Summerset Group Holdings Limited
Annual Report 2022

Plain-text annual report

Annual Report2022Subsection HeadingSECTION HEADING4Annual Report 2022502 Contents Chair and CEO’s report Highlights Snapshot 2022 highlights Our people and community Our villages Our commitment to sustainability Our performance Five-year summary Financial statements Governance Board of Directors Executive Leadership Team Remuneration Disclosures Directory Company information 06 14 14 16 20 32 42 52 56 57 99 112 114 116 126 136 139 03 Annual Report 2022 04 8ABOUT THIS REPORTThis Annual Report of Summerset Group Holdings Limited (Summerset) is prepared in accordance with New Zealand equivalents to International Financial Reporting Standards (NZ IFRS), the NZX Listing Rules and Corporate Governance Code, the ASX Listing Rules (as relevant for foreign exempt listings) and the Companies Act 1993. It covers all our business operations for the year ended 31 December 2022. We are aligning our reporting to the International Integrated Reporting Framework to improve the way we communicate and improve transparency. We will continue to build on this approach. COVER: Summerset’s continuum of care model delivers dedicated and person-centred care, when neededINSIDE COVER: Artist impression of Summerset Milldale RIGHT: Artist impression of Summerset BoulcottINSIDE BACK COVER: Artist impression of Summerset BoulcottSTRATEGY 05 9GROWTHWe look for expansionopportunities in New Zealandand Australia that delivercompetitive returnsfor our shareholders.OUR PEOPLEWe want to create agreat place to work, whereour people can thrive.OUR CUSTOMERSWe continue to improveand enhance our offeringto residents.Our strategic goals are underpinned by our desireto bring increased wellbeing to our customersand staff by harnessing the power of innovationand weaving sustainability into our work.WELLBEING INNOVATIONSUSTAINABILITYBRINGING THE BEST OF LIFEOur strategyAnnual Report 2022 Chair and CEO’s report Mark Verbiest Chair 06 Scott Scoullar Chief Executive Officer Welcome to our annual report for the 12 months ended 31 December 2022. This has been another year of significant achievements for Summerset, despite significant challenges. Our achievements are all set against a backdrop of increasing inflation, supply chain constraints, national nursing and care staff recruitment shortages, a falling property market, and New Zealand’s most difficult year combatting COVID-19. Despite this we have had a successful 2022 and we continue to be well equipped to deal with these ongoing challenges while maintaining focus on delivering value for our residents and shareholders. Demand is strong for our product with 1,007 unit sales of Occupation Rights in 2022. New Zealand’s population aged 75+ continues to grow and is forecast to almost triple in the next 50 years. With that comes an increasing pool of prospective Summerset residents. Throughout the year, time to settle has remained steady – driven by when our residents sell their home to move into a Summerset village – but we are also cognisant that with the easing of the residential property market, settlement timing will likely return to the more normal levels before the pandemic bubble which heavily inflated the market. With an average age of 81, our residents’ decision to enter a village is driven by life events – lifestyle, health, desire for more community, downsizing and more, and the COVID-19 pandemic highlighted many of the benefits gained from living in a village. These events continue to happen and continue to drive demand regardless of the wider economic landscape. Summerset’s offering is positioned to offer something to a wide range of people and budgets. Approximately 88% of our product is priced lower than the median house price which makes it affordable, particularly when many of our potential residents are selling 3-4 bedroom homes priced in the upper quartile of the market. Also, we have a number of sales mechanisms to assist people to move into our villages while they're still selling their home. The 2023 property market is likely to be more challenging than 2022 but we feel prepared. To meet demand, we have continued to strengthen our development pipeline in both New Zealand and Australia. This year we announced the purchase of four pieces of land - Masterton and Rotorua in New Zealand, and Mernda and Drysdale in Victoria, Australia. Our Australian business continues to move forward well; we now have two of our seven pieces of land consented, with our Chirnside Park property gaining consent late 2022. Cranbourne North is the most advanced of our properties with the first residents expected to move in early 2024. Sadly this year the first death on one of our construction sites occurred when Marin Construction (one of our CHAIR AND CEO’S REPORT sub contractors) scaffolder Michael Noche died following an incident at our St Johns site in November. Our thoughts are with Michael's family and colleagues after this tragedy and we have offered ongoing support to them. The incident is still being investigated by WorkSafe NZ and we have cooperated fully with them throughout. Business performance Underlying profit for 2022 is $171.4 million, an increase of 21.5% on 2021. Our IFRS net profit after tax is $269.1 million, down 50.5% on 2021. Operating cash flows of $369.2 million have decreased 4% from last year. The value of our investment property is now $5.4 billion, up 18.3% on 2021. We are pleased with the overall performance of the business for 2022. We have weathered multiple challenges to deliver an increase in our underlying profit, while the net (IFRS) profit after tax includes the impact of reduced fair value gain on investment property compared to the prior year. We have shown how we can run the business effectively during turbulent times, and continue to position ourselves for growth into the future. Despite these challenges, we have kept our debt to an appropriate level, and have achieved strong growth in our balance sheet during 2022. The Board is pleased to declare a final dividend of 11.6 cents per share, payable on 23 March 2023. Combined with our interim dividend of 10.7 cents per share, shareholders have received 22.3 cents per share for the 2022 financial year — a 20.5% increase over 2021. Villages and care Our care offering, and our continuum of care model, is a very important part of why our residents choose to live at Summerset, it's an integral part of our model as a business. Residents want the peace of mind that their needs will be met if their care requirements change while they’re living in our villages. We have invested more in care this year with our care centre refurbishment programme, which has been reviewing our first generation facilities around the country to ensure they meet the needs and expectations of our residents now and into the future. Our Havelock North, Trentham and Levin villages are all in various stages of major upgrades to their care centres to provide modern and state-of-the-art facilities for our current and future residents. Our newest care centre (including memory care centre) at our Kenepuru village was completed this year with residents moving in February 2023. Our Te Awa (Napier), Pāpāmoa (Tauranga) and Bell Block (Taranaki) main buildings will be ready for residents later in 2023 – all will have our world-class care and memory care centres. As well as investing in new and improved buildings, we've invested in improving our residents' care further with our new Kaitiaki (wellbeing assistant) role. Our 70 Kaitiaki around the country provide more one-to-one care for our residents and support them both physically and emotionally. This can be from working with residents on their physical health and increasing their mobility, through to simply spending more individual time with residents to talk and provide much needed interaction for their mental health and wellbeing. We, along with many of our competitors, continue to be very concerned about underfunding in the wider aged care sector. Summerset is part of a group called Aged Care Matters that has spent much of the year lobbying the government about the serious risks facing our sector. Public funding for care services, including daily care rates, is insufficient to provide the exacting standards of service that are rightly expected. On average, providers get $170 per night for providing rest- home level aged care – less than a hotel room or what the government spends on emergency housing. The bed is only a small part of the need too; the funding doesn’t account for the very complex needs that aged care residents present with. Providing care, meals, a room and everything else for $170 a day is unrealistic at best. Well over 50% of the aged care beds in New Zealand are provided by not-for-profit providers who can’t continue to run with funding gaps. It's not just not-for-profit providers either, a number of aged care businesses around the country have closed beds this year. More than 1,000 aged care beds closed in 2022 and with nowhere else to go our elderly will fall back on the public health system. It’s estimated that in 40 years’ time New Zealand will need over 12,000 more aged care nurses, 7,700 more dementia beds and 15,000 aged care beds, but the current funding model is pushing the industry backwards and there’s no way we’ll meet that demand. In terms of our own services, we will not compromise on standards. Our residents expect a high-quality care option if they need it, and we will continue to invest in and provide our care centres, as they are an integral part of our offering for our target audience. We can continue to provide care because we are a large business - our wider sector faces systemic challenges though. In addition to funding, finding nursing staff has been an ongoing issue for the sector this year. While the borders opened up halfway through the year, finding nurses continues to be very difficult. It’s 07 Annual Report 2022 08 MultiBall wall in action with Summerset residents estimated that there are more than 1,200 nursing vacancies in the sector (nearly 25% of nurses required in sector). Also, funding for aged care nurses' salaries have been set at between $15,000 to $20,000 a year less than nurses with the same qualifications and experience in public hospitals. Late in 2022, after years of lobbying by industry groups, the government announced a $200m funding increase for aged care nurses' salaries and that nurses would be put on the fast-track residency pathway. To date health officials have not provided any detail on the extra funding in terms of how it will be allocated or when it will start. Also the announced public funds don't go far enough. Without the ability to allocate the funding or have certainty around when it will be received the industry will continue to see beds close and operators close their doors. More funding and better immigration pathways will be good steps in the right direction, and they will help the sector to retain nursing staff, if we can get moving. If the systemic funding issues within aged care are not addressed, we will see more providers closing beds or shutting entirely. We will continue to push for funding that will ensure the health of our wider sector and gives elderly New Zealanders options when they need care. Design and technology  We continue to evolve our design and offering to give our residents meaningful and useful facilities. Our dedicated research and development team apply best- practice design and innovation, and importantly also gather insights from residents’ experience of life in our villages to continually look at opportunities to improve our offering. As an example, we've focused on upskilling on dementia care design and incorporating our residents' experience and use of our existing memory care facilities in order to improve our care offering further. Our landscaping designs focus on creating more communal areas, including children’s playgrounds, vegetable gardens, breakout spaces for residents to use around the village, petanque and bowling greens and much more. Outside of the physical environment we continued to test and invest in technology to enhance our residents’ experience and lives. Bringing the Best of Life is at the heart of everything we do, and we are always looking at innovative ways to support all aspects of wellbeing, and have adapted since the pandemic to ensure that we can offer quality engagement opportunities both in our recreation centres and at home. Each of our villages has a dedicated activities coordinator who provides a calendar of activities for health and wellbeing, catering for a broad range of interests and supporting social interaction. We have designed our own signature exercise programme, CB Fit, which is an accredited falls- prevention class as a part of the “Live Stronger for Longer” initiative. This is built on a foundation of the 4Ps: Prevent, Protect, Progress and Preserve, and we have recently CHAIR AND CEO’S REPORT developed our own chair-based exercise classes as an extension of the standing strength and balance class. Our entertainment series “Summerset Sessions” continues to deliver a variety of content live and on-demand to residents regardless of where in the county they are. These sessions include “Cooking with a MasterChef”, musical series “Summerset Sings”, and “An Interview With...” featuring well-known icons and hosted by Summerset Ambassador Jude Dobson. We’ve invested in experience and fitness technology such as virtual reality to allow our residents to “travel” to far-flung corners of the world, and our MultiBall interactive exerplay walls. We are utilising health technology like PainChekTM to improve the quality of life of residents living with pain. Costs and procurement We worked hard to secure long-term contracts through our procurement programme, which gave us certainty during this time of inflation and price volatility. We have very strong relationships with our suppliers, and we are a preferred partner with many of them. Our relationships and planning have meant that we’ve kept a tight lid on construction costs over the last 12 months. This has led to a very healthy development margin through 2022 of 29.7%. However, many of our contracts are coming up for renewal in 2023 and while we will work hard to get the very best price with our suppliers, we do expect to see our costs increase. Over the coming year we expect to see our development margins return to the 20-25% range we've provided historically as market guidance. We’re also seeing costs such as rates and insurance increasing, like any other business. Unlike many of our competitors we don’t fix our fees, so it means we have some ability to flex our fees to meet some of these costs while sticking to our commitment to residents to not increase our fees beyond the increase to NZ Superannuation. We continue to keep a tight lid on our costs to ensure we set ourselves up for long-term growth. Growth and development Our design and consenting programme is very well positioned in both New Zealand and Australia and has continued well in 2022. In New Zealand we have a very well- diversified portfolio with 76% of our land bank consented. Our highly consented portfolio gives us a lot of flexibility in how and where we’re building, depending on demand and supply around the country. We continue to hold the largest land bank in the New Zealand retirement village sector, allowing us to double our current village population. This year, we delivered a record of 625 homes under Occupation Right Agreement (ORA) and 26 care beds in New Zealand to keep up with customer demand. Our delivery programme has become extremely sophisticated, and we expect to build 600-700 homes next year. Our build rate means we continue to be one of the top residential builders in the country. With an uncertain year ahead we'll continue to monitor demand and flex our build programme as required. As part of a strategic review of our building programme we made the decision in December to put our proposed Parnell village on hold. Construction costs have escalated significantly and with a declining property market we considered it prudent to pause in this environment on the relatively complex build. During 2023 we are building a lot of need-based products, with three main buildings opening around the country which will all feature care and memory care facilities, homes that remain in high demand. In Australia we are building a strong land bank and like our New Zealand programme, we plan to have a high proportion of our sites consented so we can move from one site to another quickly. In terms of land, we announced the purchase of our Mernda site in August and Drysdale in November, our sixth and seventh Australian sites respectively. We continue to see huge growth opportunities in Australia and we are very pleased with our progress. We're looking forward to welcoming our first Australian residents in early 2024. We are pleased with progress on our Cranbourne North site where we will deliver our first homes in Q4 of 2023. Our Cranbourne North village has a pipeline of 341 homes (including 72 care units) while our Chirnside Park development, which received consent in November, will provide 267 homes (including 72 care units). Construction is planned to begin at Chirnside Park later in 2023. At our other five Australian sites our planning process is well advanced and we’re moving through the various stages with the local councils. We aim to have more consents in place in 2023. Our people We continue to invest in our people and focus on creating a positive culture that supports our staff and their careers and enables them to bring the best of life to our residents. In our care centres, we created a new Kaitiaki role and have employed 70+ dedicated employees in our villages around New Zealand in this role. The Kaitiaki role was introduced as part of our safe staffing programme to support our care centre residents and provide them with opportunities 09 Annual Report 2022 Artist impression of Summerset Cambridge 10 and assistance to live their lives to the fullest. Our Kaitiaki come from diverse professional backgrounds including nursing, caregiving, and diversional therapy, and their mission is to deliver person-centred care to our residents by engaging in one-on- one activities and therapy sessions to improve their overall health and wellbeing. This dedicated role is already reducing the number of falls in the care centres and helping to alleviate the workload of our caregivers and therapists so they can focus on their own roles and duties. Our staff have a lot to do when caring for residents and their time is limited. This year we’ve invested in technology to make their lives easier and to allow them more time to focus on residents. These include a mobile app for our resident information management and digital noticeboards. year. Summerset’s nursing pay is aged-care-market leading and an important strategy for us retaining nursing staff to care for