. Bids have been invited on the basis of 2 potential funding models. That is a forward -- a fully forward-funded model and one in which Harworth takes an equity stake. The co-investment option would allow Harworth to continue to extract returns from the portfolio and benefit from its own placemaking activities elsewhere on site after practical completion. as well, of course, as receiving land and delivery payments throughout the build-out. We're very pleased with the progress we're making to date on Project Spur and truly look forward to updating you as the process continues. Now that was a very quick run-through of our markets. And if I may, I should like to hand over to Jonathan to walk you through our direct development strategy.

Thanks, Andrew. Good morning, everybody. I'm Jonathan Haigh, Chief Investment Officer. I've been working with Harworth since early 2021. I was appointed CIO in July. I joined from Manchester Airport Group, where I was divisional MD for property, I led the development side of the business. Before that, I led PwC's business recovery services real estate team and parts of which I was Investment and Development Director are any more responsible for many large-scale developments. Since joining Harworth, have been privileged to help shape and drive forward our direct development strategy and work on a number of exciting transactions, which will grow our pipeline to deliver more great places for people to live and work. To begin with, I'd like to provide some context around the Chief Investment Officer role as this is a new role for Harworth, while Andrew has oversighted the regional teams, I have oversighted certain other parts of the business, comprising our central technical services, natural resources and asset management teams. As part of this, I also look after our GBP 280 million investment portfolio. I'm also responsible for 2 key areas of the strategy. First, our direct development program in industrial and logistics and secondly, strategic acquisitions and projects to grow our pipeline. And as Andrew has mentioned, I share responsibilities with them for our biannual valuation process and also with him and Kitty in terms of making sure our internal teams work effectively together. Turning to our direct development strategy. To begin, I wanted to reflect on Harworth's existing track record of industrial and logistics development. Since we relisted as a business in 2015, we've successfully delivered 1.3 million square feet across 19 buildings. The most recent was LN50 at Logistics North, which was completed and let last year. Our experience encompasses both speculative and pre-let schemes, development in joint ventures and development for owner occupiers. We have demonstrable in-house expertise and initiative managed transactions and deliver schemes, including skills and bringing to the 4 skills and expertise in town planning, infrastructure, engineering, procurement and project management. We've attracted further talent to the team to resource for growth. This slide shows where development delivery is currently live. Over 100,000 square feet is underway at Gateway 36 closed by the M1 in Barnsley, which will also substantially enable a further 425,000 square feet to come in subsequent phases. At the AMP in Rotherham, we're close to completing a build-to-suit unit for a sportswear manufacturer, SBD Apparel, who are upsizing from elsewhere on our estate. We also secured detailed planning approval earlier this year for just under 100,000 square feet as part of the next phase of R-Evolution as a scheme to provide a range of flexible units aimed at SMEs and start-ups. And finally, the largest share of 332,000 square feet relates to our Bardon Hill development, which you'll be seeing on our site visit later today. Together then, this activity represents a strong first year of stepping into our strategy to deliver 800,000 square feet per annum. As part of our review of the business last year, we performed a thorough analysis of our industrial and logistics pipeline and concluded that we had all the right ingredients to scale up our direct development activity. Alongside our impressive track record, we have one of the largest industrial and logistics land banks in the U.K. with capacity to accommodate over 32 million square feet across our regions. The regions, as Andrew has earlier highlighted, are seeing the greatest growth in demand. We deploy the specialists and technical capabilities of our central functions to support our regional teams complementing their knowledge of local markets and strong relationships with local authorities, landowners agents and occupiers. And working in close collaboration in this way, we not only leverage the benefits of our scale but also our access to new opportunities. Our skills in master planning and placemaking, together with deal making