Good morning, everybody, and welcome to the 2024 Harworth Capital Markets Day. I'm Lynda Shillaw, Chief Executive, and I want to say a big thank you to those of you who are here with me in my home city of Leeds, where I hope the sun is going to continue to shine for our site tours. And I'd like to also thank those of you who've joined us online for this morning's presentation. So today we're going to focus on the opportunity that we see in the industrial and logistics sector and we're going to spotlight two of our key sites, Skelton Grange and Gascoigne Interchange.
And some of you have been on a long journey with us on both of these sites. I know I'm joined by a number of my colleagues as co-presenters here and site hosts. And between us, we aim to provide some insight into how we create value as we acquire and assemble land, work it through the planning cycle and then bring it forward for development. I'm also going to touch on our strategy and how we're positioning the business for continued success. Before I do that, there's just a little bit of housekeeping up front.
There are no fire alarm tests planned while we're in the hotel, so if it goes off, it is real. And please follow the host team out of the exits just at the back of the room. Now, we've got quite a lot to cover and to see today, so we also aim to get you all back to wherever you need to be at a reasonable time, which means once we're through the presentations, the Q and A at the end will be followed by a brief lunch and then we plan to leave for the tour from the front of the hotel at 12:45 P.M. sharp. So we've got a coach to come and pick us up.
Our host team will guide you through the day. Rest assured, you're in good hands. But before we sort of show you pictures of who's with us, I'm going to introduce today's speakers. First, we've got Jonathan Haigh, who's our Chief Investment Officer. Some of you will have previously met Jonathan on other site visits. It was Jonathan who identified the data center opportunity at Skelton and he led on the Microsoft transaction.
The first of our two site visits today is Skelton Grange, and Matt Smith, who's next on from Jonathan, is one of our senior development managers and he's going to present this section of the presentation. Matt lives and breathes Skelton at the moment and is working very hard alongside Jonathan to complete the Microsoft transaction. Then our final presenter on the end is Chris Davidson, who's one of our regional directors for Yorkshire and Central. Chris is going to give us an overview in the room of Gascoigne Interchange.
He's led on the complex process of promoting this site through planning to bring it forward for development, and he's now focused on opening up and marketing the site. Two great sites to see today. We've also got a number of Harworth colleagues in the room with us. They're not all on screen, but if you've got a question that's not covered in the Q and A, you need any help at all, please reach out to any of the team during the course of the day and we'll do our best to help you and to answer your questions.
So it's me to start, and I'm going to begin with a quick overview of Harworth's business model, as we have a few new faces in attendance, so we run across the center of this slide, you can actually see the business model. And it illustrates how in the strategic land phase of its journey, we acquire and assemble land and then we walk it through the planning process.
Once we've secured a planning consent, it moves into major developments where we invest in infrastructure and place making and either develop out the site or sell the land as service plots, and then on the far right of this graphic, you can also see that we hold some of the assets that we develop or selectively acquire in our investment portfolio, and at the end of half one, we had around GBP 230 million of assets in this part of our portfolio.
S o you might recall, in the summer, we announced our plan to grow the investment portfolio substantially to GBP 900 million by the end of 2029, through retaining more of what we build as we lean into developing this extensive industrial logistics pipeline, and that will be supplemented by some selective acquisitions, and Jonathan's going to talk much more about this later.
Those of you who joined our Half one presentation will also maybe recognize the data table across the top. We use this to highlight the value created as we work a site from land through to development. It demonstrates not only what we achieved from our management actions, but also highlights the potential within our portfolio. Just be clear, this table doesn't factor in the full cost of delivery, as our sites are all at different stages of development. It purely reflects the spend to the end of June, showing the average value of each category at this point.
Over time, depending on the mix and levels of activity across the sites, these averages will change. As a business, we maintain a strong balance sheet and we operate a low leverage model. You see that at the end of half one our loan to portfolio value was 9.8% against gross assets of GBP 822 million. Our drawings typically tick up as we spend on sites during the year and they come back down later in the year as we make the sales that are in our plan. Our group policy is to have a loan to portfolio value of 20% or less at year end.
Matt's going to bring this process that you can see working up the sort of middle of that slide so to life as he presents the Skelton Grange study. We've had a really busy and exciting start to the year and we continue to make strong financial and operational progress. This slide was in our half year presentation and I've included it again because I think it's really powerful.
You can see that in quite volatile markets we've continued to deliver positive total returns for the last four years, outperforming the broader real estate market through our management actions as we progress our sites through planning and into development. This trend continued in the first half of 2024 with a total return of 4%. I'm going to sort of move on to strategy now and the progress that we're making to get to GBP 1 billion of EPRA NDV by the end of 2027.
If you start on the left hand side of this slide, you can see that we've grown our EPRA NAV by over 33% in the last three and a half years from 160 to 212.3 pence a share. As I said earlier, this has been achieved through some really quite volatile markets. At the half year we were just 2% under the high water mark of the half one 2022 valuations. The business has performed incredibly well in actually being able to sustain and maintain that growth. I think it really highlights the strength in our business model and our ability to create value through the cycle by successfully delivering management actions.
