Summerset Group makes $263.8m on property revaluations

Summerset at Heritage Park, 8 Harrison Rd, Ellerslie. Photo / supplied

The $4.4 billion listed retirement specialist Summerset Group has made $263.8m net profit after tax after a $260m surge in property revaluations.

Net profit after tax turned around from the Covid-hit first half of last year when it recorded a $7.6m loss to this year's first-half $263.8m net profit after tax, although on a normalised basis last year's $7.6m loss became a $1m profit.

The company pushed up revenue 16 per cent from the first half of its year to June 30, 2020 when it made $82m to this year's first half to June 30, 2021 when it made $94.9m.

Total income rose 427 per cent from $67.4m in last year's first half to $355.1m in this year's first half.

Summerset is building in Auckland's St Johns. Photo / supplied

The company has 33 villages where 6000 people have licenses to occupy. Chief executive Scott Scoullar says it ranks second to Ryman Healthcare. Summerset has a $3 billion market cap, compared to Ryman's $6.5b.

Summerset has also bought further properties here and in Australia, in Palmerston North's Kelvin Grove and Melbourne's Craigieburn.

The Kelvin Grove site will be Summerset's second Palmerston North village. Around 9ha will be developed into more than 300 independent villas, cottages, apartments, serviced and memory care units.

At Craigieburn in north Melbourne, Summerset plans to build 200-unit village with and serviced and memory care units on a 9.76ha site.

All up, Summerset plans to spend $300m on those two projects. It has four Melbourne sites where it plans to spend more than $500m on homes for about 1000 people. Its first resource consent was just granted there this month.

Scott Scoullar, chief executive, said the current lockdown was a reminder that New Zealand was still operating in an environment dominated by Covid-19.

"We have moved quickly to keep our residents and staff safe by restricting entry to our villages, and protective measures such as having care staff in masks and working in cohorts were already in place when the new community case was announced. We have been here before, and are well placed to look after our residents' health and wellbeing once again."

No residents or any of the approximately 2000 Summerset staff had been diagnosed with Covid "but a handful or less than 10 people all in Auckland have been at places of interest", Scoullar said.

"We're just feeling very fortunate because it's luck about whether staff have been out and about."

Summerset had spent about $15m on anti-Covid measures in the last year, including on PPE gear and employing extra staff, Scoullar said.

The company had made record sales, buoyed by new villages in Te Awa in Napier, Bell Block in New Plymouth and Richmond in Nelson.

"We are continuing to see strong demand for our brand of retirement living; the database for our soon-to-open Whangārei village stands at 700-plus, and nearly 60 per cent of villas in our developing villages nationwide are pre-sold," Scoullar said.

Summerset's development margin was 21.6 per cent, down on 22.3 per cent for the same period last year. This is in line with the company's longer term expectations of development margins in the 20-25 per cent range.

Total assets grew 27 per cent on the same period last year. Summerset built a record 347 new units: 321 were sold under occupation right agreements and 26 were sold as care beds in the first six months of 2021.

The company has a gearing of 28.5 per cent, down from 35.8 per cent, and bank debt headroom of around $850m.

Forsyth Barr analysts Aaron Ibbotson and Matt Montgomerie had a neutral rating on the stock pre-result.

"Summerset will be the first and hopefully only aged care company that reports under alert level 4 when it reports its 1H21 result," they said.

"While the medium-term impacts of Covid-19 so far have proven to be positive for earnings, the immediate impacts of lockdowns is meaningfully negative and will likely be in focus," they wrote.

They did not expect any major surprises in the result given the first-half sales metrics had been announced. But they said they would focus on three key areas.

The first would be any forward-looking commentary: "Summerset's strong sales momentum has continued into 1H21, however, 2Q commentary suggested a softer second half given product mix," they said.

Summerset chief executive Scott Scoullar. Photo / supplied

Any insights into the expansion into Australia would also be of interest. And Summerset has just made that announcement this morning.

Lastly, they are looking to know more about costs because "anecdotal evidence suggests construction costs are increasing materially and there is a high degree of competition for health care staff, particularly nurses".

Last month, Jarden described Summerset as having a strong sales momentum which was continuing.

The company had strong second-quarter sales for the June 30, 2021 year, it said, Jarden said, with the sale of 154 units and resales of 116 units "both ahead of our required run-rate for our previously published FY21 forecasts.

"While year on year comparisons are somewhat distorted by lockdown in the previous corresponding period, rolling 12-month figures show both new sales (+80 per cent year on year) and resales (+54 per cent YoY) results are at record levels," Jardens said last month of the quarter sales.

Scoullar joined Summerset in 2014 and became chief financial officer, only being appointed into his current CEO role in March this year.

Asked about possible reforms sought by Associate Housing Minister Poto Williams, Scoullar says: "I think there's always things you can do but continue to improve and evolve, like to promote residents' voices."

But on Williams' suggestion the industry offers clearer contracts to resolve difficulties some say mean not even lawyers can understand what's in the document, Scoullar says: "Summerset has driven plain English contract. But there are opportunities to make them plainer and keep evolving. We've done three reviews."

And should residents share capital gains?

"We use the captain gains to pay for amenities on the site. We use them to pay doubt debts on facilities over a period of time."

On Summerset's controversial $300 million high-rise Parnell development, he says that's being appealed to the Environment Court. An eight-level project for 216 apartments, 100 hospital rooms and 235 parking spaces at 23 and 41 Cheshire St has been applied for.

Summerset has been trading around $13.20, up 57 per cent or $4.80 annually.