our most vulnerable residents. In addition to pay we have continued our work on diversity and inclusion to understand the make-up of our various sites around the country. The more we know, the better we can tailor our work to suit the needs of staff in various locations. We have also commenced developing a new three-to-five-year Health, Safety & Wellbeing strategy to further improve our practices right across Summerset. We are pleased to report that just over 600 permanent staff received free Summerset shares this year as part of the vesting of our annual staff share scheme, and nearly 2,000 eligible staff received $1,000 of Summerset shares which vest in July 2025. Paying and recognising our staff for the work they do is important, particularly in the tight labour market we found ourselves in this Sustainability We have short-, medium- and long- term sustainability goals to help us focus not just on the here and now, but to be strategic about what we’re doing and how we’re doing it. This year was the last year of our short-term goal set off our 2017 base. The goal was to reduce our emissions intensity by 5% per million dollars of revenue, a target we’re pleased to say we have overachieved with a 16% reduction. One of our biggest areas of focus has been waste reduction in our construction business. Our construction teams have worked extremely hard to identify where we can do better and have teamed up with Waste Management NZ to look at all aspects of our waste across our sites. Our work with Waste Management NZ has been recognised by the Sustainable Business Network, where we were a finalist for their Outstanding Collaboration Award. We were also pleased to be recognised as a leader by Forsyth Barr in their Inaugural Carbon and ESG Ratings report. Summerset was the 11th ranked company on the NZX and the top retirement village operator. CHAIR AND CEO’S REPORT New Zealand and Australia over the coming years. We remain optimistic for the year ahead and that we are well prepared to deal with an uncertain economic period in 2023 while continuing to grow. We have a prudent capital structure, we can flex our build rate as demand dictates, we are focused on our cash generation, and we'll continue to closely monitor our costs during this period. While we are managing our costs closely, we will continue to invest in bringing the best of life to our residents with new technology, village upgrades and care. Subject to economic conditions we look forward to continued growth in the year ahead. Finally, on behalf of the Board and management, we’d like to thank our investors, residents and partners for your commitment to, and belief in, Summerset’s goals and future. We’d also like to thank our Summerset team, their families and their support networks for another very successful year. Mark Verbiest Chair Scott Scoullar Chief Executive Officer Our medium- and long-term targets are progressing well as we continue to embed sustainability into our business practices. We are continually testing new opportunities too, including solar panels at our Nelson and Karaka villages and to meet the needs of our future residents, electric vehicle (EV) charging infrastructure is being installed into all new Summerset villages. our construction sites were also impacted with Omicron repeatedly affecting our teams and subcontractors. In the face of this we had to stay flexible in order to keep delivering. Where we had people or teams isolating, we changed our plans and focused on other parts of the site to stay on time. Even with these issues we’ve done what we said and delivered 625 homes this year. Our COVID-19 response Our Operations team were aware of the threat that the highly contagious Omicron variant posed early in the year and prepared ahead of the first cases arriving in our villages in January, including purchasing more Personal Protective Equipment (PPE) and Rapid Antigen Tests (RATs). We had to remain nimble in our response to this new variant and how we balanced appropriate measures with allowing our residents to continue their lives as normally as possible. At times we closed our care centres and memory care centres to protect our most vulnerable residents, with our staff assisting residents to stay in touch with their loved ones electronically during these times. As soon as we were able, we reopened to allow that all important face-to-face contact to occur. COVID-19 impacted our staffing throughout the year too, and we had to work hard to make sure we had enough staff in place to care for our residents. We’re very proud of the response from our staff and the effort they put in, often above and beyond, to keep our residents, visitors and each other safe. We’d like to thank our residents’ families and loved ones who worked with us and followed the various precautions we had in place to protect residents and staff. It wasn’t just our villages that saw the impact of COVID-19, Board changes We are sorry that Anne Urlwin will retire after nearly nine years on the Summerset Board on 28 February 2023. Anne has provided great experience and leadership throughout her time at Summerset. During her tenure we have grown from 18 villages to 38, and resident numbers have more than doubled. The Summerset Board has welcomed Andrea Scown this year. She has joined as part of the Institute of Directors Future Directors programme which aims to develop New Zealand’s next generation of directors and provide experience in large companies around the country. Andrea is currently CEO of Mitre10 and we feel that while we can provide her with a valuable insight into governance of a large and successful listed company, we in turn will gain valuable insight from Andrea into the New Zealand consumer and construction sectors. Looking forward Despite the rocky economic conditions New Zealand has experienced during 2022, we have continued to grow and achieve. We’ve met our target build rate, and our first retirement village in Australia is taking shape, with the second consented and now under construction. We are adding to our significant land bank and have the ability to grow significantly in both 11 Annual Report 2022 12 10DIVERSIFIED PORTFOLIOWe benefit from a geographically diverse portfolio that gives us the flexibility to adapt our build rate depending on local market conditions. For investors, we are primarily a growth stock, with a clear strategy to continue expanding in New Zealand and Australia.LOOK AFTER OUR RESIDENTSWe want our residents to feel secure and respected, and our consistently high satisfaction rates reflect that. Our villages are part of their local communities and provide jobs and amenities. ONE TEAM STRONG ENOUGH TO CARE STRIVE TO BE THE BESTBUY LAND IN DESIRABLE PLACES WHERE PEOPLE WANT TO RETIREBUILD AND MAINTAIN HIGH-QUALITY VILLAGESHIRE SKILLED STAFF AND HELP THEM THRIVELOOK AFTER OUR RESIDENTS AND PROVIDE EXCELLENT CARECREATE SUSTAINABLE VALUE FOR STAKEHOLDERS WHILE PROTECTING THE ENVIRONMENT Bringing the best of lifeDELIVERING VALUE TO OUR STAKEHOLDERSBUILD HIGH-QUALITY ASSETSWe pride ourselves on building and maintaining villages that are well designed, well located, and that enable our residents to interact with the community. Our expanding geographical presence is based on being in growing regions with strong potential for investment gains. PROTECT THE ENVIRONMENTWe have short-, medium- and long-term sustainability plans in place to reduce our carbon emissions intensity over time and to monitor our progress and performance. Our innovative medium-term sustainability linked loan arrangement was a first for the sector in New Zealand.HIRE SKILLED STAFF AND HELP THEM THRIVEWe recognise our people as our most important asset. They underpin our ability to deliver the best of life to our residents. We celebrate their diversity and are committed to ensuring all our staff are well remunerated, motivated and safe. CHAIR AND CEO’S REPORT 13 11INFLUENCE WHAT WE DOINFLUENCE AND BENEFIT FROM THE VALUE WE CREATEOur stakeholdersPUBLICREGULATORSCOMPETITORSSTATUTORY SUPERVISORRESIDENTS AND FAMILIESINVESTORSCOMMUNITIESEMPLOYEESSUPPLIERSGOVERNMENTRESIDENTS AND FAMILIESOur residents are the thousands of New Zealanders who choose to live in our villages, and their family and whānau. Families are important to us for the enormous role they play in residents’ lives and their decision-making around retirement living and care.GOVERNMENTThrough our villages, we help the government take care of elderly New Zealanders. In particular we offer specialised care for those who are frail or are living with dementia. EMPLOYEESOur highly trained staff combine expertise in clinical care, design, construction and operations. That combination of knowledge enables us to provide a high-quality offering.COMMUNITIESOur villages form part of local communities and we also provide significant sponsorship for local community groups. We help boost residential housing supplies and provide invaluable services, including rest-home, hospital and dementia care. SUPPLIERSWe invest in national infrastructure in the form of our villages, and generate work and incomes through our supply chain, benefitting businesses and local economies. INVESTORSOur investors range from individuals to institutions. As a growth-focused company, we manage risks prudently and look to provide our shareholders with an appropriate return through our dividend policy and share price appreciation.Annual Report 2022 Snapshot Our people Our portfolio Our performance $269.1m Net profit after tax FY21 $543.7m $171.4m Underlying profit FY21 $141.1m $369.2m Operating cash flow FY21 $383.4m 7,400+ Residents 2,400+ Staff members 95% Village resident satisfaction Our care 94% Care resident satisfaction 14 1,161 Care units (which includes beds) in portfolio 1,379 Care units (which includes beds) in land bank in New Zealand and Australia 5,518 Retirement units $5.8b Total assets FY21 $4.9b 5,985 Retirement units in land bank in New Zealand and Australia 39 Villages completed or under development 1,007 Sales of Occupation Rights 11 Greenfield sites   HIGHLIGHTS 15 13OUR PHILOSOPHY OF CAREINDEPENDENT LIVING4,570Villas, cottages, townhouses and independent apartments(TOTAL UNITS)ASSISTED LIVING948Serviced apartments(TOTAL UNITS)SPECIALISED CARE1,161Rest-home care, Memory care, Hospital care(TOTAL UNITS)16 2022HighlightsAPRILQ1 sales results released – our highest Q1 ever with 279 sales. Announcement of our 2021 staff Applause Award winners (winners were celebrated at a Covid-delayed event in October). JUNEPurchased 10 virtual reality kits to travel around our villages to give our residents experiences they may not otherwise be able to witness. Rolled out PainChek® an iPhone app that uses artificial intelligence to identify the presence of pain in an older person when it cannot be verbalised.JULYPrincipal sponsor of the new Wellington Free Ambulance ‘Onesie Day Ambulance’ JUNOCTOBERAnnounced our partnership with Hato Hone St John sponsoring their therapy pet programme. FEBJUNOCTJULHIGHLIGHTS 17 FEBRUARYOrdered our first two EVs to begin our fleet change to electric.MARCHCelebrated Caregiver and Frontliner Day by creating a gratitude wall where staff, residents, their families and anyone else could publicly share messages of gratitude for our frontliners. NOVEMBERCelebrated our 25th birthday.DECEMBERSummerset Chairman Mark Verbiest named Chairperson of the Year at the Deloitte Top 200 awardsOCTDECMARSEPAUGAUGUSTAnnounced a half-year underlying profit of $82.5m (up 9.2% on last year). Purchase of Fairy Springs site in Rotorua, Lansdowne in Masterton and Mernda in Melbourne. SEPTEMBERNamed as a finalist in the Sustainable Business Network’s Outstanding Collaboration award for our work on construction waste with Waste Management NZ. Building consent granted for the first of our five lightweight and mass timber main buildings – to be built at Summerset Mt Denby (Whangārei). Flew the flag in solidarity with MATES in Construction who are aiming to reduce suicide and mental health issues. NOVAnnual Report 2022 Portfolio growth             25 years of consistent growth and delivery (total units1 in portfolio) '98 '99 247247 247247 247247 9090 337337 '00 337337 256256 593593 18 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18 '19 '20 '21 '22 593593 656656 755755 879879 959959 1,022 1,022 1,196 1,196 1,258 1,258 1,384 1,384 1,599 1,599 1,679 1,679 1,813 1,813 1,973 1,973 2,297 2,297 2,601 2,601 3,035 3,035 3,576 3,576 4,084 4,084 4,590 4,590 4,944 4,944 5,357 5,357 6,028 6,028 6363 656656 9999 755755 124124 879879 8080 959959 6363 1,022 1,022 174174 1,1961,196 6262 1,258 1,258 126126 1,384 1,384 215215 1,599 1,599 8080 1,679 1,679 122122 1,801 1,801 160160 1,973 1,973 324324 2,297 2,297 304304 2,601 2,601 434434 3,035 3,035 541541 3,576 3,576 508508 4,084 4,084 506506 4,590 4,590 354354 4,944 4,944 413413 5,357 5,357 671671 6,028 6,028 651651 6,679 6,679 0 1,200 2,400 3,600 4,800 6,000 7,200 New units delivered Existing stock 1 Units include all retirement units and care units (including care beds) PORTFOLIO GROWTH             25 years of consistent growth and delivery (total units1 in portfolio) 247247 9090 337337 '00 337337 256256 593593 6363 656656 9999 755755 124124 879879 8080 959959 6363 1,022 1,022 174174 1,1961,196 6262 1,258 1,258 126126 1,384 1,384 '98 '99 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18 '19 '20 '21 '22 247247 247247 593593 656656 755755 879879 959959 1,022 1,022 1,196 1,196 1,258 1,258 1,384 1,384 1,599 1,599 1,679 1,679 1,813 1,813 1,973 1,973 2,297 2,297 2,601 2,601 3,035 3,035 3,576 3,576 4,084 4,084 4,590 4,590 4,944 4,944 5,357 5,357 6,028 6,028 215215 1,599 1,599 8080 1,679 1,679 122122 1,801 1,801 160160 1,973 1,973 324324 2,297 2,297 304304 2,601 2,601 434434 3,035 3,035 541541 3,576 3,576 508508 4,084 4,084 506506 19 4,590 4,590 354354 4,944 4,944 413413 5,357 5,357 671671 6,028 6,028 651651 6,679 6,679 0 1,200 2,400 3,600 4,800 6,000 7,200 New units delivered Existing stock 1 Units include all retirement units and care units (including care beds) Annual Report 2022 20 OUR PEOPLE AND COMMUNITY Our people and community Our 31 retirement villages are vibrant and diverse communities. Summerset is proud to be home to over 7,400 residents and to employ over 2,400 staff. Our COVID-19 response This year was another challenging one for residents with the ongoing COVID-19 pandemic changing the landscape again with the arrival of the Omicron variant. We were prepared, having invested early in Personal Protective Equipment (PPE), Rapid Antigen Tests (RATs), air purifiers and air quality monitors before cases arrived in our villages in January, but the need to lock down parts of our villages and cancel communal activities at times was tough on residents and staff alike.  Also, we had extremely high rates of vaccination in all of our villages which helped to provide further protection to our residents during this challenging year. Our care and memory care facilities, are home to a population particularly vulnerable to COVID-19, and we were forced to close the centres to visitors at times. During these lockdowns we concentrated on giving our residents every opportunity to connect with their family and friends digitally, and on containing the outbreaks as quickly as we could to allow visits and valuable human interaction. We’re extremely proud of how our team responded and protected each other, our residents and our visitors. We’re also grateful to our residents’ families and friends for working with us while we had to change and restrict visits during these outbreaks. Influenza immunisation was also prioritised for vulnerable groups, and we facilitated immunisation clinics at all villages for residents and staff who valued the access to added protection.  21 We have learnt a lot about managing COVID-19 over the last few years and our team understand how best to care for our residents when we do experience cases. COVID precautions are now a core part of how we manage the health and wellbeing of our residents in care. Protecting our villages We can’t say enough about the dedication of our staff in protecting our residents during 2022. Very early on we invested in ‘fit testing’ of N95 masks to make sure our staff had not only the right mask, but the best possible fit. N95s have been a very important tool in protecting our staff, residents and visitors from the spread of COVID-19. As the country moved down alert levels and settings there remained an increased risk of community transmission so we typically maintained a more cautious approach with our vulnerable care and memory care residents. Infection prevention and control remained a priority throughout the year and we continued with many of the hygiene and safety measures introduced early in the pandemic, including good ventilation, use of extensive PPE and cohorting of our teams to minimise any chance of cross-contamination. We welcomed the government’s easing of PPE requirements in the latter part of the year, and we removed the requirement for our care centre visitors to provide RATs prior to seeing their loved ones. Engaging residents We pride ourselves on the opportunities - socially, physically and mentally - that we can provide our residents to bring them the best of life. Naturally COVID-19 has made us think and work differently to provide meaningful and engaging activities for our residents. Annual Report 2022 22 Annual Report 2022391,720MESSAGES LAUNCHED258VIDEO CALLS1,452RADIO LAUNCHED2,390NEWS ARTICLES LAUNCHED447COMMUNITY ACTIVITIES LAUNCHED105LUMINS IN USELUMIN KENEPURU TRIAL 1 AUG TO 9 NOV 2021 KEY STATISTICSImage above: Paul Wilson, CEO and Co-Founder of Lumin; Kirsty Herbert, Summerset Lumin Project Manager & Ross McKenna, Summerset on the Landing resident. LUMIN KENEPURU INSTALL NOV 2022 KEY STATISTICS980NEWS ARTICLES LAUNCHED1,613RADIO LAUNCHED327MESSAGES LAUNCHED540VIDEO CALLSOUR PEOPLE AND COMMUNITY While, as restrictions changed, we were able to bring more and more in-person activities back to our villages, we had to move many of our events and activities online to protect residents. One positive of the pandemic was how it challenged us to think differently about making events accessible to residents throughout the country and creating some memorable and unique opportunities. We developed a suite of options for our residents including “Summerset Sessions” – a virtual entertainment programme, to be enjoyed at home or together in village lounges where possible. The programme included concerts, cooking lessons (with former Master Chef winner Brett McGregor) and interviews with well- known Kiwis including Dame Valerie Adams, Sir Graham Henry and David Lomas. We are still very focused on in- person and interactive activities, particularly now that the threat of COVID-19 has reduced, and we now have a national activities programme that is accessible to our residents who are less mobile or are concerned about mixing in larger groups. It’s also a great way to link our wider village network. We have