Now we've still got a really big agenda in the second half of the plan and beyond and we remain confident in our ability to hit our stated targets. Some of you remember that in June, alongside the announcement of the Microsoft deal at Skelton Grange, we introduced an evolution to our growth strategy which still sees us reaching that billion of EPRA NDV by the end of 2027, but with some additional guidance as to how we deliver this with new targets beyond 27, in the case of the investment portfolio. You can see from the right hand side of this chart the four pillars of the strategy.
Now, these remain unchanged, but with a significant number of sites now concentrated in the second half of our strategic plan period, we're really focused on using our balance sheet to build more industrial and logistics assets from these sites. Creating and driving value from our industrial logistics assets is covered by the first and the fourth pillars of the strategy, both highlighted in orange on this slide. Now, many of you recall where this first limb is concerned, that our strategic target is to achieve an average of 800,000 sq ft per year of direct development by 2027.
What you can see from the sort of right hand part of this chart is that we expect the shape of the trajectory to really ramp up in the outer years of the plan and to enable us to successfully achieve this. Over the last three and a half years, we've both been developing buildings and undertaking enabling works across a number of the next generation of industrial and logistics sites. And since 2023, our enabling works have really begun to ramp up. And we're now working on around 4 million sq ft as we invest in some of the sites that we've most recently secured planning consents for.
Now, these sites form the extensive development pipeline that we'll bring forward to drive growth in the second half of the plan. The fourth strategic target is to reposition the investment portfolio to 100% modern Grade A by the end of 2027. And we're on track to do this. It will be achieved by replacing the more secondary assets in our portfolio with what we build from our sites, supplemented by some selective acquisitions. And as I've already mentioned, we intend to retain more of what we build in order to grow that investment portfolio.
So that by around the end of 2029, we expect that about 85% of our total land and property portfolio will be industrial logistics. At the half year, it was just over 60%. We also have an intention to increase shareholder dividends over time as the investment portfolio grows and we see increased recurring income. And we expect this to enable us to optimize future shareholder returns. But importantly, we do not expect that to impact our ability to meet our growth targets. So with that, I'm going to hand over to Jonathan. Thank you.
Thanks, Lynda. Good morning, everyone. Today I'm going to talk about the opportunity we see in the industrial and logistics sector and how that plays into the growth targets for our investment portfolio over both the near and medium term. I'll cover the market, the opportunity and Harworth's delivery capability. I'll start then by taking a look at some broadly positive signs that prevail in the I&L sector as we move through 2024. Firstly, on the occupier side, we continue to see increased activity.
Take up levels reached their highest in two years during 1H24, with total take up nationally of 13 million sq ft, and that's 38% up on the same period in 2023. This growth has been driven by both the logistics and manufacturing subsectors, each contributing around 36% of total take up. The East Midlands continues to be a hotspot with around 40% of all Grade A. The picture is encouraging across Harworth's regions of operation in which we've accommodated, or has been accommodated, around 72% of the national take up of units over 100,000 sq ft.
That's the level we expect to be broadly maintained. In pursuit of occupiers, we've stepped up the activities that sharpen our customer focus, systematically tracking occupier requirements and strengthening our relationships with key occupiers and their advisers, both nationally and locally. This important work builds knowledge and insight that better informs our site selection and master planning.
Crucially, it helps us to tailor our marketing to optimize letting strategies. It's important also to highlight the commitment of the UK's top 50 occupiers towards sustainability, with 41 of them making decarbonization efforts covering over 130 million sq ft of space. And we continue to evolve our development specifications to respond accordingly and of course, to deliver on our own sustainability commitments.
Turning to the investment market, I and L sector conviction remains strong and while we patiently await next week's budget, investor confidence appears to be on the rise in anticipation of further interest rate cuts. Prime yields remained stable over the past year and we're seeing positive signs as we move through 3Q24 with certain bellwether transactions demonstrating strength in investor demand and pricing.
Discovery timing is of course everything and earlier this month we were pleased to complete the attractively priced acquisition of the Catalyst scheme neighboring our advanced manufacturing park in Rotherham. With improving investor sentiment and expected rate cuts, we anticipate the prospect of yield compression and or rental growth to benefit capital values in the coming year.
Also, we're seeing positive movements in public policy support for the sector too. While emerging policy places great importance on house building, it also recognizes the need for employment uses without which the housing is unsustainable. Notably also, the Draft Planning Policy Framework proposals now back data centers as critical national infrastructure, calling on local planning authorities to support suitable sites.
While the recent Industrial Strategy Green Paper highlights advanced manufacturing and green industries as key growth sectors for the economy, and there's recognition too for some urgency to increase electricity grid capacity. These considerations suggest that I and L market will remain resilient and full of opportunity in the foreseeable future, and take from this also that we're active in our pursuit of more data center opportunities.
Looking now then at Harworth's expertise in unlocking those opportunities, we've shown ourselves to be adept at devising and driving acquisitions, remediation, development and asset management strategies and we've been demonstrably creative and successful in executing the associated transactions to date.
Since relisting as Harworth in 2015, we've completed master planning that has enabled development or land sales for over 7 million sq ft of industrial logistics space and we've directly developed around 2 million sq ft of that. In terms of scale of value optimization, our conditional sale of land here in Leeds to Microsoft for GBP 107 million proves our credentials and our capability to seize opportunities in what's now a burgeoning data center sector. There'll be more on that for us to showcase later in the case study and of course on the site visit.
