Listed retirement village operators Metlifecare and Summerset have both reported strong performances for 2016.
Metlifecare reports “record half year result”
Metlifecare has announced a record half-year result for the six months to 31 December 2016.
Reported net profit after tax grew by 31% to $165.0 million, driven by continued gains in the fair value of its assets, and a solid operating performance.
The company’s underlying profit, which removes non-cash items, was $38.6 million, 15% higher than the same period last year. Total asset values increased by 15% to $2,805.9 million, and earnings per share were 77.1 cents, 30% higher than last year.
Metlifecare’s Chief Executive Officer Glen Sowry said it was a pleasing performance.
“We have continued to experience strong sales price growth and market conditions in our stronghold regions of Auckland and the Bay of Plenty. We are on track to meet our 2017 development delivery targets and, looking further out, have also made excellent progress on a number of strategic initiatives that will drive accelerated growth and create a competitive edge in the markets we are targeting.”
“We expect to achieve our delivery target of 229 units and care beds in this financial year, and are also well on track to deliver a further 233 units and beds in the 2018 financial year. Our development margin of 17% for the period was well ahead of last year’s 12%.”
Sowry said reduced stock availability led to lower sales volumes of new units during the period with 89 new units sold, down 14% against the previous corresponding period.
“However the impact of this was offset by an average price increase of 9% to $638,000 per unit, which combined with the increased development margin to drive a realised development margin of $9.6 million, 35% higher than last year.”
Village occupancy increased to 97% compared to 96% in the same period last year, and care home occupancy is tracking above the national average. Unit resales volumes were 13% down on last year at 175 units, partly because 17 units at Pinesong village were unavailable for resale. These units were used by the company to rehouse residents of the Manukau building which is being replaced with a new apartment block.
The average resale price increased by 16% to $489,000 per unit, driven by a combination of increased sales prices and the mix of units sold, and the realised resale gain per settlement increased by 36% to $151,000. Overall, net operating cash flow for the six-month period was $79.0 million, 1% higher than last year.
Metlifecare delivered 97 new units during the period under review, with a further 288 units and beds under construction at 31 December 2016. The current development land bank includes a further 1,647 units and beds for delivery in subsequent years. There were no further land acquisitions made during the period, despite detailed reviews being conducted on a number of potential sites.
“We are taking a prudent and methodical approach to ensuring any new site is aligned with Metlifecare’s vision for its future villages and meets our investment criteria, which include demographics, median market pricing, home ownership levels and growth rates. Whilst we are hopeful to sign and settle a land acquisition this calendar year, we will continue to be careful that any such acquisition is value-accretive and targeted,” said Sowry.
Summerset continues strong growth
Summerset Group Holdings Limited has announced an underlying profit of $56.6 million for the year ending 31 December 2016, up 50% on the previous year.
Annual growth in underlying profit has averaged 48% in the five years since listing in November 2011.
Net profit after tax, which includes unrealised valuation gains in the fair value of investment properties, was up 73% for FY16 at NZ$145.5 million, driven by new retirement units built and good demand across all of Summerset’s villages. Summerset’s total asset value increased by 25% to NZ$1.7 billion. The development margin on new retirement units also increased to 22.2%, up from 20% for FY15.
Chief executive Julian Cook said the company now has more than 4,200 residents living at its 21 villages, 700 more than a year ago.
“During 2016 we accomplished a number of milestones, including 658 new sales and resales of occupation rights, a 14% increase on the year before, and it is the sixth year in a row that we have increased our occupation rights sales. We also now have more than 1,000 staff across the country, up 200 on the same time last year.
“The delivery of a record 409 retirement units across the country was in line with our FY16 build rate target of 400. We have increased our target build rate to around 450 new units in 2017. We also delivered 121 care beds in 2016, bringing the number of care beds across our villages to 748.”
At the end of 2016, Summerset’s total land bank represented 2,609 retirement units and 366 care beds – a total of around six years’ supply.
The company reinvested NZ$200 million into new and existing villages in 2016, which included extending the recreation areas at Wanganui and Hastings and starting construction on a new recreation centre at Levin and village centre at Trentham. Last year, Summerset also opened new village centres at its Hobsonville and Wigram as well as its first dementia centre at Summerset by the Ranges in Levin.
The first residents moved into their homes at Summerset’s fourth Auckland village in Ellerslie during October. The village centre and care centre are expected to be completed this year.
Planning for Summerset’s other Auckland villages in St Johns and Parnell, and Boulcott in Lower Hutt continue to progress. The company also purchased two new development sites in Richmond, Nelson and Rototuna, Hamilton in 2016, bringing the total number of Summerset sites to 27.
Cook says the focus for FY17 will be on continuing to grow Summerset as well as continuing to refine and improve its customer offering.
“Our sales and settlement rates are strong across the country, including Auckland, and we are seeing no slow down. However, we are well aware that the property market does move in cycles. Ultimately, demand for our villages is driven by the increased number of older New Zealanders and what we offer them. Since 1997, when we opened our first retirement village, Summerset has seen two property market downturns and during each, demand in our villages remained consistent.
“We also guard ourselves against a downturn by adopting a prudent approach to debt levels. All our debt relates to development projects and we carry no debt that must be serviced from our core earnings. At the end of FY16, the value of our development working capital, being land, work in progress and completed homes awaiting settlement, totalled NZ$307 million, compared to net outstanding debt of NZ$265 million. Additionally, over the year our gearing reduced to 32.7% from 37.1% at December 2015. This conservative approach to how much debt we take on and the demand for retirement village living puts us in good shape in the event of a property downturn.”