also been using virtual reality (VR) technology to enhance our resident experience, whether during times of limited visiting or for those who struggle to get outdoors. VR is one way to enhance the quality of life of all Summerset residents, with studies showing positive physical, psychological, and emotional outcomes after VR engagement. VR kits have been purchased to be rotated through villages, offering residents access to a diverse library of immersive virtual content such as swimming in the Caribbean or visiting the Louvre. Rather than our annual satisfaction survey, we have adopted a continuous listening approach to drive improvements that our residents tell us are important to them. We survey our residents regularly on a number of aspects of village life to understand what is and isn’t working for them. This allows our village managers to understand and change things within their village to better reflect the needs and wants of their residents. Our food services are very important to our residents, so based on their feedback and needs we have completed moving our food services in-house earlier this year with the goal of increasing the consistency of service for our residents. We were pleased that existing staff were transferred across from our outsourcing providers and became Summerset employees, receiving our market-leading staff benefits and higher wage rates. Technology We committed to investing $4.5m in frontline staff as well as digital innovations this year, not just to keep our residents safer, but also to improve their experiences every day. These included: • PainChek® After a successful trial in our Levin village, we are proud to be the first New Zealand aged care provider to implement this innovative tool throughout our villages. PainChek is an app available on smart phones and tablets, that uses artificial intelligence and facial recognition technology to identify the presence of pain in people who can’t verbalise it. Additionally, PainChek has the ability to capture data directly into our resident management system. This smart system is far faster and more accurate than the traditional pain assessment tools, it helps vulnerable residents and frees up our staff to do more for our • residents by automating many of our processes. Lumin In Kenepuru (Wellington), we completed the trial of a digital services platform, called Lumin, for our independent- living residents. Kenepuru has since had Lumin rolled out permanently and we’re preparing to roll this out nationally. Lumin is run through a dedicated 17-inch screen or iPad. Lumin allows residents to stay connected to village life from the comfort of their home, providing the ability to receive newsletters, instant messages and emergency alerts from the village team, view and book village activities, special events and outings, and to connect with loved ones. • MultiBall Wall Summerset is one of the first in the world, and the first in Australasia, to introduce MultiBall exergaming technology into a retirement village and aged care environment. MultiBall enables our residents to enjoy sports and brain-stimulating games in a fun and intuitive manner. While physical activities help with balance, agility and directional changes, memory games have interactive components that help with cognitive skill development. Residents with mobility issues who may require a walker, wheelchair or other assistive devices can still participate as there are options for games that can be played while seated. Allowing for multiple players at once, MultiBall has the added benefit of increasing our resident’s social engagement, not to mention great fun for the family and grandchildren to enjoy when they visit. 23 Annual Report 2022 24 A resident and staff member from Summerset at Avonhead enjoy a puzzle Enhancing our services and our care We continued to introduce and roll out new measures and initiatives to improve the lives of our residents and to ensure that those who are more vulnerable receive excellent care. Our care offering, and our continuum of care model, is a very important part of why our residents choose us, and we want to ensure we continue to be ahead of best practice to bring the best of life to our residents.  Our memory care centres are a specialist feature of our villages and are tailored for those needing secure dementia care. We have once again been re-accredited as a dementia- friendly organisation, recognising our demonstrated commitment to person-centred care. To support our memory care teams at a national level, and to continue to upskill our team, we have appointed two new dementia specialists. These roles are in place to offer knowledge and expertise in the growing field of dementia care that will continue to give our residents the best possible experience in our care. Person-centred care means to put the person, our resident, at the centre of all decisions made around their wellbeing – especially in the care centre where they may not be in a position to take care of themselves. To empower residents in this way, we introduced 70 new Kaitiaki (Wellbeing Assistant) roles in our villages who will provide the desired level of personalised care and quality one-on-one time for each resident. Our Kaitiaki roles were introduced as part of our safe staffing programme to support our care centre residents and provide them with more opportunities for personalised care and support. Kaitiaki come from diverse professional backgrounds including nursing, caregiving and diversional therapy, and their mission is to deliver person-centred care to our residents by engaging in one-on- one activities and therapy sessions to improve their overall health and wellbeing. This can be as simple as spending more time with residents through to helping residents at meal times or improving their physical movement (see case study). We are seeing an improvement in the physical, mental and social wellbeing of numerous residents, and staff and family are seeing the meaningful impact on the lives of our residents. Having provided aged care services for more than two decades it is necessary for us to invest in upgrading our older care centres and facilities to provide modern, state-of-the-art facilities that meet the needs and expectations of our current and future residents. This year our care centre refurbishment programme has seen our Havelock North, Trentham and Levin villages commence with the rollout of upgrades to their care centres. The Havelock North refurbishment is the first of these to get underway and does require care residents to relocate to other facilities, preferably nearby and within the Summerset village network. We understand how disruptive this is for our care residents and our team will work very closely with residents and their OUR PEOPLE AND COMMUNITY families to ensure the moves are as easy as possible with minimal disruption. For our Havelock North residents, they have the opportunity to move to our brand new care facility in Te Awa, once it has opened and we deliberately held off on the refurbishment programme to allow these transfers to take place, if residents choose to stay with Summerset. We recognise that this is not always easy on our residents and staff but we believe it’s a necessary imposition in order to provide the best possible care offering for our residents now and into the future. This year we completed the construction of our Kenepuru village main building which accommodates our new care and memory care centres, with residents moving in in February of 2023. Additionally, our Te Awa (Napier), Pāpāmoa (Tauranga) and Bell Block (Taranaki) main buildings will be ready for residents later in 2023, also offering our world-class care and memory care centres. However, across the aged care sector nationally, the strong and increasing demand for care and memory care continues to be unmet. We have joined forces with providers from around the country and the Aged Care Association of New Zealand in a group called Aged Care Matters to continue to advocate for realistic government funding in aged care, including the issue of pay parity for aged care nurses. Public funding for care services, including daily care rates, is insufficient to provide the exacting standards of service that are rightly expected. On average providers get $170 per night to provide rest home level aged care; however, this funding doesn’t account for the very complex needs that aged care residents often present with. Kaitiaki case study Our Kaitiaki roles are part of our commitment to providing the best of life to our residents. Every Summerset village has at least one Kaitiaki, dedicated to providing more one-to-one care for our care centre residents to improve their health and wellbeing. One of the best success stories we’ve seen in the last year, which highlights the benefits of our Kaitiaki role, comes from our Summerset in the Vines (Havelock North) village. Our resident, Iona, had been bedbound for 18 months following a stroke. Iona had been told that she may not walk again and told the team that she didn’t think she ever could. Our Kaitiaki carer started working with Iona to assist with her exercise and the rehabilitation exercises from her physiotherapist. They decided on a goal of being able to walk to her son’s car so she could go on an outing with him. From April to July the Kaitiaki, Iona and her physiotherapist worked towards this goal, making incremental improvements with our Kaitiaki encouraging and motivating Iona throughout the process. It started small with Iona learning to stand unaided followed by small steps within her room to build her movement and confidence. Later the exercises included working on car transfers to ensure Iona could get into and out of a car safely and confidently. In July Iona was able to use her walking frame to independently walk to her son’s car and have her first outing. Since then she’s been out and about a lot more. Iona continues to work with the team at Summerset in the Vines to improve her walking and she’s taking part in more and more of village life. In addition to funding, rates for aged care nurses salaries have long needed adjusting. While Summerset has market leading salary packages for nurses, public funding for aged care nurses has been between $15,000 to $20,000 a year less than nurses with the same qualifications and experience in public hospitals. Late in 2022, after years of lobbying by industry groups, the government announced a $200m funding increase for aged care nurses' salaries and that nurses would be put on the fast-track residency pathway. We're pleased to see some recognition of the issues in the sector and these are good steps in the right direction, as they will help to retain nursing staff in aged care, but it doesn’t go far enough. To date health officials have not given any further detail on the new funding, including how it will be allocated and when it will start, they're moving too slowly. Without the ability to allocate the funding or have certainty around when it will be received the industry will continue to see beds close and operators close their doors. More funding for nurses and better immigration pathways will be good steps in the right direction, and they will help the sector to retain nursing staff, if we can get moving. The $200m increase doesn't address aged care's funding issues. If the systemic lack of funding within aged care is not addressed, we will see more providers closing beds or shutting entirely. We will continue to push for funding that will ensure the health of our wider sector and 25 Annual Report 2022 Summerset is proud to sponsor Netball NZ. Photo by Michael Bradley Photography 26 give elderly New Zealanders options when they need care. For us at Summerset we will not compromise on our standards of care and we will continue to provide care to the very best of our ability to our residents. Our care centres have been, and continue to be, an integral part of our offering and we intend to keep providing the continuum of care offering that makes us attractive to prospective residents. Elevating our clinical care Older people continue to enter aged care services with complex health and social needs, and deserve access to specialised clinical care delivered by competent and appropriately remunerated registered nurses. We were delighted that our Head of Clinical Services was appointed to the national Nursing Leadership Group (NLG) this year. The NLG has members from throughout the aged care sector as part of the New Zealand Aged Care Association and is the recognised voice of aged care nursing in New Zealand. The NLG has a focus on workforce recruitment, retention and development, including supporting registered nurses in aged care to work to their full potential, and promoting effective leadership in the sector. We have continued the excellent work in clinical care with medication optimisation. Many of our residents have been prescribed a range of medications for multiple health conditions, and sometimes people are on medications that they no longer need or are no longer the best option for them. Working closely with our clinical pharmacist, other experts and our prescriber networks we make sure only medications necessary are being given to residents for better quality of life and to ensure better outcomes for them. We continue to lead and support a cross-sector clinical benchmarking group to share anonymous data for key clinical indicators, and look to share learnings and improvements in clinical outcomes across the aged care sector. The group now represents all major aged care operators in New Zealand with the benchmarking data covering half of all aged care beds. Lifting our profile The retirement village sector is a highly competitive environment and we’re seeing an increase in advertising spend and reach across a number of our competitors. Summerset’s brand of an active, vibrant life, where age is just a number, continues to be strong, and research indicates we are the market leader on consideration. It is also pleasing that one year on from the roll out of our television commercials our research shows our advertising campaign has been well received by audiences and continues to retain relevance. Our marketing activities are designed to reach older New Zealanders in their communities and to reinforce the support we offer locally. We are proud to be increasing the range of organisations we’re supporting, and finding sponsorship opportunities that align with our brand and our values. OUR PEOPLE AND COMMUNITY In September, World Alzheimer’s Month, we announced our new partnership with Alzheimers NZ. We are committed to being dementia friendly and were among the first aged residential care providers accredited under Alzheimers NZ’s Dementia Friendly Recognition Programme. Dementia is a growing problem in New Zealand and services aren’t always available to meet the demand. For this reason, partnerships are crucial for the work that needs to be done to ensure everyone has access to the education and support they need. The partnership will provide support for Alzheimers NZ’s work, including information and advice, advocacy, support for frontline services, and Dementia Friends. COVID-19 has made fundraising extremely difficult for many charities. Street appeals were very difficult under the traffic light system and meant a big source of annual income was interrupted. We were pleased to partner with Wellington Free Ambulance (WFA) to be the principal sponsor of their brand new ‘Onesie Day Ambulance’ and to kickstart their annual appeal with a donation. WFA is the only free ambulance service in the country and has been vital to many of our residents and their families. Hato Hone St John is similarly valuable and we were proud this year to become the major sponsor of the St John Therapy Pets Programme. Therapy pets is a popular community programme bringing canine companions to rest homes, bedsides and classrooms around the country, where a dose of unconditional love from an animal has the potential to reduce stress and put a smile on everyone’s face. Our support will allow St John to grow this highly beneficial programme. Additionally, all our 1 NZACA 2021-22 Industry Profile published July 2022 villages will support St John by fundraising for their annual appeal. reputation, pay and benefits in the aged care industry. In addition to Alzheimers NZ, WFA and Hato Hone St John, we provided our continued support through partnerships with organisations in key areas that are important to our residents and their families. These include: • Bowls NZ • Dementia NZ • Netball NZ • New Zealand Symphony Orchestra Our villages continue with grassroots support and are currently working with around 190 local community clubs, including bowls, golf, croquet, bridge and tennis. We also work with Age Concern, Rotary, the RSA, Working Men's Clubs and Women's Groups. Engaging our people Our people are an integral part of everything that Summerset offers and we are immensely proud of them and the work they do. The COVID-19 challenges of 2021 continued with us into the early part of 2022, but despite this, we are pleased that our employee engagement score has increased even though the median score for organisations we have benchmarked against has fallen.  Giving our staff the right tools when they join us assists them to perform at their best. This year we have continued our work to further improve our induction, orientation and onboarding processes and tools, and we're tailoring these for a number of key roles.    Emphasis on retaining talent in the current environment is critical, and our nursing turnover at 31 December 2022 is at its lowest in the past five years, it's also 20% below the rest of the sector1. Summerset is among the leading employers in terms of We have continued to roll out our leadership development programmes as it is important to us to build leadership capability internally. We’ve also undertaken talent mapping and succession planning more widely across the company, which is particularly important in a tight employment market.  Our employee benefits provide another opportunity for us to differentiate ourselves as an employer of choice in a competitive environment and we are one of the market leaders in terms of our benefits package.  We are committed to the protection and promotion of the health and wellbeing of all our staff. We’ve surveyed our staff to build our knowledge around what impacts their wellbeing and supplemented this with a series of Wellbeing by Design workshops. We have promoted and delivered resilience training and mental health awareness to the majority of our frontline managers, through programmes including Mindfulness Month, Mental Health Awareness Week, the GoodYarn and MATES in Construction. Attracting those with the right skills We were very pleased to see the borders reopen earlier in the year as this allows us to supplement our hiring in the current market conditions. We successfully achieved accredited employer status for Immigration New Zealand's new (2022) programme and are already recruiting key positions across nursing, construction and design. Where we are bringing in overseas nurses we are helping them to upskill, complete Competency 27 Annual Report 2022 Staff engagement1 ) % ( e g a t n e c r e P 70 60 50 40 30 20 10 0 8 4 0 P e a k o n 53%53% 67%67% 69%69% 67%67% 7.77.7 7.87.8 7.77.7 7.87.8 2016 2017 2018 2019 2019 2020 2021 2022 Past survey provider Peakon 1 Peakon was provided with the 2019 raw data to ensure year-on-year consistency, noting different scoring scales (67% = 7.7) Employee retention 28 2022 2021 2020 2019 2018 73%73% 75%75% 82%82% 79%79% 74%74% 0 20 40 60 80 100 Percentage (%) Workplace injury rates (Summerset Group) 2022 2021 2020 2019 2018 2017 4.924.92 3.673.67 4.534.53 4.254.25 5.055.05 4.614.61 6.216.21 6.226.22 5.625.62 2.732.73 2.152.15 2.522.52 0 1 2 3 4 5 6 7 Recordable injury frequency rate Lost-time injury frequency rate Assessment Programmes and we have partnered with Lonsdale Education Centre to assist with navigating through these skills and qualification requirements.  Attracting talent in a highly competitive market is very tough, particularly in nursing and construction, and keeping them is tougher. New Zealand is a less- attractive destination due to pay and immigration requirements making us one of the lowest in the OECD. We want to give our future talent more confidence about coming here, and we have specialist recruiters in place to support this and to find quality people to bring to join our Summerset team. We are also focusing on building the pipeline for nursing, construction and design talent, through both recruitment initiatives and the development of well structured career pathways. Building safety into everything we do We remain committed to creating safe work environments for our people and ensuring that we are leaders in health and safety. During FY22 we started developing a new three-to-five-year strategy which will be completed and in place during FY23. Within Construction, we are extremely conscious of the industry's poor statistics around suicide and poor mental health, and we became a foundation partner of MATES in Construction to build awareness of the issue. As part of this we are doing regular “health checks” with our people and our subcontractors to provide a supportive environment in which good conversations, awareness and support are available. We are also working on behavioural safety through building capability and having better conversations to engage our teams and suppliers in a positive way to drive our safety culture.   OUR PEOPLE AND COMMUNITY Summerset is partnering with MATES in Construction It is encouraging that we are a market leader in the industry with health and safety reporting. In construction, our total recordable injury frequency rate is less than three incidents per 200,000 operative hours. This is our lowest ever at a time when we we’re doing more than ever.  It is paramount our sites are safe, and to this end we continue to use SiteWise prequalification as well as quarterly external Site Safe audits to check our performance against best practice. Both Operations and Construction have robust site-based processes and internal audits. All these measures are in addition to the extensive processes and practices we used to manage the Health & Safety of our residents and staff at our villages because of COVID-19.  However, sadly we had our the first death on one of our construction sites in November this year when Marin Construction scaffolder Michael Noche died following an incident at our St Johns site. This, of course, was devastating for us as a company and we'll do everything we can to avoid it happening again. WorkSafe NZ are still completing their investigation into the incident and we have cooperated fully with them throughout this time. We will assess their report when it's completed and look at what, if anything, should be improved on our construction sites to prevent a future tragedy. Expanding our commitment to diversity and inclusion At Summerset we celebrate diversity in all its forms. We are committed to an inclusive culture where everyone feels a sense of equity, inclusion and belonging at work. In 2021 we launched a three-year plan to progress this important aspect of our culture, the COVID-19 pandemic delayed a number of initiatives which are now being fast tracked to be completed in FY23. Research with our staff provided important insights on how we can best accommodate the needs and expectations of our diverse multicultural workforce. To help us create a more inclusive environment, we need to ensure we 29 meet the needs of different staff across our many work sites and help to build awareness of those needs with managers. To support this, senior leaders have completed Diversity and Inclusion Leadership training this year and we're rolling this out to all people managers in FY23. Our Diversity and Inclusion Steering Group continues to influence change across the organisation.   In order to understand more about our people, we undertook demographic data gathering from employees across the company, with 72% of our people so far having shared information to the level to which they are comfortable. This information will allow us to target future programmes and efforts in the right areas and to give us a better understanding of the make-up of our staff around the country, and what's important to them.  Annual Report 2022 30 STRONG WAVE OF GROWTH Strong wave of growth The New Zealand population aged 75 and over is forecast to almost triple in the next 50 years. New Zealand population 75+ 1,200,000 1,000,000 800,000 600,000 400,000 200,000 0 18 15 12 9 6 3 0 P e r c e n t a g e ( % ) 31 2 0 0 2 7 0 0 2 2 1 0 2 6 1 0 2 1 2 0 2 3 2 0 2 8 2 0 2 3 3 0 2 8 3 0 2 3 4 0 2 8 4 0 2 3 5 0 2 8 5 0 2 3 6 0 2 8 6 0 2 3 7 0 2 New Zealand population 75+ (left axis) % population 75+ (right axis) Per annum New Zealand population growth 75+ 30,000 25,000 20,000 15,000 10,000 5,000 0 2 0 0 2 – 7 9 9 1 7 0 0 2 – 2 0 0 2 2 1 0 2 – 7 0 0 2 6 1 0 2 – 2 1 0 2 0 2 0 2 – 6 1 0 2 3 2 0 2 – 0 2 0 2 8 2 0 2 – 3 2 0 2 3 3 0 2 – 8 2 0 2 8 3 0 2 – 3 3 0 2 3 4 0 2 – 8 3 0 2 8 4 0 2 – 3 4 0 2 3 5 0 2 – 8 4 0 2 8 5 0 2 – 3 5 0 2 3 6 0 2 – 8 5 0 2 8 6 0 2 – 3 6 0 2 3 7 0 2 – 8 6 0 2 New Zealand population 75+ per annum growth Source: Statistics New Zealand – National Population Projections   Annual Report 2022 32 Our villagesProtecting our residents, staff and visitors from COVID-19 was a huge focus for much of the year after the Omicron variant arrived in our villages, on our construction sites and around New Zealand, in January. COVID-19 has not impacted sales at our villages. In fact, over the year, the continued restrictions further highlighted the positives of being part of a safe and welcoming village community where residents can benefit from our continuum of care model if they need it, along with the opportunities to build new friendships and pursue a range of activities. This strong interest and subsequent sales drove a record level of sales that has carried through to our full- year result. Record levels of interest Until COVID-19 restrictions eased in the latter part of the year, we were again challenged to be adaptable in capturing and managing interest from prospective residents. We adopted the use of online presentations and undertook a lot more phone calls throughout the sales process, particularly in the Auckland market where village visits were often restricted due to COVID-19 outbreaks. We were pleased, as restrictions eased, to welcome our prospective residents back to our villages face- to-face and to be able to run open days at developing villages around the country. There’s nothing like being able to show people our villages and letting them touch and experience our product. OUR VILLAGES We had record levels of interest in our developing villages with presale rates in 2022 being the highest we have ever achieved and we recorded 1,007 Occupation Right sales for the year. Our development pipeline remains strong to continue to meet the demand for our retirement living offering, with more developing villages coming around the country. The first block of new villas at our new Prebbleton village in Canterbury were completed and we welcomed our first residents in October. In Cambridge the first of our villas for delivery were completed in December and received strong interest and presales. At the end of the year we also completed the Kenepuru village main building and we look forward to welcoming residents into the serviced apartments, care centre and memory care centre at the village in February 2023. In Lower Hutt we were delighted to kick off presales of the much-anticipated Boulcott village development. We also continued with record levels of interest with strong waitlists at our completed villages. Selling down our Ellerslie village has been a significant milestone for us given that it is such a large village. We achieved a record 125 unit sales at our Avonhead village - the largest number of units we’ve sold in one year at one village. While demand has been high and sales strong we were also cognisant that with the easing in the residential property market, settlement timing will move back to the more regular level seen before the pandemic property bubble. Largely, our incoming residents are not experiencing much delay, but if necessary we have mechanisms in place to assist prospective residents with affordability challenges to help them to move into their new village community while in the process of selling their home. Our residents are motivated to move to Summerset based around factors such as their lifestyle, health and desire for more community. This motivation doesn’t change during property market cycles. We have a range of products from villas through to serviced apartments to cater to different demands and price point,s and we continue to be priced below the median property price. We remain optimistic that we can weather an uncertain economic period comfortably and continue to see high demand and sales throughout 2023. To further encourage those who are looking to downsize to consider one of our villages, we introduced in 2021 an in-house moving service to support residents moving into our villages. We are the only retirement village provider offering this in- house service and the response has been so overwhelmingly positive we now have moving specialists across our four busiest markets - Auckland, Hamilton, Wellington and Christchurch. 33 Annual Report 2022 34 Kenepuru village winning the coveted Developing Village of the Year Award Our consultants are available to help those interested in moving into one of our villages. We have also had significant success with delivering downsizing and decluttering seminars to our database of prospective residents. These are examples of how we continue to innovate our customer service to help people make what can be challenging choices about their retirement years. Strength in our building programme We have invested approximately $428 million into our build programme this year. Year-on-year increases mean we remain the largest constructor in the New Zealand retirement village sector and are in the top five residential construction companies in New Zealand. To this end, we successfully completed our annual New Zealand building target of 600 units under Occupation Right Agreement with 625 units completed during the year. That impetus and consistency to deliver year-on-year ensures we are well positioned to meet ongoing increases in sector demand, and we expect to build 600-700 homes in FY23. This year’s delivery achievement is even more remarkable given the impact of COVID-19 within the construction sector across resource and materials. The construction industry has reported that more than 70 percent of major construction projects have been delayed, whereas we have been able to meet our delivery targets. All our villages under construction met their year- end delivery targets, and several new sites were mobilised despite supply chain issues and material shortages. There are a number of reasons for this significant achievement, including robust procurement, planning and consenting processes, and designing most of the villages in- house. We also have long-standing reliable supply agreements that have enabled us to secure materials well in advance. Our teams were simultaneously building on 16 sites this year, including completing our main building at our Kenepuru (Porirua) village. Kenepuru is our largest commercial build ever – a 13,000 square metre building. Our Te Awa, Pāpāmoa and Bell Block main buildings will be ready for residents later in 2023 too, and like Kenepuru these buildings will have our world-class care and memory care centres. The number of sites we have delivering means we have the ability to accelerate or decelerate deliveries across regions to ensure the best return on investment. OUR VILLAGES 35 Artist impression of Waikanae village where villa construction started in early January 2023 We completed the first release of villas at our Prebbleton (Canterbury) village in August. This village showcases a grand entrance avenue, indicative of the distinctiveness and individuality we aspire to in future village master plans. Our Waikanae village development is also progressing well. A major earthworks exercise saw us move approximately 300,000 cubic metres of earth in record time to enable the site to be prepared. Villa construction started in early January. We have invested in our procurement programme and it has reaped dividends. We now have a very mature procurement function which has seen us through these uncertain times. This is contributed to by securing and maintaining excellent relationships with our suppliers. We are also highly regarded by our subcontractors, which has been crucial as with so much work on they have options, but they continue to choose to work with us thanks to our reputation and commitment to quality. We remain confident that we’ll get the best value for money we can with our procurement function but we’re conscious that many of our contracts are up for renewal in 2023 and we will see cost rises. Currently we're not seeing any reduction of prices on the horizon so we continue to closely monitor our costs and look for the best possible ways to buy and build at scale without compromising on quality. As part of a strategic review of our building programme we made the decision in December to put our proposed Parnell village on hold. Construction costs have escalated significantly and with a declining property market we considered it prudent to pause in this environment on the relatively complex build. During 2023, other than at our St Johns and Boulcott sites, the vast majority of our building will be low-intensity structures which will help us to keep a lid on costs. Also, we're starting to see early signs of more labour supply with increased subcontractor availability. Many construction companies are pausing or rationalising some of their programme in light of cost increases which means, coupled with the now open borders, we hope to have more labour available for our projects around the country. Also, while New Zealand continues to face high levels of inflation we are hopeful that the construction sector is starting to normalise. Commitment to vibrancy and innovation It is important to us to build vibrant villages with superior amenities, and we want our built environments to lead the sector. For each village’s design we consider its unique setting and work to create great passive and active outdoor spaces for residents to enjoy communally or by themselves. These include children’s playgrounds, outdoor BBQ areas, and as featured in our Cambridge and Milldale villages, a lovely wintergarden. Annual Report 2022 The largest land bank in the sector To meet demand, we have further strengthened our development pipeline both in New Zealand and Australia and we continue to have the largest land bank of any retirement village operator in New Zealand. Our highly consented portfolio gives us a lot of flexibility to how and where we're building depending on demand and supply around the country. This year we announced land acquisitions in Masterton and Rotorua in New Zealand, and Mernda and Drysdale in Victoria, Australia. The Wairarapa, where our proposed Masterton village will be located, has a rapidly growing aging population with the number of people aged 75+ forecast to increase 50% in the next six years. It’s also just over the hill from Wellington and we believe many Wellingtonians will relish the chance to retire among the Wairarapa’s vineyards, golf courses and settled climate. Development can follow a plan change to rezone the land to residential, for which a council hearing is scheduled in early 2023. The Rotorua area doesn’t have a retirement village offering like ours currently, and with a strong 75+ population expected to increase by 30% in the next six years we believe demand for the proposed village will be very high. Our Mernda site is a 30km drive north-east of Melbourne’s CBD in a growing suburban area that is very well serviced by a wide range of social, recreational and retail amenities. Drysdale is on the popular Bellarine Peninsula, not far from Geelong, an area with significant planned investment. The site itself provides excellent access to numerous amenities in the area including Clifton Springs Foreshore Reserve, Clifton Springs Golf Club and the Lake Lorne Recreation Reserve. Also, we continue to see growth opportunities throughout Auckland. Earlier in the year we lodged a fast- track resource consent application under COVID-19 legislation enacted to accelerate shovel-ready projects for our proposed Half Moon Bay village. Our plans in Australia are well advanced Our Australian business is progressing at pace, and we have continued to invest in building the capability and capacity of the team. We are excited to introduce Australians to our high-quality integrated model of village living, which includes a full range of retirement units, from independent living villas, townhouses and apartments to serviced apartments, care and memory care beds. Australia’s rapidly growing elderly population is forecast to see those aged 75+ increase by 140% to 4.1 million in the next 30 years and we are building a strong land bank like our New Zealand programme. Our current pipeline will see us build more than 2,140 units accommodating some 2,500 residents with an aggregate project investment of $1 billion. At both our Bell Block and Cambridge villages we have collaborated with local iwi on landscape features and pocket parks to make the villages not only a really nice, enjoyable place to live, but also acknowledge the land’s history. We believe that part of our point of difference is these added touches that give residents something more than just a high-quality home. It adds to their community and gives the village a sense of place containing varied elements for residents to enjoy. To accelerate our drive for innovation and sustainability in design and construction, this year we have embedded a design Research and Development team to ensure we fully meet the customer’s built-form needs of today and tomorrow. A major sustainability initiative has been the introduction of significant cross-laminated timber elements into our main building structures, saving 50 tonnes of embodied carbon per building. Our Summerset Mt Denby village in Whangārei will have our first such lightweight main building, eliminating 760 cubic metres of concrete in favour of timber. The main buildings at Summerset Cambridge and Prebbleton will follow the same sustainable design. We’ve also invested in an innovation and performance manager looking at onshore/offshore opportunities as we want to find better and faster methods that still maintain our exacting quality requirements. We are proud of our building designs and quality and were delighted to also achieve external recognition of our commitment to excellence with industry awards. Our Richmond main building was a finalist in the Property Council awards, the first time a Summerset building has been entered. 