and execution have delivered regionally significant schemes such as the AMP and Logistics North, which are exemplars for successful brownfield regeneration, and it's a formula that we can repeat. And finally, we have the financial firepower and flexibility to develop with high levels of available liquidity and a conservative approach to gearing. Before I take you through a few key sites, I wanted to provide this slide as a summary of our 32 million square foot industrial and logistics pipeline. As you can see, around 1/4 of the pipeline is consented, and this comprises good diversity by region and development stage. We have roughly a further quarter of the pipeline of waiting determination and that includes a combined 3 million square feet Gascoigne Wood and Skelton Grange, where we expect decisions later this year. Notably, at the top right chart on this slide shows, 2/3 of the sites are freehold. Here, we outlined the key sites that we plan to deliver by 2028, which roughly equates to the length of our strategic plan. This comprises sites such as the AMP and Gateway 36, which as you can see here, are already well underway to sites such as Gascoigne Wood and Skelton Grange where we await planning determination. You can see here that combined, these sites represent around GBP 1 billion of GDV still to come. But just a reminder that though because we remain flexible in our approach, some of that GDV will potentially be realized through land and building sales and joint ventures. The final thing just to note is the map here showing the prime locations of these development sites alongside major motorways and calibrations, appealing if you imagine to the wide range of prospective occupiers. This slide outlines some of the factors as to why a key driver of our strategy is to increase direct development. I don't intend to go through all these points, but I'll pick out 2 in particular. First, of course, one of the main reasons to increase direct development is to enhance returns, allowing Harworth to capture developers' profit and the upside. Secondly is the fact that the strategy has to transition our investment portfolio to Grade A by moving newly built stock into this portfolio and churning it over time to dispose off assets where we have completed asset management and development activities. The Grade A portfolio is more resilient and aligned with occupied demands. Plus it's more sustainable in the longer term, allowing us to continue to extract value gains associated with asset management and placemaking. And of course, it's aligned to our purpose. And as we increase our direct development activity, we're doing so in a disciplined and risk-controlled way. The first way in which we do this is by controlling exposure to letting risk. While we undertake extensive due diligence and appraisals on all sites before commencing works, our risk appetite is such that we aim to maintain a balance of pre-let and speculative positions as we move through the cycle. And where we developed speculatively, we delivered buildings less than 100,000 square feet, typically and with flexibility of configuration and phasing such that we can better respond to letting opportunities. We also maintained a flexible approach to realizing value from our portfolio, supplementing our direct development with forward sales and developments in JVs where it makes sense strategically to do so. For example, to accelerate the value realization or where it helps to manage risk more effectively. We have long-standing relationships with trusted external delivery partners which ensures quality and timely delivery of products and use fixed cost contracts wherever possible for certainty and to avoid material price fluctuations during the construction phase. I want to spend the final part of my section, just talking about how we are delivering our direct development strategy, the Harworth Way. Lynda talked to the beginning of the presentation about our 8 focus impact areas. This slide provides a bit of flavor as to what we're doing across some of these areas. Something that has been very topical amongst occupiers and our supply chain has been this middle bar, reducing CO2 emissions. As a business, we have an ambition for all developments to be net zero carbon in construction and operation by 2030. We've taken some steps towards this ambition last year with the completion of our first net zero carbon capable building, LN50 at Logistics North, and we are working with occupiers and our supply chain on performance criteria to inform an enhanced Harworth standard specification going forward. This includes exploring lower carbon construction methods, such as the use of recycled steel, increasing energy efficiency and installing on-site renewables. And with that, I'd now like to hand you over to David, who will talk you through the Midlands region.

