Summerset more than doubles first-half profit, steps up build rate in 2016

Summerset Group, New Zealand’s third-largest listed retirement village operator, more than doubled first-half profit as it boosted sales after opening four new villages in the second half of 2014.

Profit rose to $35.7 million, or 16.33 cents per share, in the six months ended June 30, from $15.3 million, or 7.04 cents, a year earlier, the Wellington-based company said in a statement. Revenue rose 29 percent to $32.6 million as sales of occupation rights jumped 38 percent to a record 270.

Underlying profit, which excludes the impact of unrealised property valuation gains, increased 81 percent to $17.1 million in the first half, and the company reiterated it’s on track to post full-year profit on that basis of between $32 million to $34 million, up from $24.4 million last year.

Summerset earnings growth is accelerating this year as it benefits from opening new villages in Karaka, Hobsonville and New Plymouth, and almost doubling the size of its Trentham village. The company said it’s on track to deliver 300 retirement units for 2015, and raised its target for 2016 and beyond to 400 units a year.

“A large contributor to the growth seen in this period relates to the four new villages opened in the second half of 2014,” said chief executive Julian Cook. “The company is well funded (and) has a good land bank in place for future growth.”

Summerset improved its development margin to 18.4 percent from 15.7 percent in 2014. The company is improving its development margin as it takes management of construction sites in house, and said there is potential for the development margin to further increase to around 20 percent over time.

To help fund its future growth, Summerset increased its bank funding lines to $450 million from $255 million. It had $161 million of debt at June 30, up from $132 million a year earlier. Cook said he was confident the business would remain prudently geared given its strong earnings growth.

Summerset said the opening of its Wigram village in Christchurch and three new care centres will likely see some additional costs in the second half of this year. Expenses rose by a third to $27.2 million in the first half.

The company will pay a dividend of 1.85 cents per share on Sept. 7, up from 1.4 cents in the year earlier period. Its policy is to pay 30 to 50 percent of annual underlying profit in dividends and payments will likely continue to be at the bottom of the range given the growth opportunities for the business, it said.

Shares in Summerset last traded at $4.13 and have surged 49 percent so far this year. The stock is rated an average ‘hold’ according to analyst recommendations compiled by Reuters.