Flexible approach to value creation and realization, whether through land sales, pre-let speculative development, build-to-suit joint ventures and so on and whether we choose to hold or sell allows us to manage capital wisely and balance risk and reward. Our effective stakeholder relationships allow us to build consensus and support for our proposals and their delivery. Harworth's investment portfolio has been evolving in recent years and will continue to do so as we push towards our strategic targets. We've added self-developed Grade A I&L assets and we've disposed of certain other assets where we've judged the time and pricing to be right.
As of June 24th the portfolio was valued at GBP 231 million with a vacancy rate of 3.9%. Looking ahead, our strategy is centered on increasing the retention of self-developed assets from existing and future pipeline and to redevelop sub-Grade A assets or recycle receipts from their timely disposal. As Lynda referenced earlier, the portfolio is expected to grow more rapidly in the outer years of the plan to GBP 900 million by the end of 2029.
This growth being correlated to our creation of assets from our existing pipeline where it's appropriate to develop and hold and income from pre-let and selective speculative development of varying unit sizes and comprise a mixture of single- and multi-let schemes and benefit from geographic spread. Acquisition of stock developed by others is not central to strategy, but we will be very selectively open to opportunities where we see clear potential to smooth or accelerate scale and value creation, such as the recent Catalyst acquisition that I touched on earlier.
That's a GBP 44 million acquisition of newly developed grade A space comprising 285,000 sq ft across five buildings. It's already 90% let and producing very good quality annual income of GBP 2.5 million and it will complement our asset management strategies at the AMP. It's also moved our portfolio to 45% grade A from 37% at the half year, showing progress towards our target of 100% grade A by the end of 2027.
The pie chart on this slide shows how we've been transitioning the portfolio to date, the bulk of our Grade A assets having been self developed and we would expect that proportion to increase going forwards. In terms then of live development activity, there's significant remediation and enabling work which we refer to as horizontal development ongoing across the pipeline. Just now it's most advanced at Chatterley Valley and now too at Wingates where the A6 highway realignment and scheme access works commenced last week. I'll elaborate on the pipeline shortly.
Firstly though, in respect to vertical developments, that's of buildings, our activity this year has been focused on the AMP, Gateway 36 in Barnsley and Droitwich. So far this year we've completed over 100,000 sq ft of Grade A space at the AMP. We have around 300,000 sq ft in development and 4 million sq ft undergoing clearance and enabling for the future wave. Specifically on vertical we have 80,000 sq ft pre-let to Technicut on site at the AMP.
That's on track for completion in early 2025 while another 73,000 sq ft pre-let to Insight has recently completed and both are inbound as holes into the investment portfolio. We also completed a build-to-suit research and distribution facility for Danieli at the AMP, reinforcing our flexibility for opportunistic land sales in this case to an owner-occupier and our generation of income from development management where we stapled that service to the transaction with 169,000 sq ft of speculative development at Droitwich scheduled for completion in 2025.
We're also continuing to meet the demand in the Midlands, in this case through the full redevelopment of a former investment portfolio. Harworth's pipeline for I&L development is a powerful platform for future growth totaling 38.8 million sq ft. Off that pipeline, 9.6 million is already consented and we expect to complete over 5 million sq ft of that equal to around GBP 800 million in gross development value by the end of 2027. Key schemes within that consented pipeline are shown on the slide.
All the highlights in themselves, but I'd call out Gateway 36, Chatterley Valley, Wingates and Skelton as leading the next wave for vertical development and Gascoigne for horizontal. Now these are all major schemes in the local markets set to deliver significant value with planning granted and at various stages of readiness for occupiers. We're dedicating significant focus to securing known and potential occupier interest on all these nearer term schemes and ensuring optimal mix and configuration of users including screening for data center potential.
The chart on the left-hand side may be familiar with shown at the half year. It's our planning life cycle. Highlighting the pipeline of new development to come through and its scale and appeal to occupiers is what underpins our confidence in achieving our growth targets. I can summarize then, with the I&L market growing stronger and with our balance sheet credibility, stakeholder relationships and delivery capability in great shape, that Harworth is very well positioned for a tremendous example of our creative deal making in action. I would cite Skelton Grange.
It's Harworth's largest land transaction to date. Microsoft, too, incidentally. In its 40 years or so of operating in the U.K. it's been a phenomenal journey to reimagine and reposition Skelton Grange for its data center potential and to secure such transformational value uplift through this particular transaction. Matt Smith has been my right hand man throughout and I'll hand over to Matt now for the case study which I'm sure will further whet your appetites for the upcoming site visit. Thank you and over to Matt.
Thanks, Jonathan, and good morning, everyone. My name is Matt Smith, and today I'm going to walk you through one of Harworth's flagship projects, Skelton Grange. The case study showcases our ability to transform former industrial wasteland into a significant energy and data hub that contributes both to the local and the national infrastructure. The Skelton Grange project highlights our expertise in land preparation, remediation, deal making, political consensus building, and partnership driven development.
This project is not only a commercial success with its impressive returns profile, as you can see there, we expect to deliver an internal rate of return of over 40% on the scheme, but it's also a prime example of how we bring strategic vision to life and how through responsible development we can unlock huge benefits for our local economy and communities. For Skelton, we estimate around GBP 4 billion of inward investment.
