Summerset insists the future is rosy

Julian Cook.
Julian Cook.
Rest-home operator Summerset, which plans four new villages during the next year, is adamant the sector has growth prospects for many years ahead.

Analysts, on the other hand, are disappointed by Summerset's first-half result, highlighting rising project costs and resale numbers.

Summerset reported its six months to June result yesterday, with revenue up 19%, from $21.1 million last year to $25.2 million, and after-tax profit up 42%, from $10.5 million to $15.1 million, but with softening in several areas across the balance sheet.

Summerset is vying for new unit customers and, just as crucially, unit resale customers, alongside competitors Ryman Healthcare, Metlifecare, Bupa and Oceania.

Summerset chief executive Julian Cook said the company was ''carefully watching'' for any signs of market saturation.

''Auckland is the fastest-selling region in the country and we've advanced our build rates there.

"We believe we're ahead of most other other players in the [village] build,'' he told the ODT yesterday.

Peter McIntyre.
Peter McIntyre.
He highlighted an expected tripling of those aged more than 75, from 260,000 in 2011 to 800,000 by 2051.

''There is phenomenal growth over the next 20 or more years. [But] we should see the natural market prevail,'' he said of the escalation in unit building.

Mr Cook said he was ''very happy'' with the half-year result, including the boosted revenue.

Summerset shares were down 3%, trading at $2.89 after the announcement.

Craigs Investment Partners broker Peter McIntyre said the result was ''weaker'' than expected, unit resales gains falling from $4.6 million a year ago to $3.6 million and the margin declining from 22% to 12%.

Forsyth Barr broker Haley Van Leeuwen said the result was ''below expectations'' in terms of development and the resale margins, and also in the ''new sales to build ratio''.

''The only real areas of miss with our forecasts is lower development margins of 13.5%, although importantly margins do continue to improve, versus 12.4% in the year before, and low resale margins of 12.5%,'' she said.

Haley Van Leeuwen.
Haley Van Leeuwen.
Debt had risen from $78 million to $132 and cashflows had declined from $43 million to $36 million.

Mr Cook said there was always ''some drag time'' when opening a new village before sales appeared on the balance sheet.

Ms Van Leeuwen said debt levels remained ''very manageable'', given the high level of pre-sales which are expected to settle in the second-half trading.

Mr McIntyre said net debt had increased, tracking above his full-year expectations, having risen from $102.1 million as of December to $127.9 million.

Mr Cook noted all new unit sales would appear on the balance sheet during the second-half trading.

Summerset had maintained a ''constant'' $4.5 million cash in hand, and bank facilities stood at $180 million, giving the company $50 million ''headroom'', Mr Cook said.

When asked, he expected that within a year Summerset would be reporting total assets in excess of $1 billion; with assets having grown $157 million during the past year to stand at $921 million.

As with its expanding competitors, Summerset has a large existing land bank equivalent to 2000 retirement units and 587 care beds, and will continue to look to acquire new land.

Aiming to build 250 units this year, Summerset is targeting 300 units in 2015, with Mr Cook saying ''at least'' that many were planned annually after 2015.

''We have good [land-banking] penetration at the moment. We're not under any pressure to buy and can now be more choosy,'' Mr Cook said.

He expects a record four villages to be built in the year ahead.

The ''resident loans'' on the books had risen from $374 million to $447; which is not a debt but cash lent to Summerset by residents, interest free, which purchases them their village unit.

Summerset uses the cash for village development; to pay off interest-bearing construction debt, then, when the owner leaves, the unit is resold and the capital repaid.

In their village construction projects, Summerset now acts in the role of head contractor and project management, with staff on-site.

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