Coronavirus has influenced valuations of one retirement giant's properties to such an extent that last year's gains in its national property portfolio have been turned into falls and the bottom-line profit has been reduced to nearly zero.
Developer and operator Summerset Group's bottom-line profit plummeted 99 per cent from last year's $92.6 million to just $1m this year due to devaluation of $14.7m.
The business reported its net profit after tax for the half-year to June 30, 2020 and in its 2019 half-year, properties were revalued with $85.7m gains but this year that turned into the devaluations of $14.7m.
However, revenue was up from last year's $74m to $82m.
"Fair value movement impacted by material adjustments in short term HPI growth rates and discount rates applied by our independent valuers, CBRE. Adjustments related to Covid-19 uncertainty and are in line with those applied to other retirement village operators," Summerset said.
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The business, with $3.4b of assets, made underlying profit of $45.1m for the first half of 2020.
Julian Cook, chief executive, said that was at the top end of market guidance last month of $40m to $45m.
"Despite the impacts of Covid-19 on trading conditions in the first half of 2020 the result is pleasing and demonstrates the underlying strength of Summerset's business. Following the April-May lockdown we saw sales and settlements rebound strongly," Cook said today.
It was too early to know how recent Covid-19 developments would affect the business in the second half.
On August 12, Summerset closed all five Auckland retirement villages, banning visitors, conducting staff temperature testing and making staff face masks mandatory.
On the valuation front, today's statement said: "The reduction in IFRS profit after tax compared to prior periods was primarily caused by a negative fair value movement in investment property.
"The negative movement was due to more conservative house price inflation forecasts by the valuer, and fewer units delivered in the half year due to Covid-19 related construction restrictions," the company said.
Cook said the reduction in investment property values was less than 1 per cent overall.
Total assets rose 13 per cent in the last year and Summerset has a development margin of 22.3 per cent, in line with previously signalled expectation of margins in the 20-25 per cent.
Early last month, the company said its first-half underlying profit could be up to 16 per cent lower on the year before because of the impacts of Covid-19, which halted construction as well as property settlements.
It expected underlying profit for the six months to June 30 to be between $40m and $45m.
"Relative to 1H19 underlying profit, this guidance is between 6 per cent and 16 per cent lower," it said back then.
Summerset delivered 139 new retirement units in the first half. The lockdown saw construction at 13 sites across the country close for six weeks, it said in a statement last month.
The business said all its Auckland retirement villages and care centres are closed and will remain so until further notice.
Extra precautions have been taken: the Katikati village and care centre is also shut.
"Visitors are not permitted into our Auckland or Katikati villages unless on compassionate grounds, such as end of life care. This includes visitors to care centres, serviced apartments, and the rest of the village. Any visitors to the care centre must be pre-approved by the care centre manager," Summerset says on its Covid-19 update.
Care centres and memory care in villages outside of Auckland are also closed to visitors until today on the advice of the New Zealand Aged Care Association.
"We expect to receive further advice on this on Monday and will advise if there are any changes in this regard," the business said.
Pre-Covid, Summerset traded up to $9 at the start of this year but is now around $7.37.