Results: Retirement village operator Summerset posts $48 million profit

The Summerset share price is on watch this morning after the retirement village operator reported an underlying profit of $47.8 million, up 6% on 1H18 numbers.

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The Summerset Group Holdings Ltd (ASX: SNZ) share price is on watch this morning after the retirement village operator reported an underlying profit of $47.8 million, a 6% increase on the first half of 2018 (1H18).

What were the highlights from Summerset's results?

Summerset reported a statutory net profit of $92.6 million, down 4% on 1H18 numbers, however, the statutory figures do include fair value changes in the group's investment properties.

Summerset CEO Julian Cook said results had been driven by strong demand at the company's Ellerslie and Hobsonville villages, despite a slower Auckland housing market.

The New Zealand operator said that it had purchased six new sites since the start of this year which Mr. Cook said are "attractive from a financial return, risk and demand perspective".

The additional sites have lifted Summerset's land bank to nearly 5,000 retirement units, the largest in the sector.

Summerset delivered 139 new homes in the first half, with the company expecting to deliver 350 homes in FY19 and a further 150 retirement units to be completed in the main buildings at Casebrook and Rototuna in the first half of 2020.

Summerset is opening three new villages this year, in Avonhead (Christchurch), Kenepuru (Wellington), and Richmond (Tasman).

Summerset reported a development margin of 28.4%, down from 33.0% for the same period last year. This was in line with the company's long-term expectations of development margins in the 20–25% range.

Summerset's total assets grew to $3.0 billion, up 24% on the same period last year, which reflected the strong value growth in the company's portfolio, as well as further expansion.

"We were delighted to become the first retirement village operator in New Zealand to be certified carbon-zero and have also become a member of the Climate Leaders Coalition this year," said Mr Cook.

Summerset continues to explore expansion across the Tasman.

"We are in the process of carrying out due diligence on a number of potential sites in Melbourne, Victoria. We are seeing a good range of opportunities and will continue to be prudent with our approach".

The board has declared an un-imputed interim dividend of NZ 6.4 cents per share. The record date will be Tuesday 27 August 2019 and payment date Monday 9 September 2019.

Foolish takeaway

There are plenty of positives for Summerset investors in the latest half-year results, with the company reporting a solid underlying profit and total asset growth.

While lower numbers of new retirement units delivered (down 16% on 1H18) and declining development margins are potential red flags, strong operating cash flow of $93.3 million (up 1% on 1H18) means the company appears to be in good financial health.

While I wouldn't expect to see the Summerset share price surge on the result, there appear to be good prospects ahead with a strong pipeline for 2H19 and FY20.

Motley Fool contributor Kenneth Hall has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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