Thank you, Jonathan. Good morning, everybody. My name is David Cockroft, and I'm the Harworth's Regional Director for the Midlands. As Lynda has mentioned, I joined the business in early 2019 having formerly been a Director at Coventry City Center and major projects within the council. I have over 30 years' experience in regeneration brownfield development in both public and private sector companies having worked for St Modwen, Amec, Lovell and English partnerships. I'm delighted to be welcoming you all today to the Midlands region. I'll have the opportunity to showcase our fantastic team who are -- mainly stood at the back and to see some really exciting developments that we're underway with. Before I focus on the Midland specifically, I just wanted to touch for a moment on Harworth's regional structure, which we consider to be a key differentiator for us. Established in 2018 this structure was created -- has created a Midlands region run by a team based in Birmingham, highlighted in green on this page. It is also created in Northwest region with a team based in Manchester highlighted in blue over here. These 2 regions have joined Harworth's existing Yorkham & Central team, which manages the majority of Harworth legacy sites and is based at our head office in Rotherham and in Leeds. The regional structure allows for small local teams that live and work in the regions they are developing and transacting in. The unique trait, we have specialists in acquisition, planning, development and project management and they are supported by wide array of experts in head office covering every step of the development cycle. Focusing on the Midlands team specifically, our team has been assembled over the past 4 years, and this is what we look like today. And that is what we look back in the room. And hopefully, you'll get to meet the team a little bit further when we get to Bardon Hill and be able to talk to us individually. The team comprises individuals with many years of property sector experience within the Midlands markets, working with the local partners and stakeholders. Our officers are based in Central Birmingham. But from the most part, we are actually out working across the sites across the region as a whole. So what does the Midlands region look like in terms of numbers as at the end of May? We have a total of just over 6,500 plots with over 2,300 of those consented and not yet sold. We have also close to 7 million square foot of industrial and logistics space in our pipeline and just below 1 million of that is currently consented. Those numbers relate to a total of 19 sites split across a number of local authority and let areas, which has helped us build strong relationships throughout the region. Andrew has already spoken about the continuing strength of our markets, and this slide provides a bit more flavor in the picture in the Midlands. As you can see, we've had healthy house price growth over the last 12 months to April and this is forecast to grow by 16% higher than the South England, but just slightly below the northern regions of the country. Similarly, vacancy for industrial and logistics unit stands at less than 2% below the average U.K. -- average of 3%. And part of the reason for this is a significant take-up seen in recent years by mainly in the so-called Golden Triangle locations. Before I speak about the sites we're going to be visiting today, however, I wanted to provide an update on our Ironbridge development. I know many of you have visited the site already. And for those who haven't, I really look forward to giving you a tour very, very soon. 2021 was a significant year for the development as we received planning permission for about 1,000 homes along with a variety of commercial and community uses, and we also completed the site demolition work, as you can see from the image on this slide. Remediation works are now underway for the first phase of development, marked in blue here on the aerial image. And this is set to deliver over 100 homes on that first phase. That first phase has -- the most recently, the first phase has actually attracted 14 housebuilders to submit expressions of interest, and the scheme as a whole is now renamed Benthall Grange. I think it's fair to say that Ironbridge is becoming exemplar of the way Harworth -- the Harworth Way runs through everything we do here. Since our first public consultation at the Ironbridge site in 2018 we have actively engaged with the local community. Most recently, we've signed a sponsorship deal with the Ironbridge Club, which is the image on the far left which the whole team is attending the name ceremony of the flagship mode. We've also maximized the recycling materials from site. So we've actually reclaimed about 35,000 tonnes of ferrous and nonferrous metals, 70,000 tons of crush concrete for reuse in our development. And we're also reusing 200,000 tonnes of pulverized fuel ash for use in the production of cement. This reuse also includes our remains of the sites, 4 cooling towers, which we're going to use to construct new cycles and footpaths. We're also protecting and enhancing biodiversity with 56 acres of site reserved exclusively for this purpose. As part of our site preparation works, we installed 6 great crested new ponds, a back pond and a 21-meter tool