Village operators not in talks
Retirement village operators Summerset Group and Metlifecare say there’s been no discussion on a merger between them, even though an analyst has suggested they might be better off if they did.
First NZ Capital analyst Arie Dekker wrote in a research note that a merger would put the two companies in a better position to expand into Australia, particularly as the domestic property market starts to slow.
‘‘We raise the question of what a more benign property market might mean for capital appreciation in the medium term and highlight why the upside for investors in both Summerset and Metlifecare from a re-rate in Mergeco could be substantial,’’ Dekker said.
An upbeat property market has been good for the retirement village sector, which bases the price of occupation rights to units off median house prices.
But as the sector appears to slow, Dekker said Summerset and Metlifecare should consider joining forces.
Metlifecare’s balance sheet was strong, as was its operating cashflow and embedded value, while Summerset had more advanced ‘‘development capability’’ and a good landbank, he said.
On Thursday, Summerset said its sales of occupation rights fell about 21 per cent in the third quarter, with a decline in both resales and new sales.
Neither operator completely panned the idea of merging, but both said they were very focused on their own plans.
Summerset’s deputy chief executive, Leanne Walker, ruled out it out for the moment. ‘‘Our model has always been to construct our own villages rather than buy or combine with other operators,’’ she said.
‘‘We are well prepared to expand into Australia, should the opportunity arise.’’
Metlifecare, which has not indicated interest in crossing the Tasman, said there had been no Summerset talks. Chief executive Glen Sowry said it was focused on organic growth, largely in Auckland and the Bay of Plenty.
‘‘Obviously Arie has done a bit of indicative work on what the benefits of that could be in the future; at this stage, and I’m not going to speak for Summerset, but we have a very clearly defined strategy of seeking to differentiate ourselves in the market.’’
Dekker said both companies had been growing fast in terms of building units, but their share prices in the last year had been moderating as investors started to factor in a more benign property market.
There was plenty of competition here but Australia had lots of potential because the New Zealand ‘‘continuum of care’’ model was not broadly available.
‘‘We believe a merged entity could be better placed to push on with Australia in a more timely and meaningful manner,’’ Dekker said.
First NZ Capital believes listed players Metlifecare and Summerset should consider merging.