Metlifecare says net profit down 57% but underlying still strong

Monday 25th February 2019

Retirement village owner and operator Metlifecare reported a 57 percent slide in net profit as it booked a lower gain in the value of its investment property but said underlying earnings continue to be supported by strong demand.

Net profit was $24.5 million in the six months ended Dec. 31, 2018, from $56.3 million in the prior year, the Auckland-based company said in a statement. Earnings per share were 11.5 cents versus 26.5 cents in the prior period.

Underlying profit, however, lifted 15 percent to $41.7 million on higher development sales volumes and realised margin.

The company booked a $29.6 million gain in the value of its investment property, compared with a $59.8 million gain in the year earlier period.

New Zealand's retirement village operators have been on a drive to push new development across the nation as they latch on to an ageing demographic. The 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. In recent months, however, a cooling housing market has crimped returns.

"We have seen a continued moderation in house price inflation over the period that we've just reported. From our perspective, the thing that we are pleased about is that demand remains strong and we are outperforming the market," chief executive Glen Sowry told BusinessDesk.

He expects the trend to continue in the second half.

Metlifecare settled 170 resales of occupation right agreements during the period, up 13 percent on last year, with a further 78 homes under contract at balance date.

The average selling price per Metlifecare home rose 7 percent to $572,000.

Regarding new homes, 56 new occupation right agreements settled during the period, up 70 percent on last year, and with an additional 50 homes under contract at balance date. The average selling price per home increased by 11 percent to $723,000,

Sowry said the first half had seen strong applications from potential residents and he also expects that to continue in the second half to June 30.

"The second half of summer tends to be one of the stronger parts of the annual cycle and so we are holding strong applications and strong continued interest and inquiry from prospective residents."

"Our development programme is well on track, and our continued investment in the quality of our villages and resident experience has ensured high occupancy rates of 97 percent for our villages and 95 percent for our care homes," he said.

The value of its total assets was $3.4 billion, 11 percent higher than the prior year.

The board declared an interim dividend of 3.75 cents per share, 15 percent higher than last year. The dividend doesn't include tax credits and will be paid on March 22, with a record date of March 15.

Metlifecare’s development programme is on track to deliver 215 new homes and care beds for the current financial year, down from 254 last year, it said. Sowry said the company is constantly looking at opportunities all over the country and is currently going through assessment and due diligence on a number of properties currently. "We try to have at least one a year that we bring onto the land bank for development."

The company also said its remediation and regeneration program, in which several villages are being modernised and future-proofed, remains on track for completion by mid-2023. The programme is partly related to the leaky building crisis and involved recladding.

Total investment is expected to be $61 million, of which $15 million has been spent. Sowry said the bulk will be spent this current financial and the next. The investment represents 4 percent of Medlifecare's net assets or 29 cents a share.

"The programme is rolling along well and we are pleased with the way it is going in terms of the lift in quality and also the re-sale prices we are getting on those remediated units," he said.

Sowry also said the company is looking at a potential retail bond issue this year to diversify its funding. He did not provide details about the timing or size.

The stock last traded at $5.25 and has lost 16 percent over the past year.

(BusinessDesk)

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