MCS.L Regulatory News (MCS)

21 December 2017

McCarthy & Stone plc

Response to media commentary on ground rents

McCarthy & Stone (the Group) notes the media commentary this morning regarding the proposal by the Department for Communities and Local Government (DCLG) to reduce ground rents on new long leases to zero. McCarthy & Stone has made a strong case to DCLG for the exemption of retirement housing providers from such action and will be requesting further details of DCLG's acknowledgement that certain exemptions are being explored.

McCarthy & Stone does not build leasehold houses and does not employ the types of escalating ground rents which have been the cause of DCLG's review. Its retirement apartment model incorporates an annual leasehold ground rent charge to ensure that the long term maintenance of the development is effectively managed on behalf of elderly homeowners who have less desire to be directly involved in this activity. These ground rents have been long-established on fair and consistent terms, with rental growth linked to the higher of 2% or RPI.

McCarthy & Stone has fully disclosed its practice of aggregating and selling forward its freehold reversions. This is a profit stream which is recognised in the price at which the Group bids for land; funds the communal areas and facilities so critical in a retirement development; and enables the pricing of its apartments to remain affordable. In FY18, the profit to be generated by the Group's freehold reversion sales is expected to be c.£33m, of which £13.4m was already held on the balance sheet at 31 August 2017 to be recognised in line with FY18 unit sales. This profit stream is expected to increase in line with volumes in future years.

This potential change to the structure of ground rents will be immediately reflected in the cost of land secured for development by McCarthy & Stone with a margin-neutral impact for shareholders in the medium term. However, in the short term, if the Group is unable to secure exemption from the measures announced, it will seek to employ a combination of strategies in order to mitigate the impact of such a disruption on the profitability of its current land bank, including land price renegotiation, S.106 contribution renegotiation, pricing reviews, and management fee reviews.

McCarthy & Stone understands that DCLG are considering limited exemptions from their proposed changes to leasehold practices and will continue to make its strong case for exemption.

Clive Fenton, Chief Executive of McCarthy & Stone said:

"The proposal to set all ground rents to zero will result in a disruption of housing supply and contradicts the Government's stated objective of seeking new sources of housing. We understand and support the need for action to address leasehold housing and aggressive escalation clauses for ground rents, however this blanket approach will result in reduced housing delivery as well as choice for ordinary people.

"We are disappointed that our representations on this topic and those submitted by others within our sector have not been directly reflected in the Government's response. However, this is the first in a number of steps and we will continue to work positively with DCLG to ensure they recognise the importance of retirement housing in the face of an ageing population."

- ENDS -

For more information, please contact:

McCarthy & Stone, 01202 292480

Paul Teverson, Director of Communications

Powerscourt, 020 7250 1446 / mccarthy-stone@powerscourt-group.com

Nick Dibden / Mazar Masud / Victoria Heslop

Notes to Editors

About McCarthy & Stone 

McCarthy & Stone is the UK's leading retirement housebuilder with a c.70% share of the owner-occupied market. The Group has sold over 54,000 properties across c.1,200 retirement developments since 1977 and is renowned for its focus on the needs of those in later life. It re-joined the Main Market of the London Stock Exchange in November 2015 and re-entered the FTSE 250 following its quarterly review on 21 March 2016.

There is a growing need for retirement housing. There are currently 12 million people aged 65 or over, rising to 18.2m by 2037, representing a 52% increase. For those aged 85 or over, the increase will be larger, from 1.6m to 3.7m, representing a 131% increase. According to research by Demos, one in four over 60s are interested in retirement living, yet only c.157,000 units of specialist retirement housing for homeowners have been built.

The Group has two established product ranges - Retirement Living and Retirement Living Plus (formerly known as Assisted Living) - which provide mainly one and two bedroom apartments across the country with varying levels of support and care for older homeowners. In late 2014, McCarthy & Stone launched its Lifestyle Living (formerly Ortus Homes) product, which is exclusively for the over 55s and those in the earlier stages of retirement who are seeking to downsize for their leisure years.

The first Lifestyle Living development at Scarlet Oak in Solihull won the Best Retirement Scheme at the annual Housebuilder Awards in November 2015. At the same awards in November 2016, we were pleased to again receive Best Retirement Scheme for Ramsay Grange and Lyle Court, our combined Retirement Living Plus and Lifestyle Living development in Barnton, Edinburgh, as well as Best Customer Satisfaction Initiative for our approach to ensuring that we deliver a Five Star service for our homeowners.

The Group was also pleased to win 15 awards at the 2017 NHBC Pride in the Job awards and seven Seals of Excellence, marking a 50% increase in awards from 2016. The scheme is dedicated to recognising construction site managers who achieve the highest standards in housebuilding and has been instrumental in driving up standards in the sector for 37 years.

McCarthy & Stone's commitment to quality and customer service continues to be recognised by homeowners. In March 2017, the Group received the full Five Star rating for customer satisfaction from the Home Builders Federation for the twelfth consecutive year - making it the only UK housebuilder, of any size or type, to achieve this accolade.

All developments built since 2010 are managed by the company's in-house management services team, providing peace of mind that it will look after customers and their properties over the long term. This is a key part of how McCarthy & Stone seeks to enrich its customers' lives. McCarthy & Stone Management Services (MSMS) provides management services in Retirement Living and Lifestyle Living developments. YourLife Management Services (YLMS), which is owned 50/50 by MSMS and Somerset Care Group, a leading not-for-profit care provider, provides management services, domestic assistance, catering, personal care and additional support in Retirement Living Plus developments, and each development is run by an Estate Manager and a team of staff delivering services 24 hours a day, 365 days a year.

www.mccarthyandstonegroup.co.uk 

Forward-looking statements

Some of the information in this document may contain forward-looking statements regarding McCarthy & Stone plc and its subsidiaries (the Group). You may be able to identify forward-looking statements by terms such as "expect", "believe", "anticipate", "estimate", "intend", "will", "could", "may" or "might", the negative of such terms or other similar expressions or by discussions of strategy, plans, objectives, goals, future events or intentions. These forward-looking statements include all matters that are not historical facts. McCarthy & Stone plc (the Company) wishes to caution you that actual events or results may differ materially from those anticipated. The forward-looking statements reflect knowledge and information available at the date of preparation of this document and the Company undertakes no obligation to update these statements to reflect events and circumstances occurring after the date hereof or to reflect the occurrence of unanticipated events. Many factors could cause the actual results to differ materially from those contained in forward-looking statements of the Group, including among others, general economic conditions, the competitive environment as well as many other risks specifically related to the Group and its operations. Past performance of the Group cannot be relied on as a guide to future performance. Nothing in this document should be construed as a profit forecast.