Summerset's growth sparking interest

Summerset's $60 million Bishopscourt village facility in Dunedin. Photo by Peter McIntosh.
Summerset's $60 million Bishopscourt village facility in Dunedin. Photo by Peter McIntosh.
Summerset's stellar growth and strong share price gains are coming in for sharp analyst and investor scrutiny as the retirement village operator embarks on its next phase of growth, with more than 2000 village units in the pipeline.

Summerset is expected to deliver a flat first-half result, because of head office expansion and construction costs at numerous sites, when it delivers its half-year report on Tuesday.

Forsyth Barr broker Haley Van Leeuwen said she expected a ''flat underlying result'' because of an increase in operating costs as Summerset ''scales up'' for the next level of growth.

Of most interest to investors when Summerset reports will be its outlook statement, mounting cost pressures, pre-sales activity, short-term development timetable and profit margin trends.

''Summerset is facing increased near-term cost pressures that will negatively impact its earnings growth rate,'' she said.

Craigs Investment Partners broker Peter said since Summerset said on July 7 that sales of new units were below expectations - albeit with good re-sales of existing units, its share price had deteriorated.

Since July 7, it had fallen 41c from $3.37 to trade around $2.96 yesterday.

''The market is trying to work out if the sector has reached saturation point or not,'' he said.

Aside from Ryman and Metlifecare and their respective expanding developments, private rest-home operator Oceania could list on the stock exchange, while international aged-healthcare company Bupa had been buying up villages, Mr McIntyre said.

Summerset is the country's third-largest listed retirement village operator and has a land bank equivalent to 2116 village units and 595 beds set aside at a variety of sites.

Mr McIntyre said while competitor Ryman Healthcare was the market leader, with a better operational track record, Summerset had made ''rapid progress'' since it emerged from AMP ownership in 2009, albeit having a ''less proven'' track record than Ryman.

''Overall we see Summerset as higher risk, but potentially higher reward, if its strategy is executed well,'' Mr McIntyre said.

Ms Van Leeuwen said Summerset was well positioned to successfully grow its business and had the potential to self-fund expansion by recycling capital.

''Summerset is demonstrating an ability to capitalise on these themes, but it is also facing increasing costs near-term as it rapidly expands,'' she said.

Ms Van Leeuwen said while first-half new sales appeared ''soft'', she expected a strong pick-up during the second half, given the timing of new developments, plus confirmation of a high level of pre-sales activity.

''Caregiver wage costs are increasing for the industry as a whole and Summerset is opening a number of new care facilities, which we expect to be loss-making initially,'' Ms Van Leeuwen said.

Mr McIntyre also noted investors were expecting forthright guidance from Summerset in the areas of new sales, re-sales and new developments.

Yesterday, Summerset announced it would develop a $130 million village in the Auckland suburb of Ellerslie to accommodate 400 people, after being granted resource consent, BusinessDesk reported.

The 3.8ha village will have 250 units, including townhouses, villas, apartments and care apartments where residents can receive rest-home level care in their homes, as well as an 80-bed care centre providing rest-home and hospital-level care.

It has completed a village in Manukau and is close to finishing a village in Warkworth.

Earlier this year, the company started work on a $70 million village in Karaka and a $120 million village on the waterfront in Hobsonville.

simon.hartley@odt.co.nz

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