Let's explore the scheme in a little more detail. Skelton Grange is a former coal-fired power station located in South East Leeds which was operational from 1956 until its closure in 1990. After its demolition, the site remained derelict for many years with multiple failed redevelopment attempts due to its challenging ground conditions and access. However, in 2014 Harworth saw potential and we made a selective acquisition of the site for GBP 3 million followed by additional land purchases in 2021.
This strategic acquisition allowed us to control a vast area of former industrial land with the potential for high-value uses. Key to this acquisition was our ability to assess long-term value and manage complex remediation and infrastructure challenges and the vision to see beyond the site constraints, not least the adjoining major sewerage works.
The preparation of the site involved significant remediation work and coordination with local utilities to secure power capacity. Harworth's vision began to materialize in 2020 with the sale of a 19.5-acre plot to Enfinium for an energy-from-waste facility. We kept the site's existing energy-from-waste permission alive which enabled rapid development. This was followed by a lease to Catalyst Capital in 2021 for a 100-megawatt battery energy storage system facility, further demonstrating our ability to attract high-tech energy-focused partners.
These early deals allowed us to secure significant capital receipts and an income stream and then progressed the project further with planning consent for 800,000 sq ft of industrial and logistics space on the balance of the site. In parallel from 2021 we began to test the technical feasibility and establish the potential and end user demand for a data center. Notwithstanding the infancy of the use in this region, the initial negative perceptions of limited job creation and occupier preference for proven south east locations.
The potential abundance of power in stark contrast to the south east confirmed our hunch, proving to be a unique selling point. Our initial dual challenges were to secure the power and to enlarge and regularize the shape of the site through assembly of additional land, which was easier said than done, but both successfully achieved over a relatively short period of around 18 months. Our simultaneous pathfinder discussions with potential end users were timely with emerging requirements for hyperscale data centers, the largest category required to host cloud computing and AI as opposed to data storage.
Firming up, we established demand and the potential for premium pricing given the scarcity of deliverable competing sites. Overcoming those initial negative perceptions, we built strong political support for the proposal once its scale in alignment with the digital aspirations of Leeds and West Yorkshire Combined Authority are established. And critically, having secured Microsoft confidence in us as their remediation delivery partners, we successfully advanced the transaction. It's not just Skelton Grange though. The success of many of Harworth's projects rests on its strong partnerships.
Collaborating with key stakeholders is essential for complex schemes like this where technical expertise and shared vision are required. For Skelton Grange we work closely with technical specialists and forged key alliances with several stakeholders, to name just a few. Firstly, National Grid and Northern Powergrid to secure significant grid capacity at a viable cost and program. Importantly, Leeds City Council and West Yorkshire Combined Authority to align our development with regional goals, achieving planning and infrastructure support.
And of course, Microsoft partnering on their vision for a hyperscale data center with Harworth acting as Development Manager on the site, remediation infrastructure and preparation to guide its long-term success. By working with partners from the outset we can unlock value and manage risk and deliver impactful regionally significant projects. Looking ahead then, the development of Skelton Grange is poised to be a major coup for Leeds and the region as a catalyst for digital innovation, skills and training and a magnet for co-locators.
Once fully developed the site will offer a diverse range of energy and logistics solutions. These include a hyperscale data center developed by Microsoft, a BESS facility operated by Catalyst Capital, an energy from waste facility developed by Enfinium and over 28 acres of land returned to the natural habitat. Additionally, the presence of Microsoft has increased the attractiveness of our retained 16-acre plot on the site which we are now considering for further high-value development including potential logistics or additional data facilities.
Similarly, it enhances our neighbouring Gateway 45 site where we hold 77 acres in a joint venture that has 0.8 million sq ft consented and still to be delivered pending the lifting of some HS2 safeguarding. Finally, this transaction has enhanced our reputation nationally, brought us much closer to Leeds City Council and West Yorkshire Combined Authority and the power providers, all of which bring significant benefit to our other activities and projects.
To conclude then, the Skelton Grange project is a great example of how its ability to transform challenging sites into valuable assets and through a low risk low capital strategy deliver extraordinary returns and drive significant inward investment and innovation in Leeds. Thank you all for your attention. I look forward to showing you the site this afternoon. I'll now hand over to Chris to introduce Gascoigne Interchange, our second site visit for today. Over to you, Chris.
Thanks, Matt, and good morning everyone. My name is Chris Davidson, I'm a regional director at Harworth and today I'm here to tell you a little bit about Gascoigne Interchange before we look around the site later this afternoon. Gascoigne Interchange is a nationally significant new development and of regional importance to Yorkshire. Located only 30 minutes east of Leeds, close to the A1 and M62 corridors, an area already well established, as you will see from the bus later, for industrial and logistics.
With our planning consent in place for 1.5 million sq ft of industrial and logistics development across 185 acres and access to large amounts of power and a platform that lends itself to manufacturing industries, storage and distribution, and the opportunity for a 1 million sq ft floorplate, all of which could be served by rail.
If we look at the past of Gascoigne Wood Mine as it was once known, it was part of the former huge Selby underground mine complex, known as a super pit, which had five Selby deep mines, all feeding the coal via an underground network of railways and conveyors to the one surface exit at Gascoigne Wood. Once the coal surfaced, it was delivered to a covered coal and stocking area which was once the largest in Europe, capable of holding 43,000 tons of coal, which is a structure we will take you inside today.
