McCarthy & Stone 'resilient' amid ground rent uncertainty

Retirement housebuilder McCarthy & Stone reported a continuation of ‘resilient’ trading in an update on Wednesday, as investors gathered in London for the group’s annual general meeting.

The FTSE 250 company said that resilience in the 20 week period to 19 January was despite ongoing subdued conditions within the secondary market.

It said that the forward order book including legal completions currently stood at £366m, up from £323m last year, driven by the release of 29 new sites for sale during the first 20 weeks of the year, and increased average selling prices reflecting a “continuing improvement” in sales mix and quality of sites.

On 21 December, the group issued an announcement following the proposal by the Department for Communities and Local Government - now the Ministry of Housing, Communities and Local Government - to reduce ground rents on new long leases to zero, acknowledging the potential impact on the business and outlining the possible mitigating action that could be taken.

“Since this announcement, the Group has continued discussions with Government in an effort to secure an exemption from the proposed changes to ground rents for the retirement housebuilding sector,” the board said in its statement.

“While the group is supportive of the overall direction of the Government's leasehold reform to safeguard consumers from excessive increases, there is a strong case for a very specific exemption for retirement housebuilders.”

McCarthy & Stone said it was seeking “swift clarification” on the matter.

“The Government has given no formal indication as to the timeline for full implementation of the measures or the granting of exemptions and the group is therefore continuing to plan its strategy to mitigate the impact.

“As outlined in our previous announcement, this is likely to include land price renegotiation, s.106 contribution renegotiation and reviews of our pricing and management fee structure.”

The group said it entered the year with £13.4m of deferred revenue from freehold reversionary income sales already on its balance sheet, to be recognised in line with FY18 unit sales, and had already exchanged contracts on its first half freehold reversionary income sale for £11m.

“This reduces the potential direct impact of any legislative change on the expected FY18 profit to £15m.”

Looking ahead, the board said build activity and first occupations remained on track for the year with around 80 sales releases still expected for FY1, up from 52 last year, and first occupations planned to increase to more than 65, rising from 49.

As it previously stated, McCarthy & Stone said first occupations would be “heavily weighted” towards the second half in FY18 with only around 15 first occupations in the first half and around 50 expected in the second half - compared to 19 and 30 respectively in 2017.

“The forward order book is now £43m ahead of the prior year, although an increased proportion of these sales relate to H2 completions,” the board said.

“As a result, the group's profits are likely to be more heavily weighted towards H2 than previously guided.”

Overall, it said the trading outlook for 2018 remained in line with market expectations, although there was now additional uncertainty created by the Government announcement on ground rents.

On the subject of board changes, the board had previously announced that Paul Lester CBE was joining as of 3 January.

“Subject to shareholder approval at today's AGM, he will today take over as chairman from John White whose retirement was announced on 9 November,” the board explained.

The board also previously announced its recommendation for a final dividend of 3.6p per share for FY17, which would result in a total dividend for the year of 5.4p per share.

“Subject to shareholder approval at today's AGM, the dividend will be paid on 1 February to shareholders that were on the register at 5 January.”

McCarthy & Stone said it would release a trading update for the half year to 28 February on 6 March.