nesting tower for peregrine falcons. Finally, the picture on the right-hand side shows a revolution VLR train at Ironbridge. Revolution is a consortium of advanced manufacturing companies aiming to develop the next generation of very light rail vehicles and technologies. And we've worked with them to develop a test vehicle and a track alongside a stretch of disused railway on the site. So in conclusion, there's a lot going on at Ironbridge right now, and we will be sure to keep you updated as the development progresses. So should we turn to see what we're going to go and see today. So today, we're off to going to see 2 Harworth sites which are actually right next to each other on the outskirts of Coalville in Leicestershire close to Junction 22 of the M1. We're going to start in East Coalville, our largest development in the Midlands and second largest residential development in our portfolio after Waverley. And then we'll be heading to Bardon Hill, which, as you've already heard, is Harworth's largest direct development project currently underway. There'll be 3 stops in total. The first to the north of South East Coalville site known as Huggelscote Grange. And then we'll head to the second part, which is the South East site, a phase called Swinfen Vale. We'll then finish at our Bardon Hill site where we're getting very close to practical completion, and we'll be able to go inside Unit 2 for a look around. For those of you unfamiliar with South East Coalville, I just wanted to provide a very brief introduction before we get on site. Here, we're bringing forward over 2,000 homes on a 440-acre site, which sits in a national forest setting. Alongside homes, our plans include a primary school, local center and new public open space with footpath and cycle ways. Planning Commission was obtained by Harworth as lead developer in 2016. The development is subject to a detailed design code inspired by the area's national forest surroundings. This design code has worked up with local stakeholders, including Northwest Leicestershire Council. South East Coalville provides 2 main regions: Huggelscote Grange, as I said, to the north and the site in Swinfen Vale to the south. We began on Phase 1 at Huggelscote Grange in 2020 and have made great progress with service plot sales to date, having completed sales representing about 700 homes. Phase 2 is now underway with land preparation works for the delivery of further land parcels, green space, a new local center and a primary school. We're off to a great start on the phase, having made our first pot sale to Bellway to deliver 189 homes. And you'll hear a lot more detail from our team when we get on the ground at South East Coalville. The 54-acre Bardon Hill site was acquired by Harworth in May 2018. Our first -- sorry, our direct development scheme received outline planning consent from Northwest Leicestershire Council for industrial and logistics development in July 2019. The planned development will comprise 6 units ranging from 28,000 square feet to 116,000 square feet. All built to a BREEAM Very Good Standard and EPC rating A, which can be used for manufacturing or distribution users. All units will have first floor offices, secure service yards and dedicated power parking spaces. And plans also include the development of a 10-acre local wildlife center and great crested newt ponds to enhance the local biodiversity and provide amenity space for the local community. The surrounding area is an existing concentration of industrial and distribution units with very low vacancy rates, where occupiers include Amazon, Eddie Stobart and DHL. And the greater diversity of unit sizes and specifications, which the Bardon Hill scheme provides will ensure suitability for a wide range of occupiers. We're pleased to report demand to date has been very, very strong. You may have seen from this morning's announcement that we have exchanged contracts for the letting of the first 2 units and are in advanced negotiations for a further 2. Together, these represent 78% of the total space available at the development and this is a really strong pre-letting progress, and it underlines the ongoing robust demand for industrial logistics products. Again, you'll be hearing a lot more about Bardon Hill as we get there from the on-site teams when we pause at Bardon Hill. So finally, Ansty I just wanted to touch on Ansty site, which is very close to where we actually sat here today. And you may be aware that last year, we announced that we had conditionally exchanged contracts on the sale of this site. Ansty extends to 278 acres and is adjacent to Junction 2 of the M6 connecting to the M69. This site is relatively new to our portfolio, and we have been undertaking land assembly work since 2019. Our disposal allows us to realize value and the benefits the site can bring to the local economy much more quickly. Here, the sale is conditioned on the granting of a hybrid planning permission, and we will be working collaboratively with the purchaser to begin the planning process. We look forward to keeping you availed of that progress as it goes forward. And we'll be pointing out the site shortly after we leave and make our way to South East Coalville. And with that, I'd like to hand over to Lynda for her concluding remarks. Thank you.

Thanks, David. So before we open up to questions, I just wanted to draw the presentation to a close with some final thoughts. While we're not immune to wider market conditions, it's important to remember that we are a long-term through-the-cycle business, and we feel confident about Harworth's positioning and prospects for growth. Our focus markets remain robust and our business model and strategy provides both resilience and flexibility. Our strong financial position and the skill set amongst our head office and regional teams allows us to be fleet in a changing market responding to challenges and opportunities as they arise. And final for me, one of the key attractions in joining Harworth is that what we do genuinely matters. And it's more true today than it's ever been. And our further development of the Harworth Way will unlock more opportunities to provide environmental and societal benefits. Importantly, we can be a partner to local and central government and delivering on their core agendas of housing leveling up and building a green economy. And with that, I'd like to thank you all for listening. I'm going to open the floor up to any questions. You've got to retake our positions to do that. We'll take them from the room first, and then we'll take any that have been submitted online. Thank you for listening.

Just quick on the development, I mean you talked a bit about the returns, that's obviously one of the reasons we're doing the development. Can you talk a bit more about the kind of returns that you're targeting I don't know if there's kind of a premium over investment yields or IRRs and just give a bit of a flavor as to the returns from the development side?

And so I think that whenever we're looking at these schemes, we're refinancing up returns and risk involved as well-being to start with a flag that and we use lots of different sort of structures when we're bringing forward these industrial and development sites to manage that risk. So Jonathan mentioned that sometimes we partner for existence on some schemes with sort of other delivery partners we work we deliver through forward funding for structures, and we also do service land sales as well. We're always developing ourselves, specifically targeting for the minimum development margin to at least 20%. You'll remember there are some standards of assumptions when we're looking at returns is across our sites to deliver about 15% IRR and/or above that over the life of the scheme. So we do actually expect our development to perform so a little bit higher than that to reflect the risk involved. And in terms of whether that delivers sort of as at a higher yields relative to the investment yield, it should be obviously because we're delivering a profit. So we'd expect the yield on cost to be in the order of 6% to 8% again, depending on sort of scheme by scheme and sort of individual merits as well, whereas the investment yields are tighter than that at the moment. That said, we then revalue them at the end of the year. So they still need to think for their luster next year as well.

And then maybe just one more on. You mentioned your one of the prices for occupiers is the rental affordability. And you -- obviously rents have risen, are you seeing any you kind of changing -- why are you seeing evidence that sometimes now struggling to afford some rents? Or is that not an issue today?

Do you want to take that one Jonathan?

Yes. I mean we -- it's certainly in our own existing investment portfolio. We have, as you would imagine, very strong dialogue with our tenants. It's not manifesting as a problem yet. It's something we'll obviously carefully monitor. We have a very low level of vacancy in that portfolio. We don't have that many rent views this year, but it is always going through churn. So we will, if pressure points appear, feel them, but there's nothing to suggest there's an issue just now. I think in terms of conversations with prospective occupiers of new schemes. Again, in my experience, it's -- rent is just one of the factors in the cost of occupation and actual fact in the dialogue we have, it's really the first question. It's really the first topic we're talking about. It starts with usually where are they going to get the staff, where are they going to get the power, how big can it be and how quickly can we deliver it? Have we got planning or not? Rent is still evidently and always will be a feature, but it's not the blend or in the new development.

Can I ask a few questions on Project Spur, please. I'd be interested to know what the profit profile will look like or could look like for Harworth, but also what the risk sharing may or may not look like obviously, cognizant the fact there are different options available to potential parties? And then thinking further forward, I think you mentioned a Phase 2 on the slides. Could we see a Phase 2 starting before Phase 1 has ended? Or is it likely to follow on at the conclusion of the first phase.

They're all really naughty questions. I'm going to hand to my CFO to talk about sort of returns. I think we talked a little bit about it similarly in the year-end.

Yes. Yes. I mean I think -- for us, the projects there in the first month is a really exciting way of sort of accelerating sort of land sales really on the site. So if you think about sort of the forward funding structure, Matt. So the aim with that is you sort of exit the lands on day 1, so it acts in a similar way to a house builder sales. The great thing for us is that we can be delivering rental sales alongside that they build to sell products as well. So it allows us to work through our sites faster. So the setup, we're aiming to sort of exchange towards the end of the year. Completion will then be sort of on a phased basis, depending on when the different sites achieved the necessary for detailed planning. So we have to go back through reserve matters on a number of sites just to allocate them specifically for rental. We don't anticipate any problems with that but that will be sort of over the course of the next 12 months. So you'll see some land sales ticking through. Then under the forward funding structure, we'll be taking sort of an element of developers margin because we're delivering those units too. And -- in terms of the co-investment option, I suppose that has the opportunity also to benefit and sort of increases in value over time as well. So that will give us a little bit of a longer tail in there, which we think is potentially interesting given the way that we think the build-to-rent market might move. In terms of Phase 2, I feel like that's maybe Andrew. I'll pass that one, right.

I think I'll just make 2 very brief observations. I think when we first talked and launched the strategy last year, we talked about our portfolio for Project Spur, which is slightly less than the 1,200 units. So we've been very busy in terms of accelerating the second phase of suburb and augmenting it into the first phase. Having said that, certainly, in terms of the appetite that we have from the prospective investors and the configuration of our sites, and you heard David talk particularly around some of the consented land that we have in the Midlands region. We have identified already a second phase of units. We're working through the diligence to make sure we understand exactly the interaction with the planning and deliverability of the infrastructure on that. But we hope to talk to the market early next year around what that looks like in terms of our ultimate size.

