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Property boom near triples Metlifecare's half-year net profit, more construction underway

Wednesday 24th February 2016

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Metlifecare, the listed aged care and retirement company, has more than tripled half-year net profit, mainly due to the impact of booming property prices, particularly in Auckland and the Bay of Plenty, and given renewed impetus to its development pipeline.

Net profit for the six months ended Dec. 31 was $125.7 million, up from $37.7 million in the prior half, although underlying profit, which removes property revaluations measures and gives a clearer measure of operating performance, rose 29 percent to $33.5 million.

The Auckland-based company, which operates 25 retirement villages and nine care facilities nationwide and employs more than 1000 staff, said in a statement to the NZX that revenue increased just 2 percent to $52 million while the fair value movement of investment property leapt 298 percent on the prior period to $128.5 million as a result of last year’s rampant property market.

The figure the Metlifecare management focus on, because it reflects the free cash generating capability of the business, is operating cash flow excluding first time sales of occupation right agreements. That measure increased to $17.7 million from $16.9 million in the prior corresponding period. 

First sales cash goes towards repaying development debt and maintaining the overall debt levels of the business with interest-bearing liabilities at $48.7 million, down from $60.1 million in June.  

Chief executive Alan Edwards said Metlifecare’s low level of debt and significant funding headroom allow it to seek further brownfield and greenfield opportunities.

“This is another strong result and we are pleased that the villages in Auckland and the Bay of Plenty have experienced strong value growth on the back of a solid real estate market,” he said. “With the number of New Zealanders aged over 75 years expected to almost double in the next 30 years, the bulk of them in the upper North Island, Metlifecare’s development pipeline is strategically focused in these regions.”

The board declared an interim dividend of 1.75 cents per share with a March 11 record date, payable on March 21.

The shares rose 3.5 percent to $4.44, having dropped 7 percent so far this year. 

Underlying profit guidance for the full year is in the range of $62 million to $64 million, up from $52.4 million in the previous year.

During the half Metlifecare achieved 103 first time sales of occupation rights, compared to 29 in the prior period, generating $60.3 million of cash used to reduce development debt. It also made 200 resales of occupation right agreements, in line with the prior period, and generated realised resale gains of $21.6 million, which was up 53 percent.

Realised resale gains per unit rose 48 percent to $111,000 as a result of the mix of independent living units and serviced apartments settled during the period and the rise in property prices.

The embedded value per unit was $180,000, up 22 percent on the previous period, and compares to $114,000 per unit four years ago. This measures the difference between a unit’s list price and the occupation right agreement liability average across all units and is an indicator of likely future resale gains.  

Metlifecare currently has 307 units under construction, up 55 percent on the previous period. During the half, it completed 41 units and 36 care beds. The company expects to deliver a further 28 units in the second half at Oakridge Villas and Papamoa Beach Village.

The overall target is to deliver a range of 105 to 160 units and beds in the 2016 financial year depending on the timing of 55 units at Greenwich Gardens, due for completion in July. Metlifecare’s development pipeline is 2,184 units and beds, up 50 percent on a year ago.

Chair Kim Ellis said the increased number of units and beds under construction was pleasing but development margins needed to lift.

Total assets grew to $2.4 billion, up 17 percent on the previous period while the valuation of completed investment properties rose to just over $1 billion from $836.1 million in the previous corresponding period.

The average age of Metlifecare’s residents is 81.5 years and the average length of stay for all units is 8.2 years and 3.2 years for serviced apartments. The age of entry has trended up in the past 20 years to 76.9 years for independent units and 86.5 years for serviced apartments.

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