Trains then transported the coal to the nearby power stations of Drax, again the biggest power station in Europe at its time, Eggborough and Ferrybridge, which between them provided one fifth of England's electricity. The project began in 1976 and employed 4,000 people. It became unprofitable in the 21st century and the final three mines, including Gascoigne Wood, closed in 2004. Turning to the present then, in most recent years the site has been used as a business park for open storage and distribution uses, with its predominant use being the storage of gypsum powder.
Most recently, and you'll see the occupier on site today, we have Network Rail with a TRU East Alliance occupying the site and that's to service the Transpennine Route eastern leg upgrade, which is a major multi-billion pound program of railway improvements between Manchester, Huddersfield, Leeds and York. The site's extensive existing rail infrastructure is likely to play a crucial role in its development as the northern platform, which we will walk around.
Supports sidings of up to 600 meters long and the southern sidings can accommodate multiple 775 meter long trains, making the site highly suitable for the longest trains and future users of the site to have the potential to seamlessly connect to the U.K.'s rail network, which allows access to the Channel Tunnel and the U.K. ports. Turning to the future then of Gascoigne Interchange, as I mentioned earlier, you can see now that our site sits in an area that is already really well established for industrial and logistics.
In terms of the site development, we've got outline planning permission for the phase one, which is the area shaded in green on this slide that was determined in June this year for 1.5 million sq ft of industrial and logistics space, with demolition, ground and infrastructure works planned to begin in 1H25 to prepare the site for vertical development. The shaded orange area on this slide is what we call phase two. And that promotion of this land to the north has commenced already with the submission to North Yorkshire's recent call for sites.
This could deliver another 100 acres, up to 1 million sq ft of employment space, alongside a habitat bank and a country park, subject obviously to plan allocation and planning permission. So Gascoigne Interchange, it's ultimately a multi-faceted site with a very valuable industrial and logistics planning consent. It has the opportunity to scale up further and the potential to capitalize on real connected users. Upon completion, the scheme is projected to deliver 300 million gross value added uplift per annum, around 5 million in new business rates per annum and up to 4,500 jobs.
Again, you'll see the theme of strong stakeholder relationships driving the success of this site as we continue working very closely with the local combined authorities and the mayors. So just to conclude, Gascoigne Interchange is another example that exemplifies Harworth's vision and ability to identify and redevelop brownfield sites into thriving industrial and logistics hubs, contributing to both the local economy and the U.K.'s sustainability goals.
With that, I'm going to thank you for your time. Look forward to showing you the site from the bus later this afternoon and I'll hand you back to Lynda for closing remarks. Over to you, Lynda.
Thanks. Thanks, Chris. And thank you to all this morning's speakers. I didn't tell you when I introduced Chris that Chris loves trains, so hopefully you found that really insightful to tee up sort of what we're going to be doing for the rest of the day. We've covered a lot, and in the interest of time, I think I'm just going to move straight to Q and A. And then we can sort of start in the room with questions, if you've got them in the room. If we run out of questions in the room, we'll go to questions online.
If we don't get to your question because we run out of time, feel free to speak to us after or contact investor relations and we'll be happy to help. So at this point, actually, if you'd like to ask a question in the room, if you raise your hand, your microphone will be passed to you. If you could just introduce yourself to everybody else, I'd be really grateful. Thank you, Bjorn.
Thanks. Bjorn Zietsman from Panmure Liberum. Just one question from me and apologies if this question has an obvious answer, but do decommissioned power plants have any infrastructure advantages pertaining to power supply or otherwise, that could make them more suitable to data centers?
I'm going to ask Jonathan. I promised I won't try and answer all the questions myself, so I'm going to ask Jonathan to sort of pick that one up. Thank you.
I said the short answer is it depends. I mean, typically we would be more excited that, as a starting point, because there would have been a history of cable connectivity and easements and all the land ownerships would tend to be fulfilled or ought to be fulfillable. But it very much depends how that connection has been maintained, because connections are forfeited if they're not used, so they're sometimes surrendered, and if they're surrendered at present, you need to take your place back in the queue.
So there isn't a blanket answer other than the fact that they typically ought to be more appealing. But it very much depends on the circumstances of the connection itself. Some power stations have export connections and what you often need is import connections. Whilst it's a great big piece of copper wire and the power goes up and down both ends, it's not quite so straightforward as I'm sure more technical people in the room will attest.
Thank you. Just behind you.
Hi there, Toby Thorrington from Equity Development. Question for Matt. I think in the first instance, you mentioned in your presentation about Skelton Grange that the site is subject to HS2 safeguarding in some aspect or another. Could you clarify what that means and in what respect it constrains the site currently, please?
Yeah, so that's the neighbouring Gateway 45 site, which we have in a joint venture with another party. That's 0.8 million sq ft. The Skelton Grange site sits adjacent to it, but it's not impacted by the safeguarding.
Okay, so what constraint does the safeguard bring?
So it was safeguarded when High Speed 2 was originally coming up to Leeds. It was safeguarded as a train depot. So there's currently a study going on to look at actually sort of how and what they can release. It's obviously no longer required for High Speed 2, but there are some real capacity issues going in and out of Leeds Station in terms of rail.
So that piece of work is ongoing. But we work, as Matt sort of pulled out, we work incredibly closely with the combined authority, the local authority and the other key stakeholders on this to understand ultimately the extent, if any of our land will be required. But we won't know the outcome. And that's today for another number of months yet.
Okay, that's fine, that's clear. Thank you. Given recent news on HS2A, are there any other safeguarding issues elsewhere in existing assets?
We only have one of the sites that's still safeguarded, which is down in the Midlands. Again, that's another one that's under review.
Okay, thank you.
Thank you.
Thanks. Colin Sheridan at Davy. Just a few for me if I can. First one, just on the occupier market, Jonathan, you gave us a good idea of geographically, what's doing well, what isn't within the sector, maybe give us a feel. Manufacturing, logistics, what are. What's, w hat's doing well and not so well at the present time, and then the other two are just, I guess, zooming back out on the strategy a little bit. I mean, given the guidance on the investment portfolio, we can see where the kind of incremental capital is going for a lot of the.
Certainly the medium term at this point in time. But just on the land side, whether it be residential or industrial and logistics, what are the opportunities that you're seeing there right now? And how should we think about the land portfolio evolving with those expectations of capital going into the investment portfolio? And finally then just on the capital s tructure, w ith the 20% limit and with the revenue line being comfortable, increasingly, I guess, predictable and rent driven, is there the potential to evolve that over the next few years as well?
And any refinancing coming up that could see maybe a step change in the way that you think about the capital structure? Thanks.
Cool. That was three, right? Do you want to go on the first one?
Yeah, sure. I think in terms of sectors, I mean it's broadly split between manufacturers and logistics companies and there's lots of third party logistics operators out there and their requirements are typically contract driven and there's a cadence of which they're renewed. I think if you cast your mind back sort of four, five years. Amazon was single-handedly the biggest occupier in the country and they were responsible for over 50% of all lettings.
They sort of pulled their horns back in, in recent years, well, the big news this year is that they're back and they're back in a big way. 60 requirements and at that scale, you know, they're not going to fulfill those all immediately. It's going to take a while, but that's going to soak up much of what's out there. But I think manufacturers also are keen. We've heard about near shoring and onshoring happening. It's real. We're talking to a number of manufacturers. I'd say our conversations are probably 50-50 with occupiers and logistics providers.
Okay, I'll remind myself of the next bit to the question. Land. So what are we seeing in the land market? So I think we said before in investor presentations and meetings that the strategy is to sort of work through the land faster, which means we've got to refill the hopper faster. We do have a target that looks at having a 12- to 15-year land supply in our strategic land bank. These things take time to sort of work through planning.
Those of you who've been on the journey with us with Skelton Grange and Gascoigne would know we were in planning for the best part of two years with Skelton and over two years with Gascoigne. So it does take a long time to work even brownfield sites through the system. At a portfolio level, what we look at is to sort of balance the stuff that we're long on, where we're basically assembling land, whether it is for industrial, logistics or residential, you know, sort of to hit maybe a planning cycle that's 10 years in the future from the point that we actually assemble it.
So there is that piece of balance to look at and then there is also the piece to say, actually if we burn through the stuff sort of in the nearer term, faster, do we need to be supplementing it with some schemes that are closer to planning? So we look at all that as a portfolio level. We still are assembling across both industrial and logistics and residential.
Residential is the second limb of our sort of strategy, and actually that's really important because it throws cash off, and we actually reinvest that cash into sort of building out the industrial and logistics sort of assets that we have, so how are we finding the land market? We're finding it okay, and I think that's because we go really long on land sort of; we're nimble enough and have a strong enough balance sheet to support or jump in for some of the stuff that's nearer term if the opportunity comes up. And you'll have seen us do that with Sturton actually.
We referenced that in the trading statement and the half year results. That's the site that actually does have an outline consent, and we got an opportunity sort of to go and acquire that while the rest of the market was pretty quiet. And that will enable us to bring forward a thousand sort of home resi schemes sort of pretty quickly actually from acquisition.
So we're nimble enough to take advantage of those opportunities, but we still focus on sort of creating that value that you saw in the slide that I put with the business model where it starts at GBP 7 a sq ft or 7,000 a plot and then we sort of work it through and create the value as we go forward. Shall I pick the funding one up? So in terms of going to sort of funding and the 20%, we're comfortable that, that, you know, sort of group policy sort of works to sort of get us through the next phase of the strategy. We refinanced the business, you know, back in early 2022.
So as we sort of launch a strategy in 2021, we're not under any pressure to sort of refi again until early 2027. And we also have, some of you may remember, we have like an accordion facility as part of the refi that we put in place. So we'll look to make that debt work really hard for us, always bringing it back down within that tolerance, you know, sort of as we get towards year end through sales and you will see as we step up sort of through the second half of the plan, probably some higher drawn balances sort of up, you know, sort of maybe sort of above the 10% as we go through to the end of that plan.
But we also supplement what we draw on that revolver as well with project specific debt. So we, you know, sort of, we basically take out sort of debt to support the delivery of some of these individual schemes. We monitor it closely. At the half year we had over GBP 150 million of headroom, so we're in a pretty good place on the debt front. James? Oh, there you go.
Morning. It's James Carswell from Peel Hunt. You've been very clear in terms of developing more industrial logistics and essentially holding onto a lot of that income going forward. I'm just thinking, given some of the comments in the occupational market being pretty strong right now, is now potentially a good time to be doing more speculative development and how you think about specs versus pre-let and whether we will see more spec going forward.
So I mean interestingly, you know, the assets that we built at Gateway 36, that we've been building at the AMP and Droitwich, which are all spec and as we sort of turn into the sort of next phase of development, some of the stuff that we're going to be bringing forward at Chatterley, you know, the first phases of that are also likely to be spec. So it is a good market to bring spec into equally, you know, sort of we've got to balance it in terms of, in terms of risk and return and make sure across the geographies that we're operating.
We're not too exposed to it, but we've got sites that are capable of delivering product into the market, you know, sort of through the rest of this year, next year and into 2026. What we'll do again, it's that nimbleness and the ability to control what we build. You know, we'd look at joint ventures if the size, if the spec opportunity was there, but the size of it was outside our risk appetite, for example. So there's a whole range of things as Jonathan sort of pulled out in his slides, that we'll look at to bring the sites forward and if we can go faster, we will.
Matt Norris from Gravis, if I can just follow on from that question. So on slide 11 you set out some different risk reward structures and you touch on pre-let. So can you just flesh out what's the different types of reward that can be made from selling serviced land or speculative development or build-to-suit. So that's question one and then the second question you touch on 40% IRR for Skelton Grange. I think I recall that you have 15% IRR target. So you know, why buy Catalyst? Why buy a standing asset? What does that add?
Okay, so as a North Star we aim to drive this 15% IRR over the life of sites. We're in them for such a long time that that is actually probably the most effective metric for us to operate against. Having said that, each stage of development that we bring forward, we're looking for it to hit our internal hurdles in terms of returns. Chatterley Valley was unusual as a site in that we went into that site. We did all the infrastructure in one go, and it was to do with the topography. It's like taking the side of a mountain off, basically, so we had to do it all at once.
But generally we find much more efficient ways of actually bringing sites forward and investing in phases and then sort of generating the returns as we go. That also has the benefit. As you mature a site, there's a halo effect, and we're seeing that at sites like the AMP today, where rents, for example, have moved on quite substantially, even in the last four years, and there is a halo effect in terms of the value because of, you know, who's already there. The fact that that development is almost like fully built out and actually that continues to drive the value onwards.
For the developments that we're bringing forward in the later stages, I'm going to have a go answering your Catalyst sort of question as part of that, so one of the challenges we've got the AMP is we're running out of land and actually we've got occupiers that basically sort of, you know, sort of are coming to us that want to sort of be located as part of the AMP. The Catalyst acquisition provides us a great adjacency with a unit to sort of get to go up which is vacant.
That actually gives us some real sort of halo effect and some resilience in terms of what we do there, because we've only got a couple of buildings now to bring forward at Amp, and then we're done, we're out of it. Obviously, we continue to try and find sort of more land to assemble around it, but that's easier said than done. Catalyst actually provides some resilience to that product. It's a market we know really well, and our product on the other side of the road has been really key to driving rents on, actually sort of in that area.
So from that perspective, we felt actually it was a great opportunity to give us some more capacity, sort of a different mix of product, but actually sort of continue to drive some rental growth.
Would you have said in additional colour to that? I mean, I'd say with Catalyst, we bought it at 5.4% net initial yield. It's producing income day one. But we've got the crystal ball to what's going to happen with those rent reviews because of what's happening on the AMP next door. And just keep in mind that the AMP, you know, the tone of value says £11 a foot. We've bought Catalyst off less than £8.50 average. So there's already reversionary opportunity there. And since it's an asset management play, it's deployment of capital. But we will be rebranding Catalyst as part of the AMP and we'll bring that halo of value with it.
Yeah. The other side of it is that we have some more secondary assets in the portfolio that we will, you know, the strategy is to churn those out and actually, you know, sort of having an asset like Catalyst on the portfolio gives us some flexibility as to sort of what we churn out. Do we churn some of that stuff out sooner, for example, than we might otherwise have done had we been waiting for us to build an asset and drop it into the portfolio? So there'll always be an element of selective acquisitions in that industrial and logistics investment portfolio.
But as Jonathan said on his slide, that is not the central part of the strategy here. It is there to supplement and from time to time, where we see great opportunities is or they complement what we already have, we'll do it. But most of that growth in the investment portfolio and the churn will be driven through what we build. And then I think you asked a question about sort of the different types of reward. Yeah. So I go back to. For us to do has to basically start.
So when it comes to selling land and selling land as plain land with a consent or land that serviced land, effectively, we're looking at this always at a portfolio level in terms of where we want to allocate our balance sheet to drive the sort of highest returns and if it stacks, to sell it. So you'll have seen us sell sites like Kellingley, for example, with a planning consent. We sold Kellingley for GBP 54 million two years ago.
When you run the economics on that, somebody's going to build like, you know, sort of big is building big sheds on it. Basically that was a spec risk that we wouldn't have been prepared to take and we would probably have been in Kellingley for much longer as Harworth. So the returns, it more than met our hurdle rate, so it stacked up to sell that land. Now we don't do that with everything. We'll do again that selectively as part of driving the overall returns that the business delivers.
We've got another site down in the Midlands, Anstey, which is a. We've got a conditional sort of sale of that. We chose to go down that route because with a special occupier we can accelerate it through planning by about a decade. So for us, when you run the returns, you know, sort of, it's really accretive to, you know, sort of to the returns that we deliver across the portfolio.
