Metlifecare has shrugged off the housing slowdown to post a record profit result, although the listed retirement village company paid no tax.
Net profit for the year ended June 30 was $251.5 million, up from $228.7m the previous year. Underlying profit, which removes unrealised gains in asset values, was $82.1m, up 24 per cent.
Asked about the tax, chief executive Glen Sowry said any tax incurred was deferred and the accounts reflected that for good reasons.
“The vast majority of the deferred tax liability relates to our capital gain on property and, as we are not trading in properties – we’re a developer and a holder for a significant period of time – the tax liabilities are deferred. We pay no tax on the capital gains,” Sowry said.
The business was also fulfilling a vital social need, he said.
“We are providing a significant aged care base and that’s something the Government is not building.”
Shane Solly of Metlifecare investor Harbour Asset Management said the company had demonstrated a solid operating and financial result and was putting in place a foundation for the future via its expansion plan.
Recent statistics are pointing to a slowdown in the housing market.
Data from the Real Estate Institute showed nationwide sales volumes fell 25 per cent last month compared to July last year.
However, Metlifecare was not seeing any impact as “prices and demand remain strong”, Sowry said.
The prices the company was achieving were about 10 per cent above the valuations by commercial real estate company CBRE, which “essentially gives us a buffer against any potential correction in the market”, he said.
The company had delivered on its growth targets with the completion of 235 new units and care beds “more than double last year’s number, while at the same time increasing the development margin to 23 per cent from last year’s 13 per cent”.
Rival company Ryman Healthcare’s result last month showed it made $362.9m of annual pre-tax profit but paid no tax. Notes to Ryman’s accounts show it incurred a $6.2m income tax expense, which was deferred. Meanwhile, Summerset made $90.3m net profit for the half-year to June 30, and its accounts showed a $412,000 provisional tax expense which was also deferred.
Deborah Russell, Labour’s candidate for New Lynn and a former Massey University senior lecturer in taxation, last month said that businesses such as Ryman had done nothing wrong because as the notes to the accounts showed, non-taxable income principally arose from fair value movement in investment property which was capital gains, and not taxed in New Zealand.
Sowry said Metlifecare had a policy that only people over 70 years old could buy a licence to occupy in one of its 24 villages.
Those residents lose a third of the money they pay for their licences after three years via the deferred membership fee.
Asked why Metlifecare charged the highest sector deferred membership fee, Sowry said: “We think we can compete on that basis because of the quality and location of the villages.”
Metlifecare’s website says the fee covers unit refurbishment, marketing and re-sale, legal and settlement fees, long-term village maintenance and community facility chattels.
Sowry said Metlifecare’s average new independent living unit sale price was about $640,000 and existing unit re-sales about $565,000.
Only about 12 per cent of older people live in retirement villages and Sowry said the challenge was to provide enough accommodation for the increasingly ageing population.
The original Herald article can be found here.