Summerset Group said full-year net profit was down 11 percent as the property market slows in some parts of the country, leading to a smaller valuation gain on retirement village portfolio.

Net profit was $214.5 million for the 12 months to Dec. 31, versus $239.9 million in the prior year. According to Summerset, the value of the company’s investment properties increased by $210 million in 2018, compared with a re-stated $234 million gain a year earlier.

New Zealand’s retirement village operators are on a drive to push new development across the nation as they latch on to an ageing demographic providing a tailwind to the sector.

The long-term trend was supported by rapid property price gains, where prospective residents selling into a rising market could pay higher prices for retirement village units. In recent months, however, a cooling housing market has crimped returns. 

That demand to house the ageing population helped drive a 21 percent increase in underlying profit, which excludes those revaluation movements, to $98.6 million.

The company will pay a final dividend of 7.2 cents per share on March 21, taking the annual dividend to 13.2 cents, up 20 percent on the year.  

“Summerset’s performance continues to be sound with the 21 percent growth in underlying profit achieved in an environment where property price growth in key markets such as Auckland has moderated compared to prior years. This reflects good progress made throughout the business and the consistent demand for what we offer residents,” said chief executive Julian Cook. 

It sold 339 new occupation rights in 2018 versus 382 in 2017 and completed 301 resales versus 300 in the prior year. 

Cook said Summerset built 454 new homes over the year, in line with its guidance of 450. It now has 25 villages completed or in development, and a land bank of nine properties, including two new land purchases. The new sites are in Milldale, north of Auckland and Waikanae on the Kapiti Coast, north of Wellington.

Total assets now stand at $2.8 billion versus $2.2 billion in the prior year and the company has a landbank of 3,910 retirement units to support a lift in average build rate to 600 retirement units, over the next two to three years, it said.

Summerset did warn, however, that it is still seeing capacity constraints for construction in many areas of New Zealand, with Auckland the worst affected.

“We do not expect the pressure in the construction market to reduce in 2019. There were a number of construction-related company failures in 2018 and, while we have had very limited exposure to any of these, we believe 2019 may bring more issues and Summerset will continue to be vigilant in this area. We maintain strong relationships with our contractors at all times,” Cook said. 

He also said that progress in Australia continues and it is now seeking land opportunities.

“We are mindful of the property market conditions in the wider Melbourne area, which is our main area of interest. We will apply the appropriate safety buffers to our financial feasibilities on any sites acquired,” Cook said. 

The stock last traded at $6.28, down 1.4 percent so far this year. 

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