36 OUR VILLAGES We plan to have a high proportion of our sites consented so we can move from one site to another quickly, much like we do in New Zealand. This year we acquired additional new sites at Mernda and Drysdale, bringing our number of Australian sites to seven, all in Victoria. Cranbourne North is our first Australian site to have begun construction. A significant piece of work being undertaken by Major Road Projects Australia on the road running parallel to the village slowed us down initially as we had to work within their timeline to connect our facilities infrastructure to the site. We are now pleased to be in alignment with them and progress is well underway to see us deliver our first units in Q4 2023 with the first residents moving in in 2024. The development will deliver 145 villas and townhouses, 72 aged care units, 50 serviced apartments and a one- hectare public reserve. Our site in Chirnside Park was consented in early November following a unanimous vote by the Yarra Ranges Council. It is pleasing to have secured the permit in under nine months, which now paves the way for construction to start in 2023. At our other five sites, our planning processes are well advanced. We’re moving through the various stages with local councils, expecting to have more consents in place in 2023. While the New Zealand and Australian markets have many similarities, there are also important differences. As our Victorian sites are climatically different, the footprint of our villas in Australia is larger and there is more emphasis on outdoor living. 37 Cranbourne North - Summerset's first Australian site to begin construction. Our integrated offering of independent living and care is also relatively new in the Australian market, with aged care often being a stand-alone offering. Our designs are contemporary in nature, and the build form matches the expectations of the market and tailors our villages to the locations we’re building in. Our proposed village in Torquay, for example, will reflect the coastal identity of where it will be built. 2 new land acquisitions in Australia in 2022   Annual Report 2022 38 11Our villagesCompleted villagesIn developmentProposed villagesAuckland Region4321NorthlandWaikato2211TaranakiHawke’s Bay31Manawatū – WanganuiWellington Region331MarlboroughCanterbury1Otago31Bay of Plenty1111Nelson – Tasman1114OUR VILLAGES 39 Bay of PlentyPORTPHILLIPBASS STRAITVictoria61GreaterGeelongWesternMelbourneNorth EasternMelbourneEasternMelbourneSouthern MelbourneFrankston-MorningtonBaysideChirnside ParkCraigieburnCranbourne NorthOakleigh SouthMerndaMELBOURNETorquayDrysdaleWESTERN AUSTRALIAAnnual Report 2022 Our pipeline 40 * New sites purchasedNEW ZEALAND LAND BANKDESIGNCONSENTINGCONSTRUCTIONVILLAGE OPENFINAL STAGESHobsonville, AucklandRototuna, HamiltonCasebrook, ChristchurchAvonhead, ChristchurchRichmond, TasmanKenepuru, WellingtonTe Awa, NapierPāpāmoa Beach, TaurangaBell Block, New PlymouthWhangārei, NorthlandPrebbleton, CanterburyCambridge, WaikatoSt Johns, AucklandLower Hutt, WellingtonWaikanae, KāpitiBlenheim, MarlboroughRangiora, CanterburyMilldale, AucklandParnell, AucklandHalf Moon Bay, AucklandKelvin Grove, Palmerston NorthFairy Springs, Rotorua*Landsdowne, Masterton*OUR VILLAGES 41 Summerset’s Mernda site in Melbourne acquired in 2022* New sites purchasedAUSTRALIAN LAND BANK DESIGN CONSENTINGCONSTRUCTIONVILLAGE OPENFINAL STAGESCranbourne North, MelbourneChirnside Park, MelbourneCraigieburn, MelbourneOakleigh South, MelbourneTorquay, VictoriaMernda, Melbourne*Drysdale, Victoria*Annual Report 2022 42 OUR COMMITMENT TO SUSTAINABILITY From going green to thinking green We take our commitment to sustainability very seriously and we’ve worked hard to embed sustainability right across our business. 43 Since our base year, 2017, we have been measuring, managing and reporting on our carbon footprint and we’re proud that we were the first net carbonzero™ retirement village operator in New Zealand. Toitū Envirocare began independently auditing our emissions to the ISO14064-1 standard in 2018, and we have been increasing our commitment to sustainability ever since (see verified audit on the Toitū website www.toitu.co.nz). Over the last five years we’ve significantly reduced our construction waste (and exceeded our targets), became the first retirement village operator to obtain sustainability linked lending, introduced a science-aligned target, joined the Climate Leaders Coalition (the only retirement village operator to do so) and changed many practices across our business from fertiliser use to travel. We’ve moved past the ‘going green’ phase to thinking green right across the company. We’ve integrated sustainability into business decisions and we’re challenging ourselves in all parts of our business to do better. We were very pleased to have Forsyth Barr, in their Inaugural Carbon and ESG Ratings for NZX listed companies, name us as one of the 'Leaders' on the NZX and 11th overall. We were also the top-rated listed retirement village operator. It was very pleasing to have this external acknowledgement of our work to date. All this is not to say there’s not more to do – there is. We have three sustainability targets across the short, medium and long term and these targets guide our approach covering activities within operations, construction and development, as well as involving our residents. Our emissions profile Summerset’s total emissions in 2022 were 8,549 tCO2e, which is an increase on our 2017 base year of 5,939 tCO2e.  As Summerset’s portfolio grows and the number of villages in operation increases, it means our absolute carbon emissions will continue to increase.  We are pleased that the growth in emissions per square metre of developed land has decreased by 17% when compared to our base year of 2017. Our existing and new buildings are becoming more efficient and less carbon intensive as our portfolio grows. Our emissions profile includes Scope 3 mandatory and additional emissions from residents captured under waste to landfill and electricity. Resident electricity consumption contributes to 26% of our overall footprint with energy consumption overall accounting for 77% of our total carbon emissions. Final year of our first short- term target Our short-term target was put in place in 2018 and ran until the end of 2022. It kicked off our sustainability activity and has been an important driver for us to learn more about what we do and how we do it, and how to educate and engage our staff, residents and other stakeholders. The Toitū-verified net carbonzero target aimed to reduce our emissions intensity by 5% from our 2017 base year. This target was intensity-based and focuses on the key areas of energy, waste to landfill, paper use, fertiliser and travel. 2022 key focus areas Annual Report 2022 Energy 77% Travel 12% Waste 11% Paper 0.3% Fertiliser 0.1% Emissions intensity – tCO2e per $million of revenue 44 2022 2021 2020 2019 2018 2017 3636 3535 3737 4242 4949 5454 0 20 40 60 tCO2e We used intensity-based targets because they helped us to analyse lowering our emissions while we’re growing as a business. To measure these areas, we used two key measures of efficiency: total emissions per $million of revenue, and total emissions per square metre. Throughout the five years of the short-term target our emissions intensity has steadily dropped, and against our mandatory target of emissions per $million of revenue we have achieved an excellent 16% reduction based on a rolling average and adjusted for inflation. We’re very proud of the progress we’ve made: a 16% reduction demonstrates our commitment over the last five years to reduce our carbon footprint. A new five-year target that will run until the end of 2027 has been set for scopes 1 & 2 and scope 3. Our new scope 1 & 2 target is to reduce emissions intensity per square metre by 34% by 2027 (against base year 2022). This target is science-aligned and in line with the 1.5 degree of warming limit. We have defined focus areas that keep us on track to meeting our targets:  ENERGY We’ve decreased our energy consumption per square metre (including resident consumption and losses) by 14% when compared to our 2017 base year. This has been achieved through energy efficiency programmes, LED lighting upgrades and fuel switching opportunities.  WASTE Our construction sites have invested a huge amount of time and effort into waste diversion in partnership with Waste Management NZ. Our waste avoidance programme was recognised by the Sustainable Business Network which made us a finalist in their Outstanding Collaboration Award in 2022. The programme diverted 1,276 tonnes of waste from landfill and saved ~238 tCO2e in its first year. PAPER Our paper use has decreased by 50% per resident when compared to our 2017 base year. Initiatives such as follow me print, the use of low carbon paper, and transitioning resident invoices and newsletters to email and online have all contributed to this improvement. Emissions intensity – tCO2e per square metre 2022 2021 2020 2019 2018 2017 0.0129 0.0129 0.0122 0.0122 0.0122 0.0122 0.0133 0.0133 0.0149 0.0149 0.0156 0.0156 0 0.006 0.012 0.018 tCO2e FERTILISERS Energy emissions – tCO2e per square metre 45 2022 2021 2020 2019 2018 2017 We have reduced the amount of nitrogen-based fertiliser we use around our village gardens and landscaping and we’ve increased the number of drought-friendly plants in our gardens.  TRAVEL We expected a rise in travel emissions as the country reopened following COVID-19, our expansion into Australia and increase in the number of villages across New Zealand.  The increased adoption of remote and virtual working will assist in keeping our travel emissions down. Alongside actively working to reduce our emissions, we offset the emissions we can’t avoid through purchasing carbon credits. This year we chose to again invest in Hinewai, an ecological restoration project on the Banks Peninsula of New Zealand. The primary aim of this project is to foster regeneration of native vegetation and wildlife. 0.00995 0.00995 0.00964 0.00964 0.00944 0.00944 0.00947 0.00947 0.01112 0.01112 0.01157 0.01157 0 0.005 0.01 0.015 tCO2e Annual Report 2022 Summerset Mt Denby in Whangārei, our first of five lightweight and mass timber buildings 46 Continued progress on our medium-term target Our medium-term (2026) performance targets are based on our sustainability linked lending facility which we announced last year. We were the first retirement village operator in New Zealand to link sustainability to our funding arrangements. The facility enables us to access reduced lending rates by linking our sustainability targets to our medium-term business strategy. There are three key deliverables associated with this arrangement: ongoing dementia certification and increasing provision of dementia beds; reduction in our emissions intensity per square metre; and a reduction in construction waste going to landfill. We are very pleased with our progress – we have exceeded our first term target for our construction waste avoidance programme where we’ve made significant changes to our processes and looked right throughout our supply chain to find efficiencies. Similarly we remained on track with meeting our carbon emission intensity reduction targets. While we continue to be dementia accredited there were some delays which caused us to miss our target for new memory care beds this year. Our two new memory care centres at Kenepuru (Wellington) opens in February 2023 and Te Awa (Napier) will open mid 2023. This is a cumulative medium-term goal though, and as we have a number of dementia beds opening in 2023, we are very confident we’ll meet this target. Our long-term goals We introduced our long-term science-aligned target in late 2020 which supports our involvement in the Climate Leaders Coalition, Carbon Disclosure Project (CDP), Toitū and our sustainability linked lending arrangements. This target means we have committed to reducing our emissions intensity by 62% per square metre by 2032, from our 2017 base year. This year we invested in a decarbonisation plan to assist in the transition to a low-carbon, climate-resilient future and to define the pathway toward meeting our science-aligned target. Energy use currently accounts for 77% of our carbon emissions, so to achieve this target we recognise that we will need to move to more renewable energy sources. We have taken a number of steps to start this process including the introduction of a biomass boiler that uses wood pellets, and we’ve successfully introduced solar panels on the clubhouse at our Nelson village. OUR COMMITMENT TO SUSTAINABILITY 47 We have a further solar installation planned at our Karaka village and we’re in the process of scoping incorporating solar panels into our new builds. We recognise reducing our absolute emissions is a challenge, particularly when we’re growing so quickly. Reducing our reliance on the national grid will help us to achieve this goal. Governance and reporting Governance of our sustainability is important to keep us on target. This year we have invested further in innovation by introducing a research and development forum to support our efforts to build quality, sustainable housing in changing climatic conditions. Increasingly, we are being asked to disclose more about what we are doing in relation to environmental, social and governance (ESG) activities. We are committed to transparent governance and reporting and will continue to report in line with the recommendations of the Taskforce on Climate-related Financial Disclosures (TCFDs) and participate in the annual CDP disclosure process, an international non-profit organisation that helps companies and cities disclose their environmental impact. This year we maintained our B result which puts us in the top 13 companies in New Zealand to be highly scored and among 30 who submitted a response to climate change questions. Our CDP Supplier Engagement Rating also scored high with an A-. To meet the Task Force on Climate- Related Financial Disclosures (TCFD) and External Reporting Board (XRB) disclosure timeframes and obligations we undertook a gap analysis process in 2022 to evaluate our disclosure progress.  Progress was determined as advancing according to plan, with the findings from the gap analysis being used to refine our implementation pathway and roadmap. We have been a member of the Climate Leaders Coalition since its inception in 2018 when it was launched to promote business leadership and collective action on climate change. We are now discussing a more ambitious science-aligned commitment for scopes 1, 2 and 3 emissions to support the delivery of the reductions needed to limit future global warming to 1.5 degrees Celsius.  We will also continue to encourage our employees and residents to reduce their emissions as we continue our journey. We also have an ongoing plan to actively identify and work to eliminate all forms of modern slavery in our supply chain.  Much of our business relies on international sourcing – so we are extremely attuned to supply risk.  The range of risk we consider and assess is growing in both scope and depth, and as a business we feel we are taking the necessary steps to deepen our assessment of human Annual Report 2022 rights risk as part of our wider supply chain assessment activities.  Summerset’s modern slavery statements are available on the online register at www.modernslaveryregister.gov.au. Summerset also notes the ongoing consultation and legislative proposals in New Zealand and will ensure that we are fully compliant with its requirements once it is enacted and in force. Other initiatives this year At our villages, our residents have taken a keen interest in sustainability. In Summerset at Karaka our residents wanted to recycle their food waste and worked with village management to implement a solution. Other residents around the country have created gardens around their villages, including at Palmerston North where raised gardens were created using recycled materials. The process of replacing the Summerset fleet with Electric Vehicles (EVs) started this year, and public EV charging points have been installed at a number of villages with plans to put more in around the country. To meet the needs of our future residents, EV charging infrastructure is being installed into all new Summerset villages. Biodiversity and doing more to protect the land we purchase and build on has been a focus too. At our developing Waikanae village we are replanting more trees than we’ve removed as part of our earthworks and we’ve designated a large area of emerging Mahoe forest as protected. Water conservation is a big part of protecting the land and the surrounding areas where our villages are located too. Our proposed Half Moon Bay village will have water tanks onsite to collect rainwater to use in our gardens and we’re recycling collected storm water at a number of villages around the country to be used in our irrigation. We’ve also made changes that will impact our embodied carbon figures with our newly consented main building at Whangārei, which is a lightweight design that utilises cross-laminated timber and significantly cuts down the use of concrete and structural steel. This lightweight design will become the standard for many of our new builds around the country.  