Summerset's Barlow sees retirement sector outpacing economy

BUSINESSDESK: Summerset Group chief executive Norah Barlow is upbeat about the prospects for her industry as New Zealand's population gets older, though she's less optimistic on the fortunes of the wider economy.

The Wellington-based retirement village operator and developer is well placed to cash in on New Zealand's accelerating ageing demographic, which is providing a "very strong tailwind" for the sector, Ms Barlow told BusinessDesk.

The optimism for her industry contrasts with her view on the wider economy, which is more downbeat after the latest round of disappointing employment figures earlier this month.

"I probably have a slightly gloomy picture for the economy," she says. "I still think we've got a couple more years of general uncertainty."

Summerset announced better-than-expected first-half earnings today, with net profit of $3.9 million, or 1.85 cents per share, in the six months ended June 30, compared to a loss of $1 million, or 0.67 cents a share, a year earlier.

The shares fell 3.6% to $1.88 in trading, and have climbed 46% this year. The stock is rated an average "outperform" based on three analysts' recommendations compiled by Reuters, with a median target price of $1.74.

The profit came from better development margins as Summerset conducted its own project and cost management, design and a growing percentage of its construction management.

The development margin was 11.9%in the period, beating the initial public offering forecast of 10.5% and well ahead of the 6.9% achieved in the 2011 financial year.

Ms Barlow says the focus on bringing development in-house began under Quadrant Private Equity's ownership and is one of the drivers behind her expectation Summerset will beat the IPO forecast of net profit of $13.3 million and underlying earnings of $9.7 million in calendar 2012.

"We expect to be in the mid-teens [for the development margin] as we get fully internalised."

Summerset saysunderlying profit, which strips out unrealised movements in the value of its property portfolio, more than doubled to $6.9 million. Revenue rose 13% to $18.2 million, with a 12% gain in care fees and village services and a 14%lift in deferred management fees.

Summerset built 68 new units across four developments in the six-month period, and expects to reach its annual target of 155 units by year's end, which is the other plank behind it beating the IPO forecast, Ms Barlow says.

The company made 83 new sales of occupation rights for gross proceeds of $28.8 million, up from 41 sales raising $13.9 million in the first half of 2011. Resales of occupation rights rose 52% to 88, realising gains of $4.2 million for the company.

In April, the retirement village operator bought 7.6ha in Auckland's Hobsonville as it looks to target the ageing population in New Zealand's biggest city.

The board did not declare an interim dividend but expects to announce a full-year return for shareholders.