Total revenue for Summerset’s year to December rose 51%, from $152.2million to $229.5million and earnings before interest and tax (ebit) were up 70% $154.7million.
Summerset’s reported profit rose 76%, from $82.8million to $145.5million, boosted by an unrealised revaluation gain of $89million, while its underlying profit was up 50% on a year ago to $56.6million.
Summerset’s chief executive Julian Cook said the result reflected Summerset’s continued growth and expansion. It built 409 new units during the year and unit sales were strong.
"During 2016 we accomplished a number of milestones, including 658 new sales and resales of occupation rights, a 14% increase on the year before. It is the sixth year in a row we have increased our occupation rights sales," he said.
With six sites to be developed, Summerset has work ahead for the next six years.Summerset shares were up more than 3% to $5.07 after the announcement.
Forsyth Barr broker Damian Foster said the underlying $56.6million profit was ahead of expectations and above Summerset’s guidance, having been driven by growth across all parts of the business, and demand remained "robust".
Stronger development profit margins, up 2% to 22% and care revenues were offset by higher operating costs than forecast, he said.
"There remains significant long term growth potential from demographic [ageing] trends. Summerset has the development expertise to capitalise on these themes.
However, Mr Foster noted "execution risk" was increasing as Summerset tackled large, intensive Auckland developments.
Craigs Investment Partners broker Peter McIntyre said said it was a "strong result", noting Summerset was reaching a scale of build around New Zealand which was fast approaching that of industry leader Ryman Healthcare.
"Net debt has also come in materially lower than expectations and SUM enters the year with its balance sheet in much better shape," Mr McIntyre said.
Mr McIntyre said development profits grew 49%, driven by a combination of 24% growth in volume, a more modest improvement in margin, and also higher average sale prices.
"We continue to be encouraged by clear evidence of the maturing of Summerset’s business model, and growing customer demand," he said.
In the market update, Mr Cook said while continuing to grow Summerset this year, with a target of 450 new units, he noted since opening in 1997 the company had seen two property downturns.
"Ultimately, demand for our villages is driven by the increased number of older New Zealanders and what we offer them," he said.
In guarding Summerset from a property downturn, Mr Cook said the company was taking a "prudent" approach to debt levels.
All debt related to development projects and no debt was serviced from core earnings.
The value of Summerset’s development working capital — land, construction under way and completed but unsold units — stood at $307million and net debt was $265million. Summerset’s debt gearing ratio had fallen from 37.1% a year ago to 32.7%.
"This conservative approach to how much debt we take on and the demand for retirement village living puts us in good shape in the event of a property downturn," he said.
