Monday 26th August 2019
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Metlifecare’s annual net profit fell 68 percent because of smaller gains in the fair value of its retirement villages but underlying profit was up 4 percent and underlying operating cash flow rose 2 percent.
Net profit for the year ended June of $39.2 million compared with $122.6 million the previous year – the unrealised value of its villages rose $53.9 million in the latest year after a $132.7 million gain the previous year.
The underlying result of $90.5 million fell $1 million short of Forsyth Barr analyst Jeremy Simpson’s forecast but his preview note said the share price “is already factoring in significant negativity.”
Metlifecare shares last traded one cent lower at $4.39 and are down 27.5 percent on a year ago. The share price is well below net assets per share of $6.96.
Total assets grew 7 percent to $3.5 billion while per-share assets were up 1 percent from $6.89.
“There is medium-term upside as the market gains confidence in Metlifecare’s ability to execute on developments and if it can demonstrate its ability to capitalise on the growth potential in the sector and hold up investment property value in a slower market,” Simpson says.
Metlifecare’s villages are concentrated in Auckland – 18 of the 28 villages are located there with another five in the Bay of Plenty.
House prices in Auckland fell 3.5 percent in the year ended June, according to the Real Estate Institute’s House Price Index – house prices outside of Auckland were up 6.5 percent in the June year.
The company delivered new 182 units and beds in the year, investing $240 million in new and existing villages. A further 33 new homes are expected to be completed this quarter. It expects to deliver 80 units by the end of the current first-half and 280 in 2021.
“The demand for our villages and care has remained strong over the year,” says chief executive Glen Sowry in a statement, adding that Metlifecare settled 7 percent more occupation right agreements at 6 percent higher average prices.
Sowry says prices outperformed “both the market and unit prices assumed in the valuation.”
Metlifecare also bought two new sites, both adjacent to existing villages, during the year at Botany and Kerikeri.
Sowry says the development programme, including projects underway at eight villages, is progressing steadily.
“We have confidence in our strategy of building in high value locations, the design and market characteristics of our new village pipeline and our ability to deliver profitable developments in a changed market,” he says.
Metlifecare’s development margin rose 3 percent to $16.9 million at an average margin of 21 percent.
It settled 116 sales of new occupation right agreements, up 18 percent from the previous year, and 354 resales, up 3 percent. A further 115 homes were under contract at balance date.
It also wrote down the values of its The Avenues and Papamoa Beach care homes in the Bay of Plenty by $16.3 million – impairments the previous year were $3.8 million.
Sowry says the company recently received a conditional offer for its Albany site and the capital released from that site can be reinvested in purchasing other sites that will provide more immediate growth opportunities.
Expenses rose 12 percent to $111.2 million due to higher employee-related costs, including the impact of ongoing skills shortages, higher sales, marketing and property-related costs.
Metlifecare’s gearing at June 30 rose to 15 percent from 9 percent and Sowry says the company has ample headroom to fund ongoing targeted growth.
The company is exploring a potential retail bond issue and preparatory work is now largely complete with timing and market conditions currently being assessed. Proceeds from the bond issue would replace existing bank debt.
Chair Kim Ellis says the board is encouraged by Metlifecare’s sales performance and strong cash flows in a challenging market.
“We believe the high demand, strong pricing and resident satisfaction is proof of our compelling customer proposition.”
Metlifecare will pay a 7.25 cents unimputed final dividend, taking the annual payout to 11 cents, up 10 percent on last year. The dividend will be paid on Sept. 20 to those on the share register on Sept. 13.
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