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Summerset posts 45% rise in 1H earnings, signals development to increase in second half

Tuesday 15th August 2017

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Summerset Group, New Zealand's second-largest retirement village developer, posted a 45 percent gain in first-half underlying earnings and reiterated that full-year profit may increase by a third as it ramps up development.

Underlying earnings, which excludes property revaluations, increased to $35.7 million in the six months ended June 30, from $24.7 million a year earlier, the Wellington-based company said in a statement. The company reiterated its forecast for annual earnings of $72 million to $75 million, up from $56.6 million in 2016.

Summerset added 171 retirement units across eight villages in the first half of its financial year and said it expected to ramp up activity in the second half, bringing the total new units at the end of the year to 450, ahead of the 409 units it delivered last year.

"We are on track to build approximately 450 retirement units across our villages in 2017 and expect new sales levels over each half of the year to reflect this," said chief executive Julian Cook. 

First-half net profit jumped 78 percent to $90.3 million, as the value of the company's investment properties increased by $87.1 million to $1.62 billion, ahead of the $50.2 million gain recorded a year earlier. Revenue rose 27 percent to $50.7 million.

New Zealand retirement village operators are acquiring land and preparing for a record building spree in anticipation of increased demand as people born in the country's post-war era reach the target age for operators, including Summerset and its larger rivals Ryman Healthcare and Metlifecare. Summerset has a land bank of about 2,670 retirement units and expects the population aged over 75 to grow 254 percent from 2017 to 2068, it said today.

In the first half, sales of occupation rights increased 6 percent to 323, driven by a 17 percent jump in resales of occupation rights to a record 144, while new sales of occupation rights slipped 2 percent to 179. The company booked a record $10.8 million gain in the value of resales, which it said was driven by higher sales volume and strong sales price growth.

Summerset lifted its development margin to a record 28 percent from 20.3 percent a year earlier as it benefits from taking management and design of its construction sites in house.

Cook said the margin increase was "particularly pleasing" given the cost pressures in the Auckland construction market.

The company will pay a first-half dividend of 3.9 cents per share on Sept. 11, ahead of the 2.6 cent interim dividend a year earlier. Its policy is to pay 30-to-50 percent of annual underlying profit in dividends and payments will likely continue to be at the bottom of the range given the growth opportunities for the business, it said.

Summerset shares last traded at $4.90 and have slid 4.4 percent in the past 12 months.


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