The new chief executive of McCarthy and Stone John Tonkiss is delighted the government has caved in over retirement housing ground rents, while announcing strategic changes that were prompted by the prospect of this reform.
The company argued strongly in favour of ground rents because it was disadvantaged by having to provide communal areas at its sites, such as a lounge and kitchen.
But at the same time it was considering a future without ground rent sales to speculators: sales that have resulted in most of McCarthy and Stones freeholds being owned by the Tchenguiz Family Trust in the British Virgin Islands.
The issue of ground rents in retirement housing is strongly disputed, with trade body the Association of Retirement Community Operators claiming that they are not necessary or desirable.
Retirement community operators have a different housing model based on retaining the asset and managing it for the long term. Instead, of ground rents, ARCO strongly supports exit fees, usually meaning sale on death, which adds to the profitability of a site.
McCarthy and Stone was considering more imaginative alternatives to the ground rent sale model of a volume house builder.
The disadvantage is that the sale of the freehold introduces a third party speculator into retirement housing. But the advantage of ground rent sales to companies such as McCarthy and Stone is the immediate cash input used for future schemes.
Retirement housebuilder McCarthy & Stone has reported a 2 per cent rise in revenues but a 33 per cent drop in full-year operating profits in what it described as a “challenging year”. The Bournemouth-headquartered company turned over £671.6m for the year to 31 August 2018, up from £660.9m in the previous year.
John Tonkiss said: “We have proactively engaged with government over the last ten months on their initial proposal to reduce ground rent charges to zero to demonstrate how the retirement community sector uses fair and stable ground rents to fund the construction costs of its shared areas.
“We were therefore pleased to see that government is now proposing to allow the retirement community sector to continue charging ground rents after they are capped at £10 elsewhere. While the proposal remains at the consultation stage, this is a positive step for our customers and we will continue to work closely with government throughout the remainder of the consultation period.”
Mr Tonkiss’s statement was made as McCarthy & Stone reported a 2 per cent rise in revenues but a 33 per cent drop in full-year operating profits in what it described as a “challenging year”.
Insider Mediar reports that McCarthy and Stone turned over £671.6m for the year to 31 August 2018, up from £660.9m in the previous year.
Operating profits fell from £94.2m to £63.5m with legal completions falling by 7 per cent from 2,302 to 2,134.
McCarthy & Stone revealed a new strategy in September, which has resulted in one-off costs of £2m, with the company looking to find £40m cost savings by 2021 through “rightsizing” the operational base.
It is also looking to focus on its two core products, Retirement Living and Retirement Living PLUS, as well as improving its offering through increasing affordability, flexibility and choice.
Mr Tonkiss said:
“During the year, we conducted a full strategic review of the business and in September 2018 announced our new transformation strategy. This new strategy represents a significant shift in the business mindset away from growth and towards increasing our return on capital employed and operating margin.
The specialist housebuilder has appointed John Tonkiss as CEO as the company looks to focus on return on investment rather than revenue growth. Its new strategy will see McCarthy & Stone realign its workflow and cost base to deliver a “steady” volume or around 2,100 homes a year.
RETIREMENT housing giant McCarthy & Stone is expecting profits to fall by around a quarter, while its competitor Churchill Retirement has also seen a dip. Bournemouth-headquartered McCarthy & Stone said it had a “tough year” in the 12 months ended on August 31.
“Our focus now is on creating a more efficient business capable of delivering improved shareholder returns, while leveraging our longer term strategic opportunities. This includes increasing customer appeal by offering a broader choice of tenure options, as well as increased flexibility and affordable offerings.”
McCarthy and Stone full-year results to August 31 2018: