Harworth Group PLC

LSE:HWG

Earnings Call Analysis

Earnings Call Transcript 2022-Q4

[Lynda Shillaw, executive]

Good morning, everybody, and welcome to Harworth's Full Year Results Presentation for 2022. I'm Lynda Shillaw, Chief Executive, and I'm delighted to be joined by Kitty Patmore, our Chief Financial Officer. I'd like to thank everybody here who has joined us in the room and extend a warm welcome to everybody watching online too.

This slide shows the agenda for today. I'll begin with an overview of our performance during the year, comments on the market backdrop and report on the progress that we're making in delivering our strategy. I'll then hand you over to Kitty to take you through the financials, and then I'll provide an operational update and our view of the outlook for 2023. We'll then close the session with some Q&A.

[Operator Instructions].

I would like to begin with 3 key takeaways from Harworth's performance over the past year. 2022 was a year of significant operational and strategic progress, and we delivered against every aspect of our strategy to become a GBP 1 billion business by 2027. We saw record levels of residential plot sales and direct development of industrial and logistics space. We added a record number of square feet to our pipeline through acquisitions, and we are well underway with transitioning our investment portfolio to Modern Grade A.

From the perspective of the market, it was very much a year of 2 halves. Following significant valuation gains in the first half, we saw rapid outward dealerships in the second half and a softening of macroeconomic conditions. Over the year as a whole, our management actions to drive value across the portfolio largely offset the yield shifts, and we ended the year with a broadly flat EPRA NDV and total return. We consider this to be a robust performance given the scale of their second half headwinds.

And finally and most importantly, looking forward, we are really well positioned. Our focus markets remained strong and characterized by resilient demand and undersupply. What is more, we have a strong financial position, a large landbank that we own or control and a highly experienced management team who are focused on execution.

The last 2 to 3 years have seen both tailwinds and headwinds amplified by the global pandemic and the macroeconomic uncertainty that is a consequence of both this and the war in the Ukraine. Against this backdrop, we have delivered consistently strong operational performance, making significant progress in implementing our strategy and growing the business.

I said before that this is a marathon not a sprint. Harworth is a long-term, through-the-cycle business, which means that we look through the near-term market conditions as we execute our plans. Harworth is always all about its people, and over the last 2 years, we've built our team to enable us to deliver our strategy successfully. And it is their skill and hard work and their efforts that are essential in driving our business forward. And I believe that we have the right strategy and we have all the right ingredients to realize the full potential of our portfolio to deliver long-term value growth to investors.

So looking at the highlights of 2022 in more detail, our industrial and logistics pipeline grew to new high of 35 million square feet, driven by strong acquisition performance. We also completed the development of 432,000 square feet of space during the year at Bardon Hill and the AMP. Our residential pipeline remains stable at just under 30,000 plots, a significant achievement in itself, considering that we sold over 2,200 plots during the year. This was again a new record for us, and even in the second half of the year, we were transacting in line with, or ahead of our June 2022 valuations.

Staying with residential, we launched our single-family build-to-rent portfolio, and we are working on heads of terms with our preferred investors and contracts with construction partners. As we work through the pipeline faster, it's important for us to keep filling the hopper, and you'll see that we added 8.5 million square feet of industrial and logistics space and over 2,500 residential plots to our pipeline through a combination of freehold acquisitions, options and planning promotion agreements. With the transfer of Bardon Hill for our investment portfolio, it now stands at 18% Grade A, up from 11% in 2021. And across the portfolio, we continue to see strong levels of occupier interest and letting activity, securing deals at premiums to ERV and previous passing rents.

And finally, the Harworth Way, our sustainability framework [indiscernible] runs through everything that we do as a business. And it has been a transformative year for us as we have created a dedicated sustainability team, developed a detailed net 0 carbon pathway while enhancing our metrics, data collection and analytical capability.

Our focus in 2022 has been understanding the carbon journey of what we build and setting the program of work from 2023 onwards necessary to deliver and report on our objectives. Enhancing our reporting on the social impact of what we do is a key focus for 2023 because we believe that what we do in the regions makes a difference to the communities because our portfolio has a potential to deliver GBP 4.6 billion of gross value add.

Turning to our markets, this slide provides an overview of some of the key trends that we are seeing. The chart to the top left shows that following a record first half, 2022 ended up being the third strongest year ever for industrial and logistics takeup, surpassed only by 2021 and 2020. Demand softened slightly in the second half, but it still remained well above the long-term average.

In the bottom left, we pulled out some of the key trends in the drivers of demand for industrial and logistics space, where there's a significant shift underway. Third-party logistics and manufacturing saw their strongest year ever for take-up, likely driven by continued trends such as offshoring, near-shoring and a focus on supply chain stability. These offset reduced demand from online retailers who recorded their lowest take-up for 5 years. In addition, 86% of demand was for Grade A space, underscoring occupiers' preferences for modern, high-quality and sustainable units and then dosing our strategy to transition the investment portfolio to 100% Grade A by 2027.

Elsewhere in the market, supply remains close to record lows with an average vacancy rate of just below 4%. And in some of our regions, such as the West Midlands, it's lower still with a vacancy of around 3% and less than half a year of supply in the market.

So turning to residential, following a strong first half, the latter months of 2022 saw weaker demand as higher mortgage rates, challenging affordability and subdued consumer confidence took hold. This has undoubtedly had an impact on housebuilders who've been cautious in their recent reporting, which has suggested that while pricing and incentive levels are seeing some adjustment, demand has also showed some signs of recovery, albeit not yet for the levels seen in early 2022. The chart on this slide indicates one of the potential drivers of this. Average mortgage rates have come in from their post mini-budget spikes, and if this continues, it should improve affordability and the consumer outlook.

And finally, particularly relevant to our strategy of broadening our range of residential products, the bottom right chart shows that the single-family build-to-rent market has grown rapidly in recent years and is set to increase exponentially over the next decade to over 70,000 dwellings. Investors continue to be attracted to the highly defensive and consistent returns offered by these products. and the sustainability led rental communities that they can provide.

So before I hand over to Kitty, I want to take a moment to review our strategic scorecard. It shows progress against all four drivers of our strategy to reach the GBP 1 billion of EPRA NDV. We significantly stepped up direct development from previous years and are now making good progress in delivering an average of 800,000 square foot per annum by 2027. To manage risk, we combine small to medium-sized speculative builds with pre-let and build-to-suit opportunities, and we'll flex this to respond to changing market conditions. In residential, we saw a particularly strong year for plot sales. This was driven by buoyant house builder demand. In response to this, we brought forward land sells to capture these strong market conditions. It's also important to remember that our target assigned 2,000 plots per year is an average and that we will see years above and below this figure depending on market conditions and the phasing of our site.

Our 12 to 15-year land supply was maintained by the acquisitions that I've already mentioned, and our investment portfolio reached 18% Grade A, a significant step up from the 11% at the end of 2021 and has continued to rise post year-end with the completion of additional direct development and select sales of more mature investment portfolio assets.

So as you can see, we've made lots of progress operationally and we remain on track to reach our GBP 1 billion target by 2027. And with that, I'd like to hand it over to Kitty to take you through the financials.

[Katerina Patmore, executive]

Thank you, Lynda, and good morning, everybody. I'm pleased to be reporting a resilient financial performance for Harworth during the year, and now I'd like to take you through this in some more detail.

Starting with our balance sheet. Our EPRA NDV remained broadly flat year-on-year and with GBP 633.8 million as of 31st December 2022, equating to 196.5p per share. This was a result of a strong first half performance, followed by significant market-driven outward yield shift in the valuations of our investment portfolio and more mature industrial and logistics development sites in the second half. Our management actions were able to largely offset this yield shift, but the overall result was a reversal of our first half gains, and therefore, a broadly flat valuation performance and EPRA NDV movement during the year. I'll talk more about our value performance in a moment.

Net debt was GBP 48.4 million, increased from its position at the end of last year, which was largely due to high direct development spend, such as on our Bardon Hill site, but it remains relatively low in historical terms. Combined with the dividend, our broadly flat EPRA NDV movement led to a total return of 0.1% during the year.

