Retirement village operator Summerset posts bumper $230m profit as property values jump

Tuesday, 23 February 2021

Summerset chief executive Julian Cook says despite Covid-19 2020 has been a strong year for the company.

Retirement village operator Summerset Group has posted a bumper profit in the 2020 year of the pandemic of $230.8 million boosted by a rebound in the value of its retirement village units.

Its underlying profit, excluding property revaluations, was $98.3m, just ahead of guidance, for the year to December 31, 2020, and 7 per cent lower than the 2019 financial year.

Chief executive Julian Cook said net profit after tax, boosted by the $221m increase in the fair value of its investment property, its village units, was 32 per cent ahead of 2019.

The investment property valuation at December 31, 2020 had rebounded strongly since the previous valuation at June 30, 2020 when the wider residential property market was forecast to fall by up to 10 per cent as a result of the Covid-19 pandemic. The fall did not happen.

* Covid-19 cuts the value of Summerset's retirement village units sending profit plummeting to $1m.

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The valuation of Summerset’s retirement units has rebounded with the expected fall in their value due to Covid not happening.

Cook said the rise in Summerset’s property values was the result of a combination of factors like the addition of new units, an assumption by the valuer of a modest rise in the value of existing units in the future and the value of deferred management fees in the future.

In June last year the uncertainty around Covid-19 impacted the valuation of its properties and other companies in the retirement village sector. In the second half of the year Summerset and the economy had generally “done pretty well”.

In June the valuer gave basically “a nil movement” in property values to reflect the Covid uncertainty. Normally the company would expect some uplift in property values.

“Over the whole year it’s kind of a return to normal,” Cook said.

Property values were not the focus of the business but rather how much cash the business brought in and what it was investing in. Property revaluations were not cash in hand.

The $230.8m was not a record profit for Summerset. It was beaten in 2017 by a record $239.9m profit.

Summerset on Cavendish is one of Summerset’s new retirement villages. It’s in the suburb of Casebrook, in north Christchurch.

It has been a strong year for Summerset despite the Covid-19 pandemic. In 2020, it completed 356 new units, up from 354 in 2019, and made 785 total sales of occupation rights, up 20 per cent on 2019.

Its total assets rose 17 per cent to $3.9 billion.

“Summerset has maintained strong profitability and resilience throughout 2020,” Cook said.

Underlying profit was down on the previous year due to spending on measures to keep residents safe from Covid plus increases in employee wages.

“Despite the Covid-19 pandemic and lockdown, we have performed well. This is testament to New Zealand’s effective public health response, the Summerset team, our handling of the pandemic, and the underlying strength of Summerset’s business,” he said.

He expected 500 to 550 new units to be built in 2021 and more than 600 in the following year. In the last couple of years it had been the biggest builder of retirement units in the country.

Cook is stepping down from the chief executive role at the end of March. He has been driving growth at Summerset, the second largest retirement village operator after Ryman Healthcare in New Zealand.

The highlights of his last year were everyone pulling together at Summerset and in the country to control the spread of the coronavirus, the fact the business had weathered the pandemic well and had been in a good position to do that when it started.

In 2020, Summerset opened main buildings in Christchurch and Hamilton and new retirement villages in Tauranga, Napier and New Plymouth.

Summerset had 32 villages completed or in development and continued to have the largest land bank in the sector. The number of residents increased from just over 5500 at the end of 2019 to over 6200 at December 31, 2020.

Summerset’s care business continued its strong performance over 2020 with occupancy at 96 per cent in established care centres.

Summerset expected to open main buildings in its Richmond, Nelson, and Avonhead, Christchurch, retirement villages in 2021. The 9000 square metre main buildings include amenities like a swimming pool, gym and movie theatre, a care centre and dementia care centre, and serviced apartments.

The company declared a final dividend of 7 cents a share taking total dividends for the 2020 financial year to 13c a share. The final dividend will be paid on March 22.