Reducing the embodied carbon of construction materials within design and construction remains a key focus across all typologies. A- CDP Supplier Engagement Rating Our commitment to sustainability extends to our Australian villages too. We are currently working through the feasibility of green star certification for our villages. Solar power will be provided on all main buildings after Cranbourne North, demonstrating a commitment towards the use of renewable energy. Our Australian villages also integrate initiatives such as drought- resistant landscaping, reticulated greywater use (where available), rainwater collection for use in the village, and water-efficient fittings and fixtures used throughout. We are also planning on creating 100% electric villages that are completely fossil gas free after Cranbourne North. We’re committed to leading positive change within our industry. To achieve this, we must consistently demonstrate how we’re meeting the goals and targets that we’ve set through real action. This includes transparent climate-related governance systems, improved policies, regular reporting, further investment in capability building and taking our residents on the journey with us. 48   49 Annual Report 2022 50 38THIS TABLE PROVIDES A ROADMAP OF PROGRESS AGAINST THE TCFD RECOMMENDATIONS ON CLIMATE-RELATED FINANCIAL DISCLOSURES. FROM FY23 SUMMERSET WILL REPORT AGAINST THE XRB REQUIRED DISCLOSURES. Climate-Related DisclosuresGOVERNANCEA.Describe the Board’s oversight of climate-related risksand opportunities.B. Describe management’s role in assessing and managingclimate-related risks and opportunities.COMPLIANCE KEYAlignedProgressingIn ProgressRISK MANAGEMENTA. Describe the organisation’s processes for identifyingand assessing climate-related risks.B. Describe the organisation’s processes for managing climate-related risks.C. Describe how processes for identifying, assessing andmanaging climate-related risks are integrated into theorganisation’s overall risk management.METRICS AND TARGETSA. Disclose the metrics used by the organisation to assessclimate-related risks and opportunities in line with its strategyand risk management process.B. Disclose Scope 1, Scope 2 and, if appropriate, Scope 3greenhouse gas (GHG) emissions and the related risks.C. Describe the targets used by the organisation to manageclimate-related risks and opportunities and performanceagainst targets.SECTIONFY22ROADMAP TO COMPLIANCE AGAINST TCFD AND XRB DISCLOSURE OBLIGATIONS The Company has developed a roadmap to support the implementation of the Taskforce for Climate Related Financial Disclosure guidelines and the External Reporting Board’s climate-related financial disclosure standards. Summerset is aiming for its full disclosure to be ready for the FY23 reporting cycle, published in 2024. In working towards this, Summerset is evaluating the systems, processes, resourcing, strategy and governance measures that will be necessary for it to meet TCFD/XRB disclosure requirements and effectively address climate change issues.STRATEGYA. Describe the climate-related risks and opportunities theorganisation has identified over the short, medium, and long term.B. Describe the impact of climate-related risks and opportunitieson the organisation’s businesses, strategy and financial planning.C. Describe the resilience of the organisation’s strategy, taking intoconsideration different climate-related scenarios, including a 2°Cor lower scenario.51 39SUMMERSET IS PROUD TO BE AFFILIATED WITH:Casebrook construction team trial new reusable and changeable waste and recycling signage1STNET CARBONZEROTM RETIREMENT VILLAGE OPERATOR IN NZ1.5°SCIENCE-ALIGNED TARGET16%REDUCTION IN tCO2e PER $MILLION OF REVENUE AGAINST 2017 BASELINE 5NEW LIGHTWEIGHT SUSTAINABLE MAIN BUILDINGS PLANNEDDISCLOSURE INSIGHT ACTIONA-CDP SUPPLIER ENGAGEMENT RATING SCORE1,276 TONNES OF CONSTRUCTION WASTE DIVERTED FROM LANDFILL Annual Report 2022 52 Artist impression of Summerset MilldaleOur performanceOUR PERFORMANCE Summerset has delivered another year of strong financial performance and maintained balance sheet resilience despite a challenging operating environment. Financial performance overview Underlying profit1 for the year ended 31 December 2022 increased by 21% on the prior year to $171.4 million (2021: $141.1 million), driven primarily by increased margins on sales of new and existing units. This is a result of our new sales mix shifting more towards villa sales which attract higher margins. Villas made up 67% of total new sales (2021: 62%). Resale margins increased, reflecting higher sale prices across the board. We maintained our delivery of units to a similar rate on prior year to 625 (2021: 619). Sale volumes of new units remained at similar levels to 2021, decreasing three units to 537, while sales on existing units increased by 7.3% to 470 (2021: 438). Realised gains on investment property are $175.1 million (2021: $138.4 million). Revenue for the year grew 16% to $238.7 million (2021: $205.3 million), reflecting village revenue growth from deliveries within our developing villages and continued high rates of care occupancy in existing villages. Profits from operations have reduced due to wages and costs increasing at a rate higher than the increases to public funding, in particular nurses wages, council rates, insurance, and power. Long-term growth A key component of underlying profit is the realised development margin on new sales, which was $104.9 million in 2022 (2021: $78.5 million). The increase was driven by a higher proportion of new sales being villas, which attract higher margins. The development margin was 29.7%, up from 23.1% in the previous year. We expect that development margins will be maintained within the 20-25% range over the medium term. This will continue to be an area of focus for the Board and Management. Good margins reflect the advantage of having strong in-house capabilities for each stage of village development including land acquisition, planning, consenting, design, procurement and construction management. We continue to work to manage cost inflation across our build pipeline through leveraging from scale, standardisation and mature procurement planning. Summerset continues to maintain the largest land bank for a retirement village operator in New Zealand. We acquired four new sites in New Zealand and Australia in 2022. These are Fairy Springs (Rotorua), Landsdowne (Masterton), Mernda (Melbourne), and Drysdale (Victoria). This brings our total land bank to 7,364 units. Summary of sales and developments Summerset had a record sales year, with 1,007 unit sales of Occupation Rights (2021: 978), 537 of them new unit sales and 470 sales of existing units. Average gross proceeds per new sale settlement of $658,000 was up from $630,000 in 2021 due to the mix of units sold along with the strong housing market in the first half of the year. Realised resale gain increased by 17% to $70.2 million in 2022. Average gross proceeds per resale settlement were $561,000, up 6% from 2021. Key development milestones included the delivery of the Kenepuru main building and beginning construction of three new villages, Whangārei (Northland), Lower Hutt (Wellington), and Milldale (Auckland). For developing villages still under construction, new unit sales were particularly strong at Bell Block (Taranaki), Te Awa (Napier), Kenepuru (Wellington), and Whangārei (Northland). We had our highest year of presales ever in 2022, with 302 villa deliveries pre-sold (60%). In Australia we have continued to acquire land, purchasing two additional sites taking our total Australian sites to seven. Civil works for our first village, at Cranbourne North (Melbourne), have begun and we expect the first deliveries in late 2023. Net profit after tax Summerset recorded a net profit after tax of $269.1 million for the year ended 31 December 2022, down from $536.8 million in 2021. This decrease is largely due to the large fair value recognised in 2021. Fair value movement in 2022 of $255.8 million reflects the delivery of 588 retirement units in the financial year. Business growth and expenses Summerset derives its revenue from selling units (deferred management fees) and providing village and care services. The company’s revenue increased as a result of higher volumes, reflective of the continuing growth and scale of our operations. Deferred management fees on Summerset’s units sold under Occupation Right Agreement were $92.3 million in 2022 (2021: $75.2 million). The growth reflects the increase in the number, occupancy and value of Summerset’s portfolio of units. At 1 Underlying profit is a non-GAAP measure. A detailed explanation is included in Note 2 to the Financial Statements (see page 67). In general terms, underlying profit removes the fair value movement of investment property and reinstates the realised gains associated with our resales and the development margin associated with our new sales. Underlying profit is used to determine the dividend pay-out to shareholders. 53 Annual Report 2022 171.4171.4 141.1 141.1 Underlying profit FY22 FY21 FY20 FY19 FY18 FY17 FY16 98.398.3 106.2 106.2 98.698.6 81.781.7 56.656.6 54 0 25 50 75 100 125 150 175 200 $ million Land bank over time (units) FY22 FY21 FY20 FY19 FY18 FY17 FY16 7,364 7,364 6,614 6,614 6,1716,171 6,206 6,206 4,450 4,450 3,237 3,237 2,975 2,975 0 3,000 6,000 9,000 31 December 2022, Summerset’s total unit portfolio reached 6,679 (2021: 6,028), and at year end there were only 308 new units and 150 resale units available for sale. Occupancy in our mature care centres was 92% (2021: 97%), which is above the industry average of 90%. Total expenses increased in 2022 by 18% to $225.7 million (2021: $190.6 million), largely due to the increased care wage costs at a rate above the level of public funding increases, and general cost growth across head office functions. We experienced growing employee costs due to tight labour conditions, higher rates across our properties and increased insurance premiums. We incurred $4.0 million of one-off operational costs due to COVID-19 in 2022. This was predominantly from PPE, RATs and staff stand downs. Net cash from operating activities Summerset’s net cash from operating activities was $369.2 million for the year, down 4% from 2021 (2021: $383.4 million). This was principally driven by increased costs of providing care and reduced receipts from resales due to the timing of resale settlements.  Gross receipts from new Occupation Right Agreement sales were $347.3 million, up from $337.6 million in 2021. Summerset is a growth company and reinvests operating cash flows back into the business to finance future growth. In 2022 Summerset invested $651.7 million, primarily in relation to land acquisitions and new and existing retirement villages and care centres (2021: $425.0 million).   Assets rose to $5.8 billion Total assets rose 19% to $5.8 billion at 31 December 2022 (2021: $4.9 billion), mainly due to growth in the size and value of Summerset’s investment property, which reached $5.4 billion (2021: $4.6 billion). At balance date, Summerset also had property, plant and equipment valued at $326.1 million (2021: $277.7 million), most of this being care centres (these are operated to provide services and are therefore not included as investment property). An increased embedded value of $1.5 billion (2021: $1.4 billion) demonstrates future cash that can be generated when units are resold. Interest-bearing debt of $1,060.5 million was 18% of total assets at year end (2021: $747.0 million). The year-end debt at face value is made up of $699.4 million of bank borrowings and $375.0 million of retail bonds. Summerset also has residents' loans of $2.2 billion (2021: $1.8 billion). This is in the form of licences paid by residents under Occupation Right Agreements. These are repayable when residents vacate units and the associated Occupation Rights are resold. 2022 dividends Summerset will pay a final dividend of 11.6 cents per share (cps) on 23 March 2023, making a full pay-out for the 2022 year of 22.3 cps (2021: 18.5 cps). Board policy remains for shareholder distributions in the range of 30–50% of each year’s underlying profit. The 2022 distribution of $51.6 million represents 30% of underlying profit ($171.4 million), which is consistent with the last seven years. Summerset continues to offer shareholders a dividend reinvestment option, including a 2% discount to market share price. OUR PERFORMANCE Expense breakdown Employee expenses Revenue breakdown Employee expenses 59% Property-related expenses 10% Repairs and maintenance expenses 3% Depreciation, amortisation and impairments 6% Other operating expenses 22% 55 Deferred management fees 39% Care fees and village services 60% Other 1% Revenue breakdown Dividends (cents per share) FY22 FY21 FY20 FY19 FY18 FY17 FY16 FY15 11.611.6 8.68.6 10.710.7 9.99.9 66 6.46.4 66 77 7.77.7 7.27.2 3.93.9 7.17.1 2.62.6 5.15.1 1.851.85 3.43.4 FY14 1.41.4 2.12.1 FY13 00 33 0 5 10 15 20 25 Final Interim   Annual Report 2022 Five-year summary Key operational and financial statistics for the five-year period up to and including FY22 are shown below. 56 Results highlights – operational New sales of Occupation Rights Resales of Occupation Rights Total sales of Occupation Rights Development margin New Occupation Right units delivered Retirement units in portfolio Care units in portfolio Results highlights – financial Net operating cash flow Total assets Net assets Underlying profit Profit before income tax (IFRS) Profit for the period (IFRS) Dividend per share Basic earnings per share Unit FY22 FY21 FY20 FY19 FY18 No. No. No. % No. No. No. 537 470 1,007 540 438 978 404 381 785 329 323 652 339 301 640 29.7% 23.1% 19.6% 27.9% 33.2% 625 619 356 354 454 5,518 1,161 4,930 1,098 4,385 4,076 3,722 972 868 868 Unit FY22 FY21 FY20 FY19 FY18 $m $m $m $m $m $m cents cents 369.2 383.4 266.8 237.9 217.8 5,840.3 4,923.7 3,893.2 3,337.9 2,766.4 2,193.0 1,924.5 1,354.8 1,131.9 978.8 171.4 265.1 269.1 22.3 141.1 543.6 543.7 18.5 98.3 221.7 230.8 13.0 116.7 238.2 102.3 106.2 173.6 175.3 14.1 78.6 98.6 216.2 214.5 13.2 97.1 FY21 to FY22 % Change -1% 7% 3% 29% 1% 12% 6% FY21 to FY22 % Change -4% 19% 14% 21% -51% -51% 21% -51% 57 Financial statementsAnnual Report 2022 Income Statement For the year ended 31 December 2022 Care fees and village services Deferred management fees Other income Total revenue Reversal of impairment of property, plant and equipment Fair value movement of investment property Total income Operating expenses Depreciation and amortisation expense Total expenses NOTE 4 4 4 9 11 2022 $000 2021 $000 144,631 126,884 92,332 75,174 1,749 3,291 238,712 205,349 - 3,431 268,757 537,497 507,469 746,277 5 (211,795) (179,045) 9, 10 (13,597) (11,555) (225,392) (190,600) 58 Operating profit before financing costs 282,077 555,677 Finance costs Profit before income tax Income tax credit Profit for the period Basic earnings per share (cents) Diluted earnings per share (cents) The accompanying notes form part of these financial statements. 6 7 20 20 (16,960) (12,040) 265,117 543,637 3,955 27 269,072 543,664 116.66 116.36 238.18 236.86 Statement of Comprehensive Income For the year ended 31 December 2022 Profit for the period Fair value gain on interest rate swaps Tax on items of other comprehensive income (Loss)/gain on translation of foreign currency operations Other comprehensive income that will be reclassified subsequently to profit or loss for the period net of tax Net revaluation of property, plant and equipment Tax on items of other comprehensive income Other comprehensive income which will not be reclassified subsequently to profit or loss for the period net of tax NOTE 2022 $000 2021 $000 269,072 543,664 14 7 9 7 30,272 (8,718) 24,443 (6,881) (68) 222 21,486 17,784 4,566 35,783 (1,278) 3,288 (10,019) 25,764 Total comprehensive income for the period 293,846 587,212 The accompanying notes form part of these financial statements. 59 Annual Report 2022 Statement of Changes in Equity For the year ended 31 December 2022 SHARE CAPITAL $000 HEDGING RESERVE $000 REVALUATION RESERVE $000 RETAINED EARNINGS $000 FOREIGN CURRENCY TRANSLATION RESERVE $000 TOTAL EQUITY $000 As at 1 January 2021 303,499 (20,267) 34,508 1,037,325 (220) 1,354,845 Profit for the period Other comprehensive income for the period Total comprehensive income for the period Dividends paid Shares issued Employee share plan option cost - - - - 20,602 798 - - 543,664 - 543,664 17,562 25,764 - 222 43,548 17,562 25,764 543,664 222 587,212 - - - - - - (38,943) - - As at 31 December 2021 324,899 (2,705) 60,272 1,542,046 As at 1 January 2022 324,899 (2,705) 60,272 1,542,046 - - 269,072 60 Profit for the period Other comprehensive income for the period Total comprehensive income for the period Dividends paid Shares issued Employee share plan option cost - - - - 18,629 684 21,554 3,288 - (68) 24,774 21,554 3,288 269,072 (68) 293,846 - - - - - - (44,650) - - - - - (44,650) 18,629 684 As at 31 December 2022 344,212 18,849 63,560 1,766,468 (66) 2,193,023 The accompanying notes form part of these financial statements. - - - 2 2 - (38,943) 20,602 798 1,924,514 1,924,514 269,072 Statement of Financial Position As at 31 December 2022 Assets Cash and cash equivalents Trade and other receivables Interest rate swaps Property, plant and equipment Intangible assets Investment property Total assets Liabilities Trade and other payables Employee benefits Revenue received in advance Interest rate swaps Residents’ loans Interest-bearing loans and borrowings Lease liability Deferred tax liability Total liabilities Net assets Equity Share capital Reserves Retained earnings Total equity attributable to shareholders The accompanying notes form part of these financial statements. Authorised for issue on 23 February 2023 on behalf of the Board Mark Verbiest Director and Chair of the Board Anne Urlwin Director and Chair of the Audit and Risk Committee NOTE 2022 $000 2021 $000 8 14 9 10 11 12 13 4 14 15 17 16 7 25,347 36,727 27,228 8,422 44,992 5,723 326,050 277,715 7,251 6,664 5,417,719 4,580,196 5,840,322 4,923,712 178,556 202,257 27,565 21,580 161,569 141,393 10,299 7,243 2,165,352 1,847,136 1,060,494 747,015 15,970 27,494 12,638 19,936 3,647,299 2,999,198 2,193,023 1,924,514 19 19 344,212 324,899 82,343 57,569 1,766,468 1,542,046 2,193,023 1,924,514 61 Annual Report 2022 Statement of Cash Flows For the year ended 31 December 2022 Cash flows from operating activities Receipts from residents for care fees and village services Interest received Payments to suppliers and employees Receipts for residents’ loans - new occupation right agreements 2022 $000 2021 $000 142,482 127,045 413 55 (206,871) (171,804) 347,278 337,566 Net receipts for residents' loans - resales of occupation right agreements 85,877 90,543 Net cash flow from operating activities 369,179 383,405 Cash flows to investing activities Sale of investment property Payments for investment property: - land - construction of retirement units and village facilities - refurbishment of retirement units and village facilities 62 Payments for property, plant and equipment: - construction of care centres - refurbishment of care centres - other Payments for intangible assets Capitalised interest paid Net cash flow to investing activities Cash flows from financing activities Net proceeds from bank borrowings Proceeds from issue of shares Interest paid on borrowings Payments in relation to lease liabilities Dividends paid Net cash flow from financing activities Net increase/(decrease) in cash and cash equivalents Cash and cash equivalents at beginning of period Foreign currency translation adjustment Cash and cash equivalents at end of period The accompanying notes form part of these financial statements. 