So turning to the income statement. Sales of service land and property, in addition to income from rent, royalties and fees, resulted in group revenue of GBP 166.7 million during the year an increase from GBP 109.9 million in 2021. The growth was due to the higher service land and property sales, which totaled GBP 138.5 million in the year and included the sale of our Kellingley site for GBP 54 million, plus growth in rental income due to completed direct development projects as well as fees from development management and planning promotion agreements. Looking forward, around 72% of our budgeted sales for 2023 are now completed, exchanged or in heads of terms.

Administrative expenses increased by GBP 2.9 million during the year. This is principally due to higher salary costs, resulting from increased employee numbers to support our growth strategy. Administrative costs expressed as a percentage of revenue decreased during the year from 17% to 13%, and we expect the pace of growth in employee numbers to reduce going forward. Revaluation movements are an important component of our performance as seen in both the income statement and the balance sheet.

In the income statement, we can see the decreases in the fair value of assets held for sale and investment properties. These consist predominantly of our investment portfolio, our strategic land and natural resources portfolio but does not include any changes in the fair value of our development properties. Excluding the impact of revaluation gains and losses, operating profit increased year-on-year.

Tax charges decreased due to unrealized gains and losses on investment properties, and all these factors combined resulted in a profit after tax of GBP 27.8 million compared to GBP 94 million in the prior year which was heavily influenced by the 2021 valuation gains.

Finally, the Board has decided on a final dividend of 0.929p per share, bringing the total dividend for the year to 1.333p per share. This represents a 10% increase on the prior year which is in line with our dividend policy.

So looking at our valuation movements in more detail, this slide shows the component parts of our GBP 2 million valuation loss during the year which compares to a valuation gain of GBP 160.5 million in 2021. This year, we have split our major development and strategic land sites by market sector to show the different valuation dynamics of each. In Industrial & Logistics, the market headline yields moved out by up to 150 basis points or 30% to 40% alongside continued rent growth with occupier demand. These broader market trends were then seen across our investment portfolio, industrial and logistics, major development sites and near-term strategic land sites.

The full downwards market movement is largely offset through our management actions on our sites, such as planning progress in strategic land, securing grants and development progress, including development completions in major development sites. And new above-market level lettings in the investment portfolio. As a result of these actions, the industrial and logistics part of our portfolio only reduced in value on a like-for-like basis by around 12%.

Our record residential land sales, which transacted in line with or above June book values helped to drive value gains across our residential major developments and strategic land, including at Ironbridge development. And our natural resources and agricultural land portfolio remained broadly stable in the year.

This slide provides a breakdown of our GBP 737 million portfolio as at 31st December 2022. Industrial and logistics land and properties shown here in shades of green, now account for around 60% of our portfolio by value, with residential land and property chain here in shades of blue accounting for most of the remainder. The table on the right-hand side summarizes for each segment, the pound per square foot for industrial and logistics sites and pound per plot for residential sites. It shows quite clearly the significant value that we create by taking sites through the planning system, putting in place infrastructure and services before in the case of industrial and logistics, developing and letting them to occupiers. It also shows the huge potential value of our currently unconsented strategic land pipeline, which represents 29.6 million square feet of industrial and logistics space and 23,200 residential plots. This strategic land pipeline has increased from 22.4 million square feet and around 22,000 plots in 2021.

This chart shows our valuation gains and losses for every 6 months over the past 5 years and is very useful for putting our second half performance into perspective. It demonstrates how, despite the valuation movement in the second half, by taking a long-term approach we have been able to deliver the GBP 275 million of cumulative value gains over the past 5 years and have also delivered an average annual total return of 9.8% over the same period.

The chart on this slide bridges the increase in our net debt position from GBP 25.7 million as at the end of 2021 to GBP 48.4 million at the end of 2022. The main driver here was an increase in development spend and cash and working capital used in our operations as we stepped into our growth strategy. And this was largely offset by the significant sales proceeds realized during the year. The chart also shows the headroom afforded by our cash position and revolving credit facility, which I'll provide some more detail on now.

Our financing strategy remains to be prudently geared with a target net loan to portfolio value at year-end at below 20% and a maximum of 25% during the year. At year-end, our net loan to value was just 6.6%, slightly higher than at the end of 2021, but well within our target levels. In early 2022, we agreed a new senior debt package comprising a GBP 200 million revolving credit facility together with a GBP 40 million uncommitted accordion. This facility replaced our previous loan, added HSBC to our Lending Club, and provides the group with the additional firepower and flexibility. Alongside this, we continue to enter into site-specific developments and infrastructure loans, as you can see from the table of our drawn debt on the right-hand side of this slide.

So in summary, 2022 saw a robust financial performance for the group, and we remain in a strong financial position with low loan to value and cash and available facilities of GBP 175.6 million and no major refinancing requirements until 2027. We will continue to monitor closely the external environment, and we will use our skills and flexibility to target our capital to drive long-term value for our shareholders.

And with that, I'd like to hand you back to Lynda to take you through the operational review.

[Lynda Shillaw, executive]

Thanks, Kitty. Now I'd like to provide some more detail on our operational progress during the year. So Slide 16 provides an overview of our 35 million square foot industrial and logistics portfolio, over half of which is held, freeheld or in joint ventures. And the 5 million square feet of this space has a planning consent and includes mature sites such as the AMP and Gateway 36. Both of these have been hugely successful schemes, and we saw strong demand during the year as we brought forward the next phases of development. Our planning consents also include sites such as at Chatterley Valley, where site preparation works began towards the end of 2022 for it will eventually be 1.2 million square feet of employment space at the heart of the Ceramic Valley enterprise zoning Staffordshire. Over 5.5 million square feet of development is progressing through the planning system, including Gascoigne Wood in North Yorkshire and Skelton Grange in Leeds. And during the year, we entered into 2 option agreements for 2 significant sites, 1 in North Yorkshire and the other adjacent to Junction 15 on the M1 in Northamptonshire. Both of these sites have been highly sought after industrial locations and have huge potential, and we look forward to working with local stakeholders to bring these forward.

The table on the top right shows the potential gross development value to come from a selection of these sites, which could be as high as GBP 1.7 billion, demonstrating a significant pipeline of development in our strategic plan window and signaling the potential value that we can unlock from the long-term pipeline as we continue to assemble schemes and work them through the planning programs.

Turning to our residential portfolio, which has the potential to deliver around 30,000 housing plots of which just under 1/4 have planning consent. As I've said, it's been a record year for residential plot sales, which totaled 2,236. And within that figure, we saw some significant milestones. We completed our largest sale to date in a 450-plot transaction with Barratt and David Wilson homes at Waverley. We sold the first phase of our 1,000 home mixed-use regeneration scheme, Ironbridge also to Barratt and David Wilson. And we completed the sale of 80 plots to regional housebuilder Cadeby homes at Southeast Caolville which brought the total number of housebuilders that Harworth has transacted with to 21.

As a master developer, we pride ourselves in investing in residential sites to provide great infrastructure, amenities and green spaces residents. And this slide provides just a flavor of what we've been up to during the year, progressing applications for new skills, developing new facilities and improving connectivity.

So staying with residential, one of our key strategic objectives is to broaden the range of our residential products. We made important progress on that front during the year, launching our first single-family build-to-rent portfolio of up to 1,200 homes. It has attracted significant levels of interest, and we have now selected our preferred investment and construction partners and are progressing towards exchange. We now have a mixed tenure team in place within Harworth, and as you can see from this slide, work is well underway to explore other types of residential products that can be delivered across our sites using strategic partners where appropriate.

Offering these products alongside our traditional service plot product has many benefits. It provides us with important diversification, it allows us to accelerate the delivery of our residential sites, and it gives us the opportunity to control build quality, innovation and sustainability, which is critical to maintaining a sense of place, preserving land values and meeting our net 0 carbon goals. I look forward to providing you with a further update on the progress of the build-to-rent portfolio and these other residential products in due course.

Our GBP 281 million investment portfolio is a key part of Harworth's funding structure and growth strategy. This portfolio delivers an annualized rent roll of GBP 19.7 million and continues to deliver robust financial metrics. You can see from the charts on the top right of this slide that the occupier base is diverse, focused on those sectors that are currently driving demand, such as manufacturing and third-party logistics. And you can see from the bottom right of this slide that the operational metrics also remained strong, with a long weighted average unexpired lease term over 11 years and a low vacancy rate of 2.7% when excluding our recently completed Bardon Hill development and continued strong rent collection.

During the year, we completed over 600,000 square feet of lettings, adding close to GBP 1.7 million of annualized rent and transacted at significant premiums to previous passing rents and ERVs. After the year-end, you will have seen that we completed the sale of two sites for a total of GBP 12.6 million, in line with or ahead of December '22 valuations as part of our strategy to recycle capital and transition the investment portfolio to Grade A.

Now as many of you will know, the Harworth Way is our framework for embedding sustainability and social value throughout our culture, operations and strategy. And one of the key pillars of the Harworth Way is Planet, which to us means minimizing our environmental impact, building in climate resilience and promoting biodiversity. And last year, Harworth committed to becoming net 0 carbon for Scope 1, Scope 2 and Scope 3 business travel emissions by 2030 and net 0 carbon for all emissions by 2040. To meet these objectives, we have appointed our first director of sustainability, and put in place a sustainability team. And their priority for this year has been in devising our net 0 carbon pathway and embedding its commitments into a range of work streams and targets across the business. This slide provides just a few of these in areas such as the data of our industrial and logistics and residential sites and including targets to be net 0 carbon on all new industrial and logistics developments by 2030. And we look forward to sharing more details with you as part of our pathway report, which will be published alongside our annual report next month.

During the year, we also completed a strategic review of our natural resources portfolio, which comprises of sites used for a wide range of energy production and extraction purposes. The review aimed to determine how best to protect and optimize value from this portfolio while maximizing the role these assets play in realizing our sustainability ambitions. The outcome has been to develop an energy natural capital strategy, and we aim to develop renewable energy generation and storage solutions and other green initiatives such as reforestation or rewilding on natural resources assets. The Natural Resources team will also have a wider responsibility for embedding these energy concepts and principles across each one of our development sites as part of our masterplans to maximize energy availability and green capital for residents and occupiers. And we also believe that over time, this will create and preserve value for investors while achieving Harworth's net 0 carbon ambitions.

So turning to the outlook. Following the rapid outward yield movements of late 2022, some signs of stability seem to be returning to the market in the early months of 2023. As the speed of interest rate rises and outward yield shifts slow. That said, the war in Ukraine continues and economies are still responding to the energy and other commodity shocks that this triggered coming so shortly after the global pandemic. We're encouraged by these trends, but at this early stage in the year, we remain cautious about the economic backdrop for 2023. And uncertainty is likely to remain in our markets until interest rates reach their peak and inflation falls back to manageable levels, creating the conditions for growth and improved investor confidence.

Against this backdrop, it is well positioned. We are a long-term, through-the-cycle business you just cannot do regeneration quickly. Most of our sites will be in development, planning or land assembly through the next few years and into the next decade, and this means that while we're active through the cycle and we modify our short-term plans to reflect changes in the market, we also look through these near-term market conditions to where we need to invest to create the future value and returns that we can unlock from our sites.

In closing, I would like to thank my colleagues for their commitment and hard work in 2022, and to emphasize that what we do is important in the local economies that we invest in and the communities that we create. Our focus markets are drivers of economic growth and continue to have robust fundamentals. And moreover, in an economy in need of planning reform that truly drives growth, there remains an acute shortage of high-quality consented land. We control our landbank and where and when we invest and have a highly experienced management team who are focused on execution.

As we navigate the business through the challenge of the wider economic backdrop, we are confident our strategy is the right one to deliver long-term value to stakeholders while meeting our net see commitments. And our strong financial position, differentiated products and the scale and mix of our portfolio position well to release the full potential of our sites.

With that, I would like to open to any questions. We'll take them from the room first, and then we'll go to the webcast. Thank you very much.

[Unknown Analyst]

Right. First question for Kitty, please.

[Matthew Saperia, analyst]

Matt Saperia from Peel Hunt. Lynda, you mentioned you've got at least 6 million square feet of space in planning. Are there any particular milestones that we should be looking out for through 2023?

[Lynda Shillaw, executive]

Well, consent would be great. One of the challenges with the planning system at the moment is it is slow. It's probably a lot slower than we've all experienced for many years. But the schemes are in their brownfield sites. So you take Gascoigne and Skelton Grange, both brownfield sites. We've done a huge amount of work with the local authorities who will determine those applications. So we're just hopeful that they come through sooner rather than later.

[Matthew Saperia, analyst]

And I might ask a second one as well? I think you mentioned the opportunity to look at different tenures. I think you mentioned senior living and affordable housing with the aim of actually speeding up the monetization of the landbank. Can you perhaps talk in a little bit more detail about how far progressed you are on those plans and what they may well look like?

[Lynda Shillaw, executive]

So when we did the original strategy work, we did look at a range of tenures, the ones that you saw on the slide. We went with build to rent first because we felt that, that was the one where we could achieve some immediate scale. So we identified around 3,000 plots suitable for build to rent. You can't do them all at once and be brought spur forward with its 1,200. But sitting in there as what you can imagine, a lot of our planning consents come with conditions around delivery of affordable, so we've got a sizable affordable vehicle that we can bring forward, and that work on that is progressing really well. So we would hope to do something with that this year, market conditions permitting. And sites like Ironbridge and Thoresby actually have senior living in their planning consent. So actually, we're looking at what we do and whether or not the product that we can create would actually apply to be able to apply some more of our sites. That's all active. It's one of the reasons we built a mixed tenure team wasn't traditional sort of expertise for Harworth the sort of product creation and delivery, so we brought people in who have done it and have got a track record of delivery.

[Katerina Patmore, executive]

Probably worth adding that sort of with developing these products, the sudden lease of the approach at the moment is not dissimilar from sort of the approach dealing with service land to housebuilders. So we'll put the service land and provisions sort of in, make a land sale. So if it's built to rent or affordable, we would make that land sale. And then we're looking to sort of adopt or a forward funding model like we would and sort of industrial and logistics as well.

[Lynda Shillaw, executive]

The one that's different slightly is probably the net 0 carbon Home. That's quite a small portfolio of products, about 120 units. And we're looking at actually sort of delivering a pilot phase of that. It's to help us to actually understand how we deliver the infrastructure that's required really for the future part of the decarbonizing sort of residential development. So that's quite interesting, and we could actually deliver that product across a couple of our sites. But probably start with an early phase ourselves so that we can measure and monitor sort of how it's performing.

[David John Mozley, analyst]

John Mozley, Liberum. Just one from me. In terms of housebuilders, obviously, every housebuilder has reported as said it's going to buy less land or it's pausing its land buying activities. Could you give us a kind of what's actually going on the ground, kind of feel for the market at the moment?

[Lynda Shillaw, executive]

Yes, and that's right, I suppose. So we've got 72% of our budgeted sales for this year are already either completed or all they're progressing towards some exchange or the heads of terms. That is a mixture of industrial and logistics and residential. What we're seeing on the ground is -- and we said this before, we produce a very specific product. It is like sort of service land. It's derisked because we've cleaned it up and we've invested and we put the infrastructure in place. Housebuilders rarely have a portfolio full of that, but that product is attractive to them at sort of in terms of the sort of what they deliver through the year.

What we're seeing is regional housebuilders actually sort of really stepping into an element of gap that's been left by major housebuilders slowing down land acquisitions in some regions. But we're also seeing major housebuilders compete selectively full sites, so they're not totally sort of exited landbank, but I think like anybody would be in their position, they being highly selective at this point in time.

Any more questions from the room? Do we got any online?

[Tom Loughran, executive]

We have, yes. Can I just have a microphone, sorry? Yes, so we've got a couple of questions from the webcast. From Colm Lauder from Goodbody. He says, it was interesting to note your comment that residential plot sales in the second half of '22 were in line or above June '22 valuations. Could you outline your views on housebuilder demand for consented versus unconsented land in this market? And do you think the issues facing the planning system supported stability and consented land values?

