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.
“Challenging” year for McCarthy & Stone
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.
McCarthy & Stone unveils new chief executive
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.
Challenging times for retirement builders McCarthy & Stone and Churchill Retirement
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:
I believe government did cop-out on retirement ground rents.
Government did caved in over Retirement Ground Rents, which vary from development site. The lobbying which McCarthy & Stone (M&S) undertook, may shows it might be possible (remember cash for questions) to hire MPs, but not possible to own one. We at Ashbrook Court pay Ground Rent of £48.00 a year, doubling next year to £96.00 a year and for what?
This is how the Government allows the Leasehold Industry to manage:-
Our Ground Rent goes to MB Freeholds Ltd. They purchased the freeholds of the 28 flats from Mercian Housing Ltd, who used Meridian Retirement Housing Services Ltd (MRHSL) as a Landlord. MRHSL sold the 125 year lease to Flatlaunch Limited, both were companies linked to Firstport Retirement Ltd, who have an Ultimate Parent Company known as Lightyear Estates Holding Limited and the Ultimate Holding Company is regarded as Euro Investments Overseas Incorporated in the British Virgin Islands.
The Ultimate Controlling Party is the Tchenguiz Family Trust.
Was new McCarthy & Stone (M&S) chief executive John Tonkiss poised to unveil new retirement housing strategies, before government caved in over retirement ground rents, quite possibly? The new chief executive of M&S John Tonkiss must be delighted the government caved in over the retirement housing ground rents, while announcing strategic changes that were prompted by the prospect of reform. M&S 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, (this is stretching the truth).
Most of M&S who may have been considering a future without ground rent sales to speculators are also owned by the Tchenguiz Family Trust in the British Virgin Islands. Some Trade Bodies, Association of Retirement Community Operators (ARCO) claiming Ground Rent is neither necessary or desirable.
On stating retirement flats are community operators and have a different housing model based on retaining the asset and managing it for the long term, (also stretches the truth). It is not necessary for the sale of freehold that brings in and introduces a third party speculator into retirement housing. It is the Original Lease that sets up a Tripartite where there is a:-
Freeholder (Head Lessor)
So if developments are able to go for Right to Manage (RTM) the Landlord will still be the Landlord.
The McCarthy & Stone plan includes building “identikit”developments thus reducing building costs.
They are bringing forward purchases so that more customers buy off plan rather than wait for the development to be built before sale.
They also seek to improve revenue streams from their management division.
McCarthy & Stone seek to”justify” ground rents due to the provision of communal areas.
Since residents pay for house manager’s flats, would those house manager’s flats not be considered as communal And if so,, how can it be that so many house manager’s flats are now being sold off?
McCarthy & Stone venture the argument that ground rent allows them to build new developments..
Suppose I sell a Ford Mondeo for £8,000. I then demand an extra rental of £500 per year from the purchaser, so I can buy a Jaguar? Isn’t that what McCarthy & Stone is doing?
No one (not even me) expects retirement living to be cheap. But it is crucial that the true costs are not disguised.
Since Churchill Retirement operates in a broadly similar way I have to ask if ground rent income is so needed, how do they afford to pay stamp duty, help with moving fees and more perniciously offer £500 towards legal fees (if you use their recommended agent) to potential purchasers?
I’m amazed that Mr Tonkiss was able to keep a straight face for the photograph. I’ve built enough retirement housing to know that communal areas are priced as part of development costs.