I think if you remember, James, when we talked about the strategy at the half year results last year. We talked about -- we'd identified at that point of portfolio of around 3,000 units. We see this as being a really exciting opportunity to enable us to sort of accelerate working through smart residential sites, create place faster, which means you're bringing the amenity forward faster than that as a halo effect on the sort of valuation of later phases of the site. So there's a lot to go at. James has been very busy.

I think it's also worth having the profit, the diversification as well away from just purely a reliance on the housebuilder side too.

Just a few questions from myself, if I may. Just following on Project Spur for one final one, if I may. On the potential equity stake if you were to go down that route, I just wonder whether that would just be taken through to practical completion of the units themselves or whether there's a potential for that to fall into the investment portfolio and therefore be a residential exposure in there? Just on the comments in relation to fixed price contracts as well on direct development, I wonder if at this point in time, given the inflation environment is out there and obviously, everybody has to worry about whether you've seen any evidence of contractors building in additional contingencies and therefore, maybe there being a slightly higher inflation rate maybe for Harworth to be looking at from that respect? And maybe finally then just in terms of the 635,000 of direct development underway and in relation to the target of 800,000 of an annual completion rate. I'm just trying to marry those 2 metrics and get your view on, let's say, at a run rate of 800,000 per annum, how much direct development you'd actually have to have underway at any point in time to be delivering that?

Okay. So I'm going to have a go at the first bit. And I hope my colleagues are going to think hard about the sort of because I might forget them by the time I get the -- so in terms of a carry, I mean, we're working through -- so you can imagine, we've had a lot of interest. We've had a significant number of submissions. And they're on different basis relative to each other. So at the moment, we're actually sort of working through what that looks like and whether it is a carry-through to stabilization or a longer-term investment will wash out actually as we go through that evaluation process. We've never ruled out either of those actually as being a potential opportunity for us to build a really strong relationship with a long-term investor actually with a view to looking at later phases and other things that we might want to do. So probably that's as good as I can give on that at this point in time because we're literally just working through the process. The one thing I would say is the bigger are waiting sort of into something -- into the long-term hold of that product. It does act as a drag on returns. It's lower returning than what you'll see some of the other activities are across our portfolio. So we always look at this and it's a balance. It's a balance of risk reward of portfolio returns, and we're big enough actually to have a mix in there. So those are the lenses that we're looking at that through. Jonathan, sort of pick the development.

Yes. First of all, in terms of the rate, 800,000 per annum. It's probably quite helpful to think of that in terms of the site specifics. Bear in mind, if you consider Chatterley Valley, Wingates, Gascoigne on all through those sites, one of the USPs of each site is that we can accommodate very large buildings. Wingate allows the anchor units on that side is 670,000 square feet. Gascoigne, we can deliver units into the market of 1 million or more. And we are aware and assure that of occupier requirements that represent the demand for those. So in that context, we could do one of those very large lettings on a pre-let basis, and that largely sort of matches the target in that year. So it is important to say it's an average. But equally, we have other schemes, so we just can keep the cadence of delivery on the smaller units at the same time, whereas rocking them, we're on site with 100,000 or so. And we've got other sites which were opportunities put themselves through pre-lettings or if we do the time is right for spec development, we can keep continuing to maintain that as an average. But it's probably important to give -- it's very responsive to market conditions. We don't want to be out doing everything speculatively.

It could be quite lumpy. I think in terms of the number, which is why we sort of fixed on 800,000 a year, I think what you might see is something that's depending on the market, something depending on sites are in their life, we could have a year where we deliver sort of over 1 million square feet and then we could have another year where it would be a little bit lower.

And I think the importance, I think, if you remember sort of that slide put up, which was in [indiscernible] a version of that was in our full year results deck you'll see the sort of those big sites at different stages in the cycle. So you've got Gateway 36 and the advanced manufacturing part. We're on later phases of those. Chatterley and Wingates were on site, yes, during the course of this year doing the site preparation works and then you've got the next routes like the Rothwells and Gascoigne and Skelton coming through the planning process. So sort of we'll manage it as we actually go through -- as we go through that process.

