Summerset lifts first-half earnings 44%, beating estimates, on record 2nd-quarter sales

Summerset Group, the retirement village operator and developer, lifted first-half earnings 44%, beating expectations, and will pay a larger dividend than anticipated after enjoying a record second quarter of unit sales.

Underlying earnings, which strip out unrealised movements in the value of its property portfolio, rose to $24.7 million in the six months ended June 30 from $17.1 million a year earlier, the Wellington-based company said in a statement. That was ahead of Forsyth Barr analyst Jeremy Simpson's expectation for earnings of $20.9 million. Revenue climbed 23% to $40 million.

"The company has experienced a strong six-month period with increased sales and number of homes delivered, particularly during the second quarter where we delivered the highest number of quarterly sales in the company's history," chief executive Julian Cook said. "We expect this growth to continue as the first stage of our Ellerslie village opens in September and we focus on further developing our Wigram and Hobsonville villages, and extending our existing Trentham and Warkworth villages."

Last month Summerset indicated earnings would be strong when it announced sales of 185 occupation rights in the June quarter, a record for the company. In the first half, occupation rights sales rose 15% to 306, of which 183 were new sales and 123 were resales.

Including the fair value movement of its property portfolio, net profit climbed to $50.6 million, or 22.97c per share, from $35.7 million, or 16.33c.

The board declared an interim dividend of 2.6c per share, up from 1.85c a year earlier, and beating Forsyth Barr's expectation for a 2.4c payment. The dividend is payable on September 9 with an August 29 record date.

The shares last traded at $4.96 and have gained 22% so far this year, outpacing a 16% gain in the S&P/NZX 50 Index.

Global investors have been chasing high dividend yields as an environment of low interest rates spurs demand for real returns. Summerset affirmed its intention to keep dividend payments at the bottom of its policy range of 30-50% of underlying earnings as it continues to expand its portfolio.

The retirement village operator built 190 homes across nine villages in the six-month period, and Mr Cook said it's on track to meet its 400 home target for 2016.

As at June 30, Summerset had 2609 units and 621 care beds across its 21 existing villages, with six further sites under development. Its land bank allows for 2818 new units and 485 care beds.

The value of Summerset's portfolio was $1.42 billion at the balance date, with $104.8 million of new additions and a further $50.1 million increase in fair value. Of the fair value movement, $23.8 million was realised.

Summerset's net debt was $253.3 million as at June 30 at a gearing ratio of 36.1%. That compares with net debt of $241.5 million, for a gearing ratio of 37.1% a year earlier.

(BusinessDesk)