6,335 15,201 (185,469) (87,164) (385,096) (285,234) (9,727) (8,164) (42,819) (33,084) (1,246) (7,580) (1,908) (380) (7,980) (1,725) (24,235) (16,472) (651,745) (425,002) 342,207 67,100 1,633 4,943 (14,258) (12,407) (1,920) (1,767) (28,166) (23,712) 299,496 34,157 16,930 (7,440) 8,422 15,817 (5) 25,347 45 8,422 Reconciliation of Operating Results and Operating Cash Flows For the year ended 31 December 2022 Profit for the period Adjustments for: Depreciation and amortisation expense Reversal of impairment of property, plant and equipment Fair value movement of investment property Net finance costs paid Gain on sale of investment property Income tax credit Deferred management fee amortisation Employee share plan option cost Other non-cash items Movements in working capital Net increase in trade and other receivables Net increase in employee benefits Net increase/(decrease) in trade and other payables Increase in residents’ loans net of non-cash amortisation 2022 $000 2021 $000 269,072 543,664 13,597 11,555 - (3,431) (268,757) (537,497) 16,960 12,040 (1,336) (3,955) (3,236) (27) (92,332) (75,174) 1,196 (26) 1,459 431 (334,653) (593,880) (8,371) (1,619) 5,985 5,485 6,142 (141) 431,661 429,239 434,760 433,621 63 Net cash flow from operating activities 369,179 383,405 The accompanying notes form part of these financial statements. Annual Report 2022 Notes to the financial statements For the year ended 31 December 2022 1. Summary of accounting policies 64 Reporting entity The consolidated financial statements presented for the year ended 31 December 2022 are for Summerset Group Holdings Limited (the "Company") and its subsidiaries (collectively referred to as the "Group"). The Group develops, owns and operates integrated retirement villages. Summerset Group Holdings Limited is registered in New Zealand under the Companies Act 1993 and is a FMC Reporting Entity for the purposes of the Financial Markets Conduct Act 2013. The Company is listed on the New Zealand Stock Exchange (NZX), being the Company’s primary exchange, and is listed on the Australian Securities Exchange (ASX) as a foreign exempt listing. Basis of preparation These consolidated financial statements have been prepared in accordance with generally accepted accounting practice in New Zealand (NZ GAAP), except for Note 2: Non-GAAP underlying profit, which is presented in addition to NZ GAAP compliant information. They comply with New Zealand equivalents to International Financial Reporting Standards (NZ IFRS) as appropriate for profit-oriented entities. These financial statements also comply with International Financial Reporting Standards and the requirements of the Financial Markets Conduct Act 2013. These financial statements are expressed in New Zealand dollars, which is the Company’s and New Zealand subsidiaries' functional currency. The functional currency of the Company's Australian subsidiaries is Australian dollars. All financial information has been rounded to the nearest thousand, unless otherwise stated. All amounts are shown exclusive of goods and services tax (GST), except for trade receivables and trade payables, and except where the amount of GST incurred is not recoverable. When this occurs, GST is recognised as part of the cost of the asset or as an expense as applicable. The measurement basis adopted in the preparation of these financial statements is historical cost, with the exception of the items noted below. • • • • Buildings – Note 9 Investment property – Note 11 Interest rate swaps – Note 14 Retail bonds – Note 17 Basis of consolidation Subsidiaries are fully consolidated at the date on which the Group obtains control, and continue to be consolidated until the date when such control ceases. The financial statements are prepared for the same reporting period as the Company, using consistent accounting policies. All intra-group transactions and balances arising within the Group are eliminated in full. All subsidiary companies are 100% owned and incorporated in New Zealand or Australia with a balance date of 31 December. The New Zealand subsidiaries are: Summer Land Developments Limited Summerset Care Limited Summerset Holdings Limited Summerset LTI Trustee Limited Summerset Management Group Limited Summerset Properties Limited Summerset Retention Trustee Limited Summerset Villages (Aotea) Limited Summerset Villages (Avonhead) Limited Summerset Villages (Bell Block) Limited Summerset Villages (Blenheim) Limited Summerset Villages (Cambridge) Limited Summerset Villages (Casebrook) Limited Summerset Villages (Dunedin) Limited Summerset Villages (Ellerslie) Limited Summerset Villages (Half Moon Bay) Limited Summerset Villages (Hamilton) Limited Summerset Villages (Hastings) Limited Summerset Villages (Havelock North) Limited Summerset Villages (Hobsonville) Limited Summerset Villages (Karaka) Limited Summerset Villages (Katikati) Limited Summerset Villages (Kelvin Grove) Limited Summerset Villages (Kenepuru) Limited Summerset Villages (Levin) Limited Summerset Villages (Lower Hutt) Limited Summerset Villages (Manukau) Limited Summerset Villages (Milldale) Limited Summerset Villages (Napier) Limited Summerset Villages (Nelson) Limited Summerset Villages (New Plymouth) Limited  The Australian subsidiaries are: Summerset Villages (Number 42) Limited Summerset Villages (Number 44) Limited Summerset Villages (Number 46) Limited Summerset Villages (Number 47) Limited Summerset Villages (Number 48) Limited Summerset Villages (Number 49) Limited Summerset Villages (Number 50) Limited Summerset Villages (Number 51) Limited Summerset Villages (Number 52) Limited Summerset Villages (Number 53) Limited Summerset Villages (Number 54) Limited Summerset Villages (Number 55) Limited Summerset Villages (Palmerston North) Limited Summerset Villages (Papamoa) Limited Summerset Villages (Paraparaumu) Limited Summerset Villages (Parnell) Limited Summerset Villages (Prebbleton) Limited Summerset Villages (Rangiora) Limited Summerset Villages (Richmond) Limited Summerset Villages (Rotorua) Limited Summerset Villages (Rototuna) Limited Summerset Villages (St Johns) Limited Summerset Villages (Taupo) Limited Summerset Villages (Te Awa) Limited Summerset Villages (Trentham) Limited Summerset Villages (Waikanae) Limited Summerset Villages (Wanganui) Limited Summerset Villages (Warkworth) Limited Summerset Villages (Whangarei) Limited Summerset Villages (Wigram) Limited Welhom Developments Limited Summerset Care (Australia) Pty Limited Summerset Holdings (Australia) Pty Limited Summerset Management Group (Australia) Pty Limited Summerset Villages (Cranbourne North) Pty Limited Summerset Villages (Mernda) Pty Limited Summerset Villages (Number 2) Pty Limited Summerset Villages (Number 3) Pty Limited Summerset Villages (Number 4) Pty Limited Summerset Villages (Number 5) Pty Limited Summerset Villages (Number 6) Pty Limited Summerset Villages (Number 7) Pty Limited Summerset Villages (Number 8) Pty Limited Summerset Villages (Number 9) Pty Limited  Summerset Villages (Number 10) Pty Limited Summerset Villages (Number 11) Pty Limited Summerset Villages (Number 12) Pty Limited Summerset Villages (Number 13) Pty Limited Summerset Villages (Number 14) Pty Limited Summerset Villages (Number 15) Pty Limited Summerset Villages (Number 16) Pty Limited Summerset Villages (Number 17) Pty Limited Summerset Villages (Number 18) Pty Limited Summerset Villages (Number 19) Pty Limited Summerset Villages (Number 20) Pty Limited Summerset Villages (Number 21) Pty Limited 65 Annual Report 2022 Notes to the financial statements (continued) Accounting policies Accounting policies that summarise the measurement basis used and that are relevant to the understanding of the financial statements are provided throughout the accompanying notes. The accounting policies adopted have been applied consistently throughout the periods presented in these financial statements. The Group adopted all mandatory new and amended NZ IFRS Standards and Interpretations and there has been no material impact on the Group's financial statements. There are no other new standards, amendments or interpretations that have been issued and are not yet effective, that are expected to have a significant impact on the Group. Disclosure of residents' loans During the period, the Group reviewed its liquidity disclosure for residents' loans. Disclosures have been revised to reflect that residents' loans are repayable on demand and therefore fully repayable within 12 months of balance date. Previously, disclosures in relation to residents' loans were made based on the expected cash flows. Based on historical information, including estimated periods of tenure as disclosed in Note 4, it is estimated that only $202.8 million (2021: $168.6 million) is expected to become payable in the 12 months following balance date. For further information refer to Note 18. Critical accounting estimates and judgements In preparing the financial statements, management has made estimates and assumptions about the future that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the period. Actual results may differ from those estimates. Estimates and assumptions are regularly evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. The principal areas of judgement in preparing these financial statements are described in the following notes: 66 • • • • • • • • Deferred management fees – Note 4 Deferred taxation – Note 7 Interest rate swaps – Note 14 Leases – Note 16 Revenue in advance – Note 4 Valuation of investment property – Note 11 Valuation of buildings – Note 9 Valuation of retail bonds – Note 17 Comparative information The Statement of Cash Flows presentation has been amended to include the foreign exchange movement on the cash balance. For the comparative periods, this foreign exchange movement of $45k has been reclassified from net (repayments of)/proceeds from borrowings to foreign currency translation adjustment. The impact of these reclassifications on the comparative period is shown below. Statement of Cash Flows Net proceeds from bank borrowings Net cash flow from financing activities Net increase/(decrease) in cash and cash equivalents Foreign currency translation adjustment 2021 2021 Reported Reclass Reclassified $000 $000 $000 67,145 34,202 (7,395) - (45) (45) (45) 45 67,100 34,157 (7,440) 45 2. Non-GAAP underlying profit Profit for the period Less fair value movement of investment property Less reversal of impairment of assets Add realised gain on resales Add realised development margin Less deferred tax credit Underlying profit Ref a) b) c) d) e) 2022 $000 2021 $000 269,072 543,664 (268,757) (537,497) - (3,431) 70,191 104,869 59,905 78,525 (3,955) (27) 171,420 141,139 Underlying profit is a non-GAAP measure and differs from NZ IFRS profit for the period. Underlying profit does not have a standardised meaning prescribed by GAAP and therefore may not be comparable to similar financial information presented by other entities. The Directors have provided an underlying profit measure in addition to IFRS profit to assist readers in determining the realised and unrealised components of fair value movement of investment property, impairment and tax expense in the Group’s income statement. The measure is used internally in conjunction with other measures to monitor performance and make investment decisions. Underlying profit is a measure that the Group uses consistently across reporting periods. Underlying profit is used to determine the dividend pay-out to shareholders. This statement presented is for the Group, prepared in accordance with the Basis of preparation: underlying profit described below. Basis of preparation: underlying profit Underlying profit is determined by taking profit for the period determined under NZ IFRS, adjusted for the impact of the following: 67 a) b) c) d) Less fair value movement of investment property: reversal of investment property valuation changes recorded in NZ IFRS profit for the period, which comprise both realised and non-realised valuation movements. This is reversed and replaced with realised development margin and realised resale gains during the period, effectively removing the unrealised component of the fair value movement of investment property. Less reversal of impairment of assets: remove the impact of non-cash care centre valuation changes recorded in NZ IFRS profit for the period. Care centres are valued annually, with fair value gains flowing through to the revaluation reserve unless the gain offsets a previous impairment to fair value that was recorded in NZ IFRS profit. Where there is any impairment of a care centre, or reversal of a previous impairment that impacts NZ IFRS profit for the period, this is eliminated for the purposes of determining underlying profit. Add realised gain on resales: add the realised gains across all resales of occupation rights during the period. The realised gain for each resale is determined to be the difference between the licence price for the previous occupation right for a unit and the occupation right resold for that same unit during the period. Realised resale gains are a measure of the cash generated from increases in selling prices of occupation rights to incoming residents, less cash amounts repaid to vacated residents for the repayment of the price of their refundable occupation right purchased in an earlier period, with the recognition point being the cash settlement. Realised resale gains exclude deferred management fees and refurbishment costs. Add realised development margin: add realised development margin across all new sales of occupation rights during the period, with the recognition point being the cash settlement. Realised development margin is the margin earned on the first time sale of an occupation right following the development of a unit. The margin for each new sale is determined to be the licence price for the occupation right, less the cost of developing that unit. Components of the cost of developing units include directly attributable construction costs and a proportionate share of the following costs: ◦ ◦ ◦ Infrastructure costs Land cost on the basis of the purchase price of the land Interest during the build period ◦ Head office costs directly related to the construction of units All costs above include non-recoverable GST. Development margin excludes the costs of developing common areas within the retirement village (including a share of the proportionate costs listed above). This is because these areas are assets that support the sale of occupation rights for not just Annual Report 2022 Notes to the financial statements (continued) the new sale but for all subsequent resales. It also excludes the costs of developing care centres, which are treated as property, plant and equipment for accounting purposes. Where costs are apportioned across more than one asset, the apportionment methodology is determined by considering the nature of the cost. Where a unit not previously sold under occupation right agreement is converted to a unit sold under occupation right agreement, realised development margin recognised on the new sale of these units includes the following costs: ◦ Conversion costs ◦ A fair value apportionment reflecting the value of the property immediately prior to conversion e) Add/(less) deferred tax expense/(credit): reversal of the impact of deferred taxation.  Underlying profit does not include any adjustments for abnormal items or fair value movements on financial instruments that are included in NZ IFRS profit for the period. 3. Segment reporting The Group operates in one industry, being the provision of integrated retirement villages. The services provided across all of the Group’s villages are similar, as are the type of customer and the regulatory environment. The chief operating decision makers, the Chief Executive Officer and the Board of Directors, review the operating results of the Group as a whole on a regular basis. On this basis, the Group has one reportable segment, and the Group results are the same as the results of the reportable segment. All resource allocation decisions across the Group are made to optimise the consolidated Group’s result. The Group continues to proceed with its expansion into Australia with seven sites purchased to date. These sites are currently being, or will be, developed into retirement villages. To date the activities in Australia have been immaterial to the Group and so are not reported as a separate operating segment as at 31 December 2022. 68 Health New Zealand is a significant customer of the Group, as the Group derives care fee revenue in respect of eligible government subsidised aged care residents. Fees earned from Health New Zealand for the year ended 31 December 2022 amounted to $36.1 million (2021: $34.6 million). No other customers individually contribute a significant proportion of the Group revenue. All revenue is earned in New Zealand, apart from a small amount of interest income earned in Australia. 4. Revenue Care fees and village services income are charged to residents on a monthly basis, as agreed, and are recognised over time. A portion of village services is considered lease income based on the nature of the services provided. Deferred management fees, which entitle residents to accommodation and the use of the community facilities within the village, are recognised over the period of service, being the greater of the expected period of tenure or the contractual right to revenue. The expected periods of tenure, being based on historical Group averages, are estimated to be seven to eight years for villas, five years for apartments, three years for serviced apartments and memory care apartments, and two years for care suites. Where the deferred management fees over the contractual period exceed the amortisation of the deferred management fee based on estimated tenure, the amount is recorded as a liability (revenue in advance). At balance date, the majority of the revenue in advance balance is non-current. Deferred management fees are recognised on a gross basis in the receipts for residents’ loans section of the statement of cash flows. Other income comprises: Interest received Other income Total other income 2022 $000 413 1,336 1,749 2021 $000 55 3,236 3,291 Interest income is recognised in the income statement as it accrues, using the effective interest method. Other income is recognised in the income statement in the period in which the performance obligations have been satisfied. 