And in relation to your question around the fix year build cost, I mean probably important to note that we do value our projects biannually. So we do have cost plans, which are robust. So it's always relatively current. We are a prudent approach to incorporating sensible contingency in there. And we look at the read across to our assumptions made from on skin to the next. I think -- if you think about like Barnsley, which is our most recent piece of substantial procurement, we came in on budget. So it's against the reassurance of the read across that we've got an appropriate level of cost assumption baked in, but it's something we have to monitor. I mean we spent a lot of time at the year-end, really factoring in fuel costs is one of the major drivers. And we were exposed to the discussions with the supply chain with contractors. We are having conversations around about which risks they will not perhaps take in full and where the risk may lie. But I think the fact we get the cost funds live with contingency is key to us to sort of mitigating the risk.

And the focus on counterparty risk. So actually, we're dealing with sort of construction contractors with strong balance sheets. I mean, again, it's really important given the part of the cycle that we're in.

Sorry, back to Project Spur. Just a quick final question actually on the co-investment angle. As the current owners of the land, what level of co-investment would you be able to go up to without committing any additional capital? And is that kind of a line in the sand? Or would you consider going above that?

I think at this stage, we've asked sort of bids on those 2 bases with a relatively low sort of co-investments of opportunity, Chris. So I think given that the counterparties for bidding, we've got to work through it all. And I think they will be key to see that as sort of more of a minority interest at this stage. I think if I would leave that question open when we start looking at sort of maybe Spur 2 or something in the future, -- but at this point in time, is it's likely to be relatively low.

We always said, if you remember that sort of the process that we go through on Spur 1 and actually finding contractors to build supply chain, the modular investors. There's an element of pathfinder here. We believe it drives returns for the business. That is part of the strategy, but also there's an element that basically sort of working out what the right future model and opportunities are going forward. So there is an element of that going on in what we do as well.

I guess if it's sort of around the accelerating of development on sites, but it's also the recycling of capital as well, I think is quite key to the strategy isn't it? So leaving capital tied into something like that versus recycling capital, I guess, is sort of where I was coming from.

No, I know. I think the way that we look at it is that with the single family build-to-rent, you build your building and then there's element of stabilization. So with the appeals forward funding model you exits of our practical completion, so you just say to develop this profit as you go through. I think we've always thought one of the reasons we think it's a really interesting area is that we own the sites already. So we have -- we've embedded in them. We've got some an eye to what's happening in terms of sort of house prices, et cetera. So we believe that as those units stabilize, as they get let up, there's an increase in value at that stage, by staying in, we can recognize some of that. So there's always a balance is there if you're ending up some committing a bit of to letting, you think there's a return. We think that looks attractive. This is still so new, Chris, so I think the reason at this stage to look at a relatively small proportion is at Lynda says that allows us to prove that model to see how it works and it could fit within the portfolio of products that we've got already.

Tom, do you want to move on?

Yes, should we move to online questions? Yes. Microphone is on. Okay. We have a few questions from the online webcast. The first one is you mentioned planning delays as a significant barrier to direct development. Is there anything that's within Harworth's control here to speed the process along? And is the planning system in need of further reform?

Well, the answer to the last question is absolutely yes. But I don't think we've ever managed to reform. It's to my satisfaction in my career to date, and I'm sure my colleagues will echo that. So we do a number of things. I mean, the government consults on reforms and changes that it makes to the planning process. We contribute as a business sort of to that consultation process, we contribute to the consultation process through various organizations that were also sort of members of like the British Property Federation and others. But that only ever gets you so far because the government listens but doesn't necessarily translate all of what we would like to see through into planning reform. And I think some of the big challenges over the last few years have been -- they've got planning committees online quite quickly. So stuff was actually sort of working, but local authorities sort of over the last decade have seen the number of planners actually sort of dropped quite significantly, and they've not been able to replace them. We mitigate that on sort of schemes by paying for planning resource, so they tap into the external market for planning resource sort of where that's the right thing to do. But I think it comes back to the really close working relationship we have. You will Claire who is in the room here who is Head of Planning for the Midlands regions, and we've got a Claire around all the other regions and people in the center. And we just have to work really closely with the local planning teams and local authorities to make sure that actually we're helping them to sort of push our schemes through the process. You can never guarantee the big thing that gets in the way of planning is always politics. And we saw a little bit of that actually at Ironbridge last year. And you can't really sort of legislate for that. And what I'm hoping in terms of some of the future reforms that are being talked about is more devolved authorities to the bigger combined authorities around planning, which means they're starting to look through local election cycles, for example, because that's a really big thing, our planning committee can change color. But I would just simply answer it by saying it's what we do. You can't do what Harworth does without actually having to work with the planners to sort of the local authorities and actually work through the planning process. So whatever it looked like, we've got a pretty high success rate in terms of what we take forward. But it's -- at times in the last couple of years, it felt like it's been getting worse, not better, I think, is on the stance.