[Lynda Shillaw, executive]

We'll maybe do that as a comment. So we have some transactions already as part of that 72% of our budgeted sales for this year, some transactions already sort of in the flume with house builders. It's a little bit early for us at the moment to go to the market with phases that we'll bring out in 2023. So we're a couple of months away from that marketing process. So we'll see what happens then. I'll get the rest of that question. I remember the first half.

[Tom Loughran, executive]

Do you think the issues in...

[Lynda Shillaw, executive]

Planning, yes. I mean, planning is definitely a huge issue for housebuilders as well as everybody else, but housebuilders in some parts of the country. We've got nutrients, neutrality issues. We've got power issues, actually, which are now sort of starting to sort of see some consents actually restricted or actually withheld. And as I said, the planning system is actually really very slow. So that will create a much tighter market. And if housebuilders are producing less few units as we go sort of through early 2023 until we sort of see that stability that I referred to return to the economy and interest rates maybe start to sort of come in a bit. So if you're going to see sort of a restricted delivery, and actually, potentially, they'll do some of that from their own landbank. But I come back to we've got a particular product, and that particular product sits alongside sort of housebuilders on landbanks.

[Katerina Patmore, executive]

And then there was an element to the question around valuation as well and the difference between sort of unconsented and consented land. So broadly within our -- in our portfolio of unconsented land sits within strategic land, and consented land tends to move into sort of major developments as and when we've got planning commission and when we've made a start on site. So sometimes there's a little bit of a delay in between sort of the two. What we saw over the course of last year is certainly sort of the long-term strategic land. Actually, for both residential and industrial and logistics, that tended to remain fairly stable through the valuations, and you tend to see that sort of over the longer run because it's less influenced by such short terms of market changes. So that remains the same.

As you get sort of closer to sort of the planning permission, then you start to sort of start to get those market dynamics influenced a little bit more because the approach to valuations that starts to change to take into account what can be delivered on that site.

In residential, very much of the valuations for the consented land were underpinned by the sales that we put in place of last year. And so we were making sales all the way up until the end of the year. A number of those were exchanged and completed towards the end of the year as well. So this wasn't a case of sites that had been lined up an awful lot earlier in the year and reflecting earlier market evidence, there was of evidence right up until the end of the year that then underpins those major development sites and sort of consented strategic land valuations. And to Lynda's point, underpins the demand for that serviced land, derisked type land products that we've been delivering to the house builders.

[Tom Loughran, executive]

And then the second question also from Colm is the industrial and logistics portfolio is now shown as considerably improved at its highest Grade A rating. What progress is expected in improving this further over 2023 as developments move forward and asset management activities continue?

[Lynda Shillaw, executive]

So it will improve further as we drop Gateway 36, which [ precede ] early in the new year into it. And then we've got the development that we're bringing forward at the advanced manufacturing park as well. We'll sort of drop into that. So we'll see, hopefully, by the time sort of we report at the half year and then the full year, you'll see it move on again. And we've also got this program of recycling some of these older sort of sites, sort of out of that portfolio. So it should start to sort of kick up reasonably quickly. And then it's literally around -- we're in a market where we're very much focused on securing pre-lets. This is not a market that we'll be building speculative in. So we've got a lot of interest actually for sites such as Gateway 36 and the advanced manufacturing park by occupiers who want to build-to-suit product. Some of that they want to lease, some of that they want to own. So as we develop some of that stock. The stuff that we keep actually will go into that portfolio as well.

[Katerina Patmore, executive]

Post year-end, we've already agreed to 1 unit of the advanced manufacturing park, about 70,000 square feet. So we'll build that and that will drop in as well. So the combination should enable us to push into the 20%, which would be great to see.

[Lynda Shillaw, executive]

And yes, I mean, in occupier interest is really, really holding up, which is good to see.

[Tom Loughran, executive]

Thanks very much. That's all the questions we have from online.

[Lynda Shillaw, executive]

Okay. So any more from the room? No, we're done? Okay. Thank you, everybody. Thank you for listening.