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UPDATE: Summerset annual earnings rise 50% as expansion accelerates

Thursday 23rd February 2017

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(Adds chief executive comment throughout, updates share price)

Summerset Group boosted annual earnings 50 percent after opening more retirement villages and improving its margins.

Underlying earnings, which excludes property revaluations, increased to $56.6 million in calendar 2016, from $37.8 million a year earlier, the Wellington-based company said in a statement. That's ahead of its forecast for earnings of between $53 million and $55 million.

Net profit jumped 73 percent to $145.5 million, as the value of the company's investment properties increased by $143.5 million to $1.59 billion, compared with an $83.5 million gain a year earlier. The company attributed the valuation gain to additional units and strong price inflation across all villages.

Summerset invested $200 million in new and existing villages in 2016. The company delivered a record 409 retirement units during the year, 35 percent more than in 2015, and it raised its target for 2017 to around 450 units. Chief executive Julian Cook said the company expects a long-term annual build rate of at least 450 units.

"If we see market opportunities and we see continued demand then it may increase beyond that and certainly we have positioned our land bank so that we are able to do that if we want to," Cook said. 

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 2,609 retirement units and 366 care beds, and it expects the population aged over 75 to grow 239 percent from 2016 to 2068, it said today.

"We are certainly seeing good demand across the country," Cook said. "We are busy working through the villages that we have running now but also working on the next wave of villages which will come. We continue to see good earnings growth forecast for the business."

He declined to provide specific earnings forecasts.

The company's shares rose 3.7 percent to $5.09 and have gained 25 percent the past 12 months.

Summerset improved its development margin to 22.2 percent from 20 percent as it benefits from taking management and design of its construction sites in house, and its larger scale. 

Cook said the company is "broadly comfortable" with the margin in the low 20s, although the rate was likely to improve further over the medium term as it eked out further gains from the construction and procurement parts of the business.

Summerset's revenue rose 25 percent to $86.1 million while expenses increased 23 percent to $74.8 million.

Its sales of new occupation rights increased 24 percent to 414, while resales of occupation rights declined 0.4 percent to 244.

The company will pay a final dividend of 5.1 cents per share on March 22, taking the annual dividend to 7.7 cents, ahead of the 5.25 cent dividend paid in the first half of the previous year. 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.

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