Then we have another question. Is the panel concerned with the leveling up and regeneration bills focus on land value capture, particularly the government's position to limit the level of land value uplift?

I mean, I don't think I'm going to pick this up because I was talking to sort of the [ BPS ] and others about it most recently. Yes. But actually, the devil will be in the detail. We saw the Queen speech seems like a number of things that the government were looking at, again, they will be consulted on. If they reform Section 106 and make it into something that's much more easier, and it's much more understandable and the overall impact of that in the round is quantum wise sort of feels the same. I think it will be one end of the spectrum of concern. If it looks like it's going to be an absolute sort of levy on development. So that becomes a different sort of type of cost for any developer, not just Harworth. So yes, it's an industry-wide thing. It's not just us. I think the locally sort of focused and targeted and controlled infrastructure levy is really interesting. Because that will drive development in some places and away from others and how that works if they get down that route, I think sort of could really sort of start to distort some markets. But all of this is hypothetical because actually, we don't really know what the detail is going to be in the drafting around this. And we'll work really hard, as I've said through the consultation process to make our voice alongside other than the industry heard.

A further question. Are you seeing a so-called green premium in terms of rental values for high-spec units in terms of environmental performance?

Jonathan, can you?

It's interesting. It's sort of -- it's coming. Has it arrived yet? I don't think so. But we're sort of looking at it more for a brand discount rather than a green premium just now, and we're very close to that inflection point, I guess, where it's starting to show. Tenants are much more sort of aware and curious about the ratings about the -- what is the right benchmark, how will we transition our estate together. I think we want a -- we're getting a premium on rent. We're in conversation with valuers, that there are instances where that will we think still happen and where it will also impinge on yields perhaps more markedly.

Thank you. We also have a question on Project Spur, are you able to identify the type of investors who are interested in the BTR portfolio?

It's all about -- I go on Andrew.

I think as I sort of alluded to, there we have a cast of the usual institutional investors. Many of whom already have existing platforms and are looking to access and create scale in their existing and growing portfolios. There are some new entrants to the market. And obviously, Spur was over 1,000 units, 1,200 units in total is I think, a poster child for the whole sector at the moment. I mean, it's certainly as far as we're aware, it's the largest portfolio this year and for a considerable period of time. So we have substantial interest predominantly, as I say, the institutional. I mean, we have -- do have some vehicles that are sort of PE-type act as well. But it's a broad range, and we certainly have generated a lot of interest.

And then the final question I have from the online portal is do you need to take on more debt? Or would you consider a capital raise in order to accelerate the delivery of your strategy?

Okay. So as it sounds at the moment, we said about 9% linked value and GBP 132 million of available debt. We put a new debt facilities earlier this year. So we've got a new GBP 200 million revolving credit facility. We do access site-specific development loans as well, where we sort of support our overall sort of drawing. So we've done that in the advanced manufacturing part, the logistics North before as well. As you can see as well, combined with all of that debt facilities, we are over 100% of our budgeted sales that are lined up for this year on the residential side and over 36% of our industrial and logistics sales as well. So being well when those sales come in, that will give us additional sort of capital to go back to. Because it stands at the moment, Tom, in order to deliver our development pipeline. No, that's not something that's in our horizon. But as always, we're looking forward a certain number of years and continue to sort of manage that demand as it comes through.

Thank you. That's all the questions we have from online.

I suppose just any last ones from the floor before we go and do the exciting, but -- okay. Thank you, everybody. Thank you very much.