Metlifecare's interim profits fall, with smaller property value gain

Metlifecare’s [NZX:MET] interim after-tax profit was 66% down on last year’s, hit by the softening property market.

The Auckland-based retirement village operator’s reported net profit after tax in the six months to December 31 was $56.4 million, down on last half year’s record $165 million.

The company says the difference was primarily due to the smaller increase in the fair value of the company’s assets, which grew by 10% to $3.1 billion.

There was a $59.8 million fair-value movement in its investment properties, compared to last half-year’s $170.7 million gain.

Chief executive Glen Sowry says house price inflation had returned to a level more reflective of long-term averages.

Underlying operating cashflow, which excludes sales proceeds from development units and unit buyback costs associated with remediation and regeneration programmes, was $18 million.

Underlying profit was $36.2 million, compared to last year’s $38.6 million, with improved revenue from increased village fees, realised resale gains, deferred management fees and care revenue.

However, this was offset by lower unit sales volumes, partly driven by the buyback of 41 units for temporary rehousing of residents during village remediation and regeneration.

Operating expenses increased, with more costs for village expansion projects, property remediation and maintenance.

“While these extra costs are impacting profitability in the short-term, they are necessary investments to support Metlifecare’s strategic growth objectives and to drive longer-term value,” Mr Sowry says.

This additional investment increased net debt by $65.2 million, taking total debt to $141.3 million, and lifting gearing to 9%.

The developments
The company opened two new care homes over the half and acquired a new village site in Hobsonville, West Auckland.

It completed 94 new units and beds during the half year, with a further 160 units due in the fourth quarter of 2018.

“Our development programme is firmly on track to meet our 2018 delivery targets and we continued to achieve excellent margins in new unit sales and resales. Demand for our villages remains strong,” Mr Sowry says.

However, he says the sales environment had become “more testing,” with longer settlement times consistent with wider housing market dynamics.

“Although this did affect sales volumes during the first half, village occupancy has remained high at 98%, reflecting continued good demand for Metlifecare’s product.”

But market conditions have firmed since December and the company has signed more sales and resales applications for settlement in the second-half than at the equivalent time last year, he says.

Embedded value, which indicates future resales cash flow, increased to $1.1 billion, or $277,000 a unit, 10% ahead of the same period last year.

The board declared an interim dividend of 3.25c a share, consistent with its guideline to pay out 30-50% of underlying operating cash flow.

The company expects to deliver a stronger second-half performance, with full-year underlying operating cash flow and underlying profit expected to be in line with 2017.

Metlifecare’s shares are up 11.6% in the past 12 months and last traded at $6.25.

On Friday, competitor Summerset Group published net profit after tax in the year to December 31 of $223.4 million, up 54% on 2016.

Summerset’s underlying profit, which excludes unrealised valuation gains on the fair value of investment property, was up 44% to $81.7 million.