Summerset reports record annual profit as it benefits from strong housing market

Thursday, 24 February 2022

Summerset is expanding at a record rate throughout New Zealand, and has started earthworks on its first Australian village.

Retirement village operator Summerset posted a record full-year profit as it benefited from rising property prices and built more units than ever before.

The company reported a profit of $543.7 million in 2021, up from $230.8m in 2020.

The value of Summerset’s properties lifted by a record $537.5m, compared with a gain of $221.1m the previous year. The value lift included a $320.9m benefit from housing inflation, $140.4m from new units, and a $34.2m uplift in the value of its land bank.

Retirement villages are growing rapidly to cater for an ageing population, with the proportion of the population aged over 75 forecast to double over the next 25 years. Summerset built a record 619 units in 2021, ahead of its forecast for between 550 and 600 units.

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“Summerset has been the top listed retirement village builder in New Zealand for several years in terms of number of units, but this year our record build rate means we are one of the top residential builders in the country,” said chief executive Scott Scoullar.

Summerset expects to build between 550 and 650 units this coming year, with the mid-point of 600 units suggesting a similar level to last year’s 619.

“It’s essentially the same sort of build rate projected for this year as what we achieved in 2021,” Scoullar said.

Summerset chief executive Scott Scoullar says the retirement village company plans to keep growing.

He cited construction inflation of 7 to 8 per cent over the past year, difficulties in getting building supplies, a slowing housing market and caution over the impact of Omicron spreading over the next few months as factors constraining the build rate.

“If we see good demand continue from what we saw last year, there's the possibility we speed up, and if we see demand weaken a little bit we obviously can slow it down a little bit as well,” he said.

Summerset opened four new villages last year and will this year start construction at two new sites at Milldale in Auckland and Blenheim in Marlborough, and continue construction at another 15 sites around New Zealand.

Scoullar said Summerset had land for another 5,313 units in New Zealand, of which 81 per cent was already consented

“Every new unit we build over the next four years has resource consent, so we are well positioned for further growth in the New Zealand market,” he said.

Summerset also owns five Australian properties, with earthworks started at its first Australian retirement village in Melbourne in late 2021. The first retirement units there are expected to be ready by early 2023, he said.

Scoullar said the retirement village sector was suffering from a shortage of nursing staff, and was short about 1000 nurses.

“Finding nursing staff has been an ongoing issue for the sector this year,” he said. “Increases to public sector nursing wages and immigration delays induced by Covid-19 have created a perfect storm for nursing shortages in aged care.”

About half of nurses in the aged care sector left each year as government funding was about $20,000 higher for nurses in public hospitals, he said.

“It's a real challenge trying to get nurses, trying to pay them appropriately, and trying to deal with that wage gap where the funding to the sector is less than what they're paying people in public hospitals,” he said. “That is a massive challenge for care in both our business and across the industry.”

The company invested $4.3m in nurses wages last year to top up government funding, but that wasn’t possible for the non-profit aged care sector which provided 30,000 beds, he said.

“That's a very hard challenge. They can't do that,” Scoullar said “They're struggling to keep the doors open at times. And we would not want to lose those 30,000 beds out of the sector. That would put a lot of demand on the public health system.”

The nursing shortage wasn’t currently constraining Summerset’s development plans but it could in the future, he said.

The company will pay a final dividend of 8.6 cents per share, bringing the total dividend for the year to 18.5 cents, up 42 per cent on the previous year.

Summerset shares rose 1.7 per cent to $11.80 in midday trading on the NZX on Thursday. The stock has slipped 7.8 per cent over the past year.