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Summerset notes flattening property market as earnings rise 27%

Tuesday 14th August 2018

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Summerset Group Holdings said a flatter property market is providing smaller valuation gains for the retirement village operator and developer.

Underlying earnings, which strip out fair value movements in the value of the portfolio, rose to $45.2 million in the six months ended June 30, up 27 per cent from $35.78 million the year before, largely in line with guidance provided last month.

Net profit, however, fell 9 percent to $82 million. The Wellington-based company registered a $78.3 million unrealised gain on its $2.24 billion property portfolio, compared to an $87.1 million gain a year earlier. 

"The lower fair value movement versus the corresponding period in 2017 reflects lower levels of retirement unit price increases across our portfolio in response to the flattening property market being seen in some areas of the country," chief executive Julian Cook said in a statement. "We are pleased with the underlying profit result, which reflects strong development and resales margins in the period."

New Zealand's retirement village operators are on a drive to push new development across the nation as they latch on to an ageing demographic providing a tailwind to the sector. That long-term trend was supported by rapid property price gains, where prospective residents selling into a rising market could pay higher prices for retirement village units. 

More recently, the housing market has cooled as banks impose stiffer lending criteria and policymakers attempted to curb demand while encouraging construction, which has been seen as a potential threat to the retirement village sector. 

Summerset's board declared an interim dividend of 6 cents per share, with an Aug. 28 record date, payable on Sept. 10. That amounts to 30 percent of underlying profit, the bottom end of the dividend policy. Payments are expected to remain near that lower end of the band "given the growth opportunities present for the business at this time," the company said. 

The company had previously acknowledged a decline in sales volumes for the period, but Cook today said he's seeing "good levels of contracts on homes - both on resales and homes to be completed before the end of 2018 - many of which will settle in the second half of the year." 

Summerset built 165 new homes in the first six months of 2018 and is on track to meet its 450-unit target, despite pressure in Auckland's construction market. 

The company has 23 villages completed or under development with 3,443 retirement units and 858 care beds. Its landbank has the potential to add a further 3,041 units and 368 care beds. 

Summerset recently got consent to build a village in the Christchurch suburb of Avonhead but was declined approvals for a site in Auckland's St Johns. 

"We are currently working through this decision but remain confident we will be able to progress a successful village on this site," Cook said. 

Consent applications in Lower Hutt and Wellington are still under consideration. 

The shares last traded at $7.72 and have climbed 40 percent so far this year, making it the second-best performer on the S&P/NZX 50 index behind Synlait Milk. 


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