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Metlifecare FY profit up 10%, sees no impact from housing market slowdown

Monday 28th August 2017

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Retirement village operator Metlifecare reported a 10 percent increase in full-year profit on the back of resale gains and wider development margins and said it isn't yet seeing any impact from a slowdown in New Zealand's housing market.

Net profit was $251.5 million in the year to June 30 or $1.181 per share versus $228.7 million or $1.075 per share in the prior year, the Auckland-based company said. Underlying profit, which removes unrealised gains in asset values, was $82.1 million, up 24 percent on the year.

"We've delivered on our growth targets with the completion of 235 new units and care beds - more than double last year's number - while at the same time increasing the development margin to 23 percent from last year's 13 percent," said chief executive Glen Sowry. 

Recent housing market statistics are pointing to a slowdown in what has been a very hot housing market, in particular in the nation's largest city of Auckland. Nationwide sales volumes dropped 25 percent last month compared to July 2016, with Waikato sales dropping 32 percent and Auckland sales down 31 percent, according to the latest data from the Real Estate Institute.  

Sowry said, however, Metlifecare is not seeing any impact as "prices and demand remain strong" and the prices it is achieving are about 10 percent above the valuations by commercial real estate company CBRE, which "essentially gives us a buffer against any potential correction in the market," he said. 

Sowry said the development activity was key and the company is planning to 233 new units and care bed "and we are on target to achieve that."  He declined to give any guidance for the current financial year but said the company would update the market with the release of its first-half results. 

The company's total asset values rose 14 percent to $3 billion. The company declared a final dividend of 5.8 cents, bringing the full year's dividend to 8.05 cents, which is 40 percent higher on the year. The dividend will be paid on Sept. 29 with a record date of Sept. 15. 

Metlifecare said underlying operating cash flow - including developments sales - was $51.3 million, driven by strong growth in occupation right agreement resale prices and realised gains, but on lower resale volumes.  According to Sowry, the resale volumes were"abnormally low " in the year. He said there was no specific reason other than the cyclical nature of the business.   However, in the latter part of FY17 and the beginning of FY18 the company is seeing a "return to more normal levels." 

Chair Kim Ellis said the company aimed to maintain a dividend payout ratio of 30 percent to 50 percent of underlying operating cash flows.  Metlifecare said it will aim to increase dividends yearly while maintaining the same payout ratio. Development sales are excluded on the basis they are utilised to repay development debt associated with the construction of new villages and are therefore not available for distribution to shareholders. On completion of development projects any surplus cash available to distribute will be considered at completion, it said. 

Regarding future growth, Sowry said Metlifecare is actively exploring building a specific facility for dementia and was open to site opportunities across the country. All of its villages are currently on the North Island. Regarding Australian, he said Metlifecare was focused on embedding its development and growth domestically in the short to medium term  but "that's not to say we won't look at opportunities beyond that." 

The stock rose 4.9 percent in early trading to $6.16 and is up 5.8 percent on the year. 


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