Retirement village CEO explains how he got profit rise
LONDON: A Chief Executive today explains how he got his profits up whilst his competitors stumbled.
Scott Scoullar today announced New Zealand’s second-largest listed retirement village business pushed up total revenue, underlying profit, revaluations and net profit in a strong full-year result.
In a housing market downturn, how can Summerset Group – second in size only to Ryman Healthcare in terms of size – succeed when others are not?
The Wellington-based chief executive answered some key questions about the business and results to December 31, 2023.
How can Summerset defy the housing market by increasing revenue and profit in a downturn?
It’s a combination and comes down to a really strong demand for the product. People have green spaces, wide roads, vegetable gardens and driving ranges. The environment is lovely and we work hard on that. The second thing is that we try to make it an environment where residents are living in their own homes and the village is theirs. That’s different to what some other operators do. We benefit from a broad geographic diversification and delivering products across those sites. New Zealanders can choose across those 15 villages. This is not residential-market related. When people want to come in, it’s different from what the property market is doing.
Units range in price from $350,000 to $1m-plus.
What is the average length of stay by residents in a Summerset Village?
In an independent unit, it would be eight years. In an apartment, pretty much the same.
In a serviced apartment, it would be about three years.
In a hospital bed, it would be one to two years.
What does total debt stand at – bank and retail bonds?
That’s at $1.4b with a weighted average interest rate of 5 per cent. We heavily hedge our debt so it’s much longer term. We’re not exposed to floating rates and the shorter term.
What are you paid and how long will you stay in the job?
I got $1.1m in 2023. In 2022 I got $937,000 and in 2021 $1.6m.
On how long I stay – that is undefined. I really enjoy the role and challenge and to be honest, it’s a joy to be able to do something that adds value to New Zealanders. I’ve been in the role just on three years and in the organisation for 10 years.
Summerset is also looking at Queensland as well as Victoria
We’re starting to look at purchasing in Queensland. Not necessarily Brisbane but certainly anything from the Sunshine Coast to the Gold Coast. There are a lot of broad-acre opportunities. The number of people living in retirement villages there is low compared to what we are seeing in New Zealand. The house price market is comparable and perhaps doing better than Melbourne and Victoria. If you look at medium house prices, it’s equivalent to or ahead of Melbourne and Victoria.
Your revaluations went up, why when other listed are down?
Obviously, part of that is driven by us and our investment in building new products. We’ve added so much to the stock in the 2023 year.
In terms of the value of the units, we got a $160m valuation uplift just attached to the new units we built in the 2023 year.
Why are you not hit by rising costs like say Fletcher Building where steel prices hit them hard on the NZICC?
We’ve got some pretty mature relationships with contractors in the building sector. We often have construction materials locked into a multiyear contract, e.g. Pink Batts, wood, carpet. We will have prices locked into two, three to four-year contracts. We often have multi-year contracts with suppliers where there is an agreed cost escalation but it might be at a set level. We’re not going to the market every three or six months.
Why don’t you pay nurses as much as district health board rates?
Most of the time we are paying similarly to DHBs. But, there will be timing differences between when DHBs lift pay rates for nurses and when we are able to lift rates. The challenge there is that care beds are funded by the Whata Ora and we only pay the nurses so much. The challenge is how to pass on funding increases to nurses. Sometimes there is lower pay for our nurses than at a DHB. Sometimes we pay the nurses higher even though we haven’t received funding for that. It’s a little bit like Apollo 13 when they said “Houston we have a problem”. Aged care is significantly underfunded. We would be making losses on all care beds at the moment.
Where Ryman is selling and mothballing five sites, you are not. Why?
We didn’t buy large sites which are extremely capital-intensive. Only one or two of our sites we are building on are high-density capital-intensive like those of Ryman’s.
What core principles are allowing you to succeed?
Our core principals are highly engaged staff and satisfied residents. From a staff perspective, we’re in the top 25 per cent in the world in terms of engagement scores for our staff in the healthcare sector. They enjoy their work environment. Residents have 95 per cent customer satisfaction, making those recommendations to friends. We’re proud that so many people enjoy living in our villages. Around 1600 of our staff got a $250 voucher last year to help with inflation and for them to pay bills ahead of Christmas.
