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

Monday, 17 August 2020

The main building in Summerset's Casebrook retirement village in Christchurch opened in March.

The impact of Covid-19 on property values has slashed big retirement village operator Summerset Group’s profit after tax for the half-year to just $1 million.

Summerset’s $1m profit for the six months to June 30, 2020 compares with $92.6m in the $2019 first half.

A key difference is that the valuation of its investment assets which are its retirement village units jumped $85.7m in value in the 2019 first half boosting after-tax profit to $92.6m.

In the 2020 first half, its village units were marked down by $14.7m in value leaving the company with just a $1m after-tax profit.

Summerset chief executive Julian Cook says underlying profit of $45m was at the higher end of what the company forecast.

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The value of units at other retirement village businesses have also been marked down this year by valuers because of the expected impact of Covid-19 on residential property values.

However, Summerset’s underlying profit, excluding the revaluations of units, came in at $45.1m, down 5.6 per cent from the 2019 first half of $47.8m.

Summerset chief executive Julian Cook said the underlying profit was at the top end of market guidance provided in early July which forecast underlying profit between $40m and $45m.

Total revenue was $82m, 11 per cent higher than 2019’s $74m.

The reduction in profit after tax was primarily caused by a negative fair value movement in investment property.

That was due to more conservative house price inflation forecasts by the valuer, and fewer units delivered in the half year due to Covid-related construction restrictions.

Mr Cook said the reduction in investment property value was less than 1 per cent overall.

“Despite the impacts of Covid-19 on trading conditions in the first half of 2020 the result is pleasing, and demonstrates the underlying strength of Summerset’s business.”

Summerset's has 31 retirement villages completed and under development including this retirement village in Richmond, Nelson.

After the April-May lockdown sales and settlements rebound strongly.

It was too early to know how recent Covid developments would impact on the business in the second half, Cook said.

Summerset had closed its five Auckland retirement villages on Wednesday, August 12 with level 3 restrictions put in place. These restrictions included no visitors on sites, temperature testing of staff and face masks being worn by staff in care centres.

Summerset’s care centres across the country also closed to visitors as a precautionary measure.

Summerset delivered 139 new homes in the half year and anticipates delivering between 300 and 350 homes by year end, depending on the current and possible future Covid lockdowns over the coming months. It had planned to build 400 units before Covid struck.

Total assets were $3.4 billion, up 13 per cent on June 2019. The company reported a development margin of 22.3 per cent compared to 27 per cent the year before.

It launched three new retirement villages and opened its main building at its Casebrook village in Christchurch in March. The new villages are in Tauranga, Napier and New Plymouth.

Casebrook’s three-storey main building had a care centre, 56 serviced apartments, and 20 memory care apartments designed for people living with dementia. More than half of the apartments had sold in three months and the 43-bed care centre was almost full, Cook said.