We'll always be making with a portfolio our size decisions on sometimes whole sites like Kellingley and Anstey, but probably on phases of sites as to whether or not to sort of sell serviced land, build it in a joint venture, deliver, build-to-suit for an occupier. It is that blend of things and we come back to that North Star of making sure that it's accretive and it's meeting our hurdles and we're driving the overall returns across the portfolio. With something this scale, you've just got so many moving parts, it's got to b e a blend.
Just put props out. I mean opportunistic as well. A portion of the occupier market want to be owner occupiers and they'll pay for the privilege of that. We're going to see the Skelton Grange site today is a great example of it. So opportunistically, if we can beat our returns than we would if we were going to face into the development risk and the letting risk by selling land. Well, if it's taxable, what a great thing to do, particularly with some. Some customers will always need that. I mean, Danieli is a good example of that as well. So relatively small scheme, it's quite a specialist building.
So in that case, the site shape was such. The building was so specialist, it wasn't really a building we wanted in the portfolio because we'd have probably some headaches with rent reviews and if we ever were to get the keys back, in the worst case it's quite bespoke to one particular user. So in that case, that's a good example of another reason why we chose to sell the land. In that case, we sold our development management services alongside the land sales. We got a great land price and then we had good fees from delivering the building for them.
I think also just thought one other point that is probably worth making is we've grown incredibly rapidly since 2021, so some of the flexibility that we have today, looking forward as to if we got the chance to build more or would we build more, even more than we've sort of talked about in the plan. I think that as an option was harder back in 2020, 2021 because the business was so much smaller. We didn't have the volume of sites that we now have got ready to bring into production.
A nd so actually all of that gives us a lot more choice, and as the business has scaled up and the number of sites that we now have opened up has grown, actually that is the real sort of rocket fuel to grow the business, you know, not just to the end of 2027, but beyond that. And that's probably been as important a part of what we've been doing in the last three and a half years, getting ourselves into the position we find ourselves in today as stepping into that early parts of the strategy, basically. Matt.
Hi, it's Matt Saperia from Peel Hunt. Lynda, can I ask about your decision making process around the decision to hold an asset and to sell it with regards to growing the investment portfolio, then thinking about what the GBP 900 million portfolio looks like, are there going to be certain characteristics that will be clear once that portfolio has fully evolved in terms f f, I don't know, lot size, geography, v alue add, opportunistic type, assets, etc.
Oh, you're answering your own question. So do you want to? I mean, you're managing it so of in real life, aren't you?
We are. I mean we've got the conveyor belt of inbound opportunities that we're developing and they are in different shapes and sizes. I think the objective of the portfolio though is that we've got a good balance. So exposure to our different geographies, to different unit types, having the right rent reviews, you know, we open market or open market value or the higher of with indexation as well. So we'd look at the sort of the deal structures as well as the unit types and configurations.
The bigger the unit, obviously you start to run the risk of it distorting the portfolio and perhaps being a bit overweight in one particular asset. So that's something we'll need to watch. We'll need to watch for geographic concentration as well. But I think we look at it from many angles also. You know, the analysts on not being overweight in a particular sector. We wouldn't want to be in it heavy. In the automotive sector, for example, we wanted to blend. So we're going to track that and not have too much exposure to particular retailers or particular sectors to keep it, keep it a nice balanced portfolio.
Yeah, I mean I think in the early days, I mean we're repositioning a relatively small portfolio in terms of starting points in modern Grade A. So that's always been the focus and actually our preference, you know, sort of in the early years of building of that transition has been these sort of multi-unit developments that we've brought forward at the AMP at Gateway 36 that you'll see us bring forward at Chatterley and other sites Droitwich, which as Jonathan pulled out earlier is a nice size shy of 170,000 sq ft. That was a former investment portfolio asset that we're redeveloping.
So that transition to Grade A. But doing it in a way that enables us to manage all the risks that Jonathan's talked about. It won't be unusual for us to hold a share of a JV in there. We do today in terms of multi-let Logistics North where we're at 20% of a joint venture. So our chunk of that asset sits in there as well. And that may be a way of us holding some of the bigger assets that is right for us to do. And again, as the business scales up and the portfolio scales up, it will enable us to warehouse phases of what we develop as well and parcel those up to sort of subsequently be churned in the future.
So that's all. And that's always been part of the thinking actually behind the investment portfolio even before we sort of saw the opportunity to really grow it actually anymore. I mean, no more questions. Have we got no time for questions anywhere? Did we have any online? Just out of. No. Okay. Right, so look, I'd really like to thank you for, as again, as I say, for coming to Leeds. I'm really worried about this coming up because I don't think there is anything that I'm supposed to say coming up to Leeds to sort of to come on the site tours with us. As I say, I think you're going to find it really interesting.
The weather's been really kind so they're better to sort of see them in the conditions that we're seeing them in today. They are great big dirty former industrial sites and today will look like sort of nothing like what they will do when they're sort of built out and they're complete. We've got lunches available outside these doors actually. Please help yourself.
We're going to aim to leave here at about 12:40 P.M. to get to the coach to get us around the sites because for the next two hours we're either going to be in the bus or on sites. Please ask us any questions that you have that we haven't been able to answer or you haven't asked them sort of in this Q& A session. And as I say, we'll do our best to sort of answer them, but enjoy the tour. Thank you.