5. Operating expenses Employee expenses Property-related expenses Repairs and maintenance expenses Other operating expenses Total operating expenses 2022 $000 2021 $000 132,937 105,621 22,479 18,543 7,771 7,118 48,608 47,763 211,795 179,045 Employee expenses include post-employment benefits (KiwiSaver/Superannuation) of $4.0 million (2021: $2.9 million). Other operating expenses include: Remuneration paid to auditors: - Audit and review of financial statements - Other assurance services - sustainability linked lending assurance - Executive remuneration review market analysis provided to the Group - Tax policy advice provided to the Group Donations Rent1 1 Short term and low value amounts exempt under NZ IFRS 16 - Leases and outgoings. 6. Finance costs Interest on bank loans, retail bonds and related fees Interest on interest rate swaps Interest on lease liability Capitalised finance costs Fair value movement of interest rate swaps through profit or loss Fair value movement of retail bonds designated as fair value through profit or loss Finance costs 69 2022 $000 2021 $000 304 26 5 - 158 290 254 27 135 5 57 291 2022 $000 2021 $000 41,737 26,234 159 557 2,148 496 (25,493) (16,841) 11,817 16,243 (11,817) (16,240) 16,960 12,040 Interest expense comprises interest payable on borrowings and is calculated using the effective interest rate method. Borrowing costs are capitalised for property, plant and equipment (Note 9), and investment property (Note 11), if they are directly attributable to the construction or production of a qualifying asset. Capitalisation of borrowing costs commences when the activities to prepare the asset commence and expenditure and borrowing costs are incurred. Capitalisation of borrowing costs continues until the assets are substantially ready for their intended use. Borrowing costs of $25.5 million (2021: $16.8 million) have been capitalised during the period of construction in the current year. The weighted average capitalisation rate on funds borrowed representing the borrowing costs of the loans used to finance projects is 3.42% per annum (2021: 3.00% per annum). Annual Report 2022 Notes to the financial statements (continued) Two of the Group's retail bonds are designated in a fair value hedging relationship. Details of fair value hedging are included in Note 14. 7. Income tax Tax expense comprises current and deferred tax, calculated using the tax rate enacted or substantively enacted at balance date and any adjustment to tax payable in respect of prior years. Tax expense is recognised in the income statement, except when it relates to items recognised directly in the statement of comprehensive income, in which case the tax expense is recognised in the statement of comprehensive income. Deferred tax expense is recognised in respect of temporary differences between the carrying amounts of assets and liabilities in the financial statements and the amounts used for taxation purposes. A deferred tax asset is recognised only to the extent that it is probable it will be utilised. Temporary differences for the initial recognition of assets or liabilities that affect neither accounting nor taxable profit, unless they arise from business combination, are not provided for. Deferred tax assets and liabilities are offset when they relate to income taxes levied by the same taxation authority and the Group intends to settle its current tax assets and liabilities on a net basis. (a) Income tax recognised in the income statement Tax expense comprises: Deferred tax relating to the origination and reversal of temporary differences Total tax credit reported in income statement 2022 $000 (3,955) (3,955) 2021 $000 (27) (27) The prima facie income tax expense on pre-tax accounting profit from operations reconciles to the income tax expense in the financial statements as follows: 70 Profit before income tax Income tax using the corporate tax rate Capitalised interest Other non-deductible expenses 2022 2021 $000 265,117 74,233 (7,138) 348 % $000 % 543,637 28.0% 152,218 28.0% (2.7%) 0.1% (4,722) 197 (0.9%) 0.0% Non-assessable investment property revaluations (70,917) (26.7%) (150,339) (27.7%) Transfer of investment property to property, plant and equipment Other Prior period adjustments Total income tax credit - 0.0% 2,472 (560) 79 (3,955) (0.2%) 0.0% (1.5%) 100 47 (27) 0.5% 0.0% 0.0% (0.0%) Total Group tax losses available amounted to $450.7 million at 31 December 2022 ($126.7 million tax effected) (2021: $341.1 million ($95.8 million tax effected)). There are no unrecognised tax losses for the Group at 31 December 2022 (2021: nil). (b) Amounts charged or credited to other comprehensive income Tax expense comprises: Net gain on revaluation of property, plant and equipment Fair value movement of interest rate swaps Total tax expense reported in statement of comprehensive income (c) Amounts charged or credited directly to equity Tax expense comprises: Deferred tax relating to employee share option plans Total tax expense/(credit) reported directly in equity 2022 $000 1,278 8,718 9,996 2022 $000 1,517 1,517 2021 $000 10,019 6,881 16,900 2021 $000 233 233 (d) Imputation credit account There were no imputation credits received or paid during the year and the balance at 31 December 2022 is nil (2021: nil). 71 Annual Report 2022 Notes to the financial statements (continued) (e) Deferred tax Movement in the deferred tax balance comprises: BALANCE 1 JAN 2022 $000 RECOGNISED IN INCOME $000 RECOGNISED DIRECTLY IN EQUITY $000 RECOGNISED IN OCI* $000 BALANCE 31 DEC 2022 $000 Property, plant and equipment Investment property Revenue in advance Interest rate swaps 28,896 42,664 49,465 (1,001) 147 11,771 16,694 - Income tax losses not yet utilised (95,779) (30,883) - - - - - Other items Net deferred tax liability (4,309) 19,936 (1,684) (3,955) 1,517 1,517 1,278 - - 8,718 - - 30,321 54,435 66,159 7,717 (126,662) (4,476) 9,996 27,494 BALANCE 1 JAN 2021 $000 RECOGNISED IN INCOME $000 RECOGNISED DIRECTLY IN EQUITY $000 RECOGNISED IN OCI* $000 BALANCE 31 DEC 2021 $000 72 Property, plant and equipment Investment property Revenue in advance Interest rate swaps 14,171 35,231 35,159 (7,882) 4,706 7,433 14,306 - Income tax losses not yet utilised (70,309) (25,470) Other items (3,540) (1,002) Net deferred tax liability 2,830 (27) - - - - - 233 233 10,019 - - 28,896 42,664 49,465 6,881 (1,001) - - (95,779) (4,309) 16,900 19,936 * Other comprehensive income 8. Trade and other receivables Trade and other receivables are stated at amortised cost less impairment losses. Trade receivables are not significant on an individual basis and are recognised initially at fair value and subsequently measured at amortised cost using the effective interest rate, less an allowance for doubtful debts. The allowance for doubtful debts is made up of expected credit losses based on assessment of trade receivables debt at the individual level for impairment, plus an additional allowance on the remaining balance for potential credit losses not yet identified. The expected credit losses allowance requirement on the remaining balance has been set at 2%. Trade receivables Allowance for doubtful debts Net trade receivables Prepayments Accrued income Sundry debtors Total trade and other receivables 2022 $000 4,923 (239) 4,684 2021 $000 3,541 (109) 3,432 13,550 13,349 3,001 15,492 36,727 1,057 27,154 44,992 9. Property, plant and equipment Property, plant and equipment includes care centres (including memory care apartments and care suites), both complete and under development, and corporate assets held. All property, plant and equipment is initially recorded at cost. Cost includes expenditure that is directly attributable to the acquisition of the asset. The cost of self-constructed care centres includes directly attributable construction costs and other costs necessary to bring the care centres to working condition for their intended use. These other costs include professional fees and consents, interest during the build period and head office costs directly related to the construction of the care centres. Where costs are apportioned across more than one asset, the apportionment methodology is determined by considering the nature of the cost. Subsequent to initial recognition, completed care centres are carried at a revalued amount, which is the fair value at the date of the revaluation less any subsequent accumulated depreciation and accumulated impairment losses, if any, since the assets were last revalued. Other corporate assets are subsequently measured at cost less accumulated depreciation and impairment losses, if any. Where an item of plant and equipment is disposed of, the gain or loss recognised in the income statement is calculated as the difference between the net sales price and the carrying amount of the asset. Fair value is determined by reference to market-based evidence, which is the amount for which the assets could be exchanged between a knowledgeable willing buyer and a knowledgeable willing seller in an arm’s length transaction as at the valuation date. Any revaluation surplus is recognised in other comprehensive income unless it reverses a revaluation decrease of the same asset previously recognised in the income statement. Any revaluation deficit is recognised in the income statement unless it directly offsets a previous surplus in the same asset in other comprehensive income. Any accumulated depreciation at revaluation date is eliminated against the gross carrying amount of the asset and the net amount is restated to the revalued amount of the asset. Upon disposal, any revaluation reserve relating to the particular asset being sold is transferred to retained earnings. Independent valuations are performed with sufficient regularity to ensure that the carrying amount does not differ materially from the asset’s fair value at the balance sheet date. Note 6 provides details on capitalised borrowing costs. Depreciation is charged to the income statement on a straight-line (SL) basis over the estimated useful life of each item of property, plant and equipment, with the exception of land, which is not depreciated. Depreciation methods, useful lives and residual values are reassessed at each reporting date. 73 Major depreciation rates are as follows: • Buildings (2% to 14% SL) • Motor vehicles (8% to 10% SL) • • Furniture and fittings (7% to 20% SL) Plant and equipment (7% to 50% SL) Also included in the buildings category is building fit-out. Right of use assets are depreciated on an SL basis over the term of their lease. Refer to Note 16. Annual Report 2022 Notes to the financial statements (continued) BUILDINGS $000 MOTOR VEHICLES $000 PLANT AND EQUIPMENT $000 FURNITURE AND FITTINGS $000 RIGHT OF USE ASSETS $000 TOTAL $000 Cost Balance at 1 January 2021 155,372 2,450 21,795 39,697 - 18,718 3,431 30,210 901 (28) 5,344 (92) - - - - - - 247,428 3,323 27,047 42,719 1,888 5,745 - (2,512) (51) - - - 8,790 600 - - - - 9,390 1,277 - - 11,009 199,416 2,795 49,337 (111) (231) - - - 18,718 3,431 30,210 13,693 300,881 5,064 56,693 (654) (705) - (2,512) 287,635 5,160 32,792 10,667 18,103 354,357 5,573 - (5,573) 244 (28) - 2,323 (23) - 5,198 1,038 - - 2,054 18,318 1,341 10,519 (47) (98) - (5,573) - 1,354 12,228 6,236 3,348 23,166 7,078 - (7,078) 303 (49) - 2,681 908 1,651 12,621 - - - - (353) (402) - (7,078) - 1,608 14,909 7,144 4,646 28,307 Additions Disposals Transfer Reversal of impairment through profit or loss Net revaluations through other comprehensive income Balance at 31 December 2021 Additions Disposals Net revaluations through other comprehensive income Balance at 31 December 2022 Depreciation charge for the year Disposals Net revaluations through other comprehensive income Balance at 31 December 2021 Depreciation charge for the year Disposals Net revaluations through other comprehensive income Balance at 31 December 2022 Carrying amounts 74 Accumulated depreciation Balance at 1 January 2021 - 1,138 9,928 As at 31 December 2021 As at 31 December 2022 247,428 287,635 1,969 3,552 14,819 17,883 3,154 3,523 10,345 277,715 13,457 326,050 Buildings include $49.4 million of care centres under development carried at fair value, which reflects cost due to the proximity of completion to 31 December 2022 (2021: $23.9 million). Right of use assets relate to the Group's leased office premises and car park spaces; refer to Note 16 for further information. Classification between investment property and property, plant and equipment On initial recognition, the Group performs an assessment to determine whether a unit type should be classified as investment property or property, plant and equipment. The assessment is based on the significance of ancillary services provided to residents who occupy accommodation under an occupation right agreement. For the purposes of this assessment, the Group considers that portion of weekly fees that gives rise to a separate performance obligation for the Group, as ancillary services. In addition to a quantitative assessment, the business model (being the provision of accommodation) is considered when determining the classification of the property as either investment property or property, plant and equipment. Subsequent reclassification of unit types between investment property or property, plant and equipment, occur only when there has been a change in use. Revaluations An independent valuation to determine the fair value of all building assets related to completed care centres was carried out as at 31 December 2022 by CBRE Limited ("CBRE NZ"), an independent registered valuer. Valuations are carried out annually. CBRE NZ determines the fair value of care centres (excluding units under occupation right agreement) using an earnings-based multiple approach and the amount apportioned to goodwill of $9.7 million is not recognised (2021: $16.0 million). Significant assumptions used in the most recent valuation include market value per care bed of between $63,100 and $204,000 (2021: $68,200 and $227,600), and individual unit earning capitalisation rate of between 11.50% and 14.75% (2021: 11.50% and 14.75%). Revaluation of units under occupation right agreement held as property, plant and equipment To assess the market value of the Group's interest in the units under occupation right agreement held as property, plant and equipment, CBRE NZ undertook a cash flow analysis to derive a net present value. Significant assumptions used by CBRE NZ include a discount rate of between 14.50% and 15.50% (2021: 14.75% to 15.50%), and a growth rate of between 0.5% and 3.0% (2021: 0.5% to 3.0%). Other assumptions used include the average entry age of residents of between 79 and 86 years (2021: 81 and 90 years), and the stabilised departing occupancy periods of units of between 3.0 and 3.1 years (2021: 2.9 and 3.1 years). Manager's net interest 2022 $000 2021 $000 51,592 49,027 75 Plus: revenue received in advance relating to property, plant and equipment 1,875 1,201 Plus: liability for residents' loans relating to property, plant and equipment 24,127 14,087 Total property, plant and equipment - units under occupation right agreement 77,595 64,315 Annual Report 2022 Notes to the financial statements (continued) Sensitivity analysis to significant changes in unobservable inputs within Level 3 of the hierarchy As the fair value of buildings is determined using inputs that are unobservable, the Group has categorised property, plant and equipment as Level 3 under the fair value hierarchy in accordance with NZ IFRS 13 – Fair Value Measurement. The significant unobservable inputs used in the fair value measurement categorised within Level 3 of the fair value hierarchy of the entity’s portfolio of care centres (excluding units under occupation right agreement) are the capitalisation rates applied to individual unit earnings and the market value per care bed. A significant decrease (increase) in the capitalisation rate would result in a significantly higher (lower) fair value measurement, and a significant increase (decrease) in the market value per care bed would result in a significantly higher (lower) fair value measurement. The significant unobservable inputs used in the fair value measurement categorised within Level 3 of the fair value hierarchy of the entity’s portfolio of units under occupation right agreement, held as property, plant and equipment, are the discount rates and growth rates. A significant decrease (increase) in the discount rate would result in a significantly higher (lower) fair value measurement, and a significant increase (decrease) in the growth would result in a significantly higher (lower) fair value measurement. Other key components in determining the fair value of units under occupation right held as property, plant and equipment are the average entry age of residents and the average occupancy of units. A significant decrease (increase) in the occupancy period of units would result in a significantly higher (lower) fair value measurement, and a significant increase (decrease) in the average entry age of residents would result in a significantly higher (lower) fair value measurement. Cost model If buildings were measured using the cost model, the carrying amounts would be as follows: Cost Accumulated depreciation and impairment losses 76 Net carrying amount 2022 2021 BUILDINGS $000 BUILDINGS $000 227,359 184,640 (31,622) (24,544) 195,737 160,096 Security At 31 December 2022, all care centres held by retirement villages registered under the Retirement Villages Act 2003 are subject to a registered first mortgage in favour of the Statutory Supervisor. 10. Intangible assets Intangible assets acquired by the Group are measured at cost less accumulated amortisation and accumulated impairment losses. Amortisation is recognised in the income statement on an SL basis over the estimated useful lives of intangible assets from the date that they are available for use. The intangible assets are software and the amortisation rates at 31 December 2022 are between 10% and 20% SL basis. Cost Opening balance Additions Disposals Closing balance Accumulated amortisation Opening balance Amortisation Disposals Closing balance Carrying amount 2022 $000 12,251 1,563 - 2021 $000 11,039 2,380 (1,168) 13,814 12,251 5,587 976 - 6,563 5,330 1,036 (779) 5,587 7,251 6,664 77 11. Investment property Investment property is held to earn current and future rental income and capital appreciation. It comprises land and buildings, and associated equipment and furnishings, relating to retirement units and common facilities in the retirement village. Investment property includes buildings under development, excluding care centres under development which are included in property, plant and equipment. Initial recognition of investment property is at cost and it is subsequently measured at fair value, with any change in fair value recognised in the income statement. The cost of retirement units includes directly attributable construction costs and other costs necessary to bring the retirement units to working condition for their intended use. These other costs include professional fees and consents, interest during the build period and head office costs directly related to the construction of the retirement units. Where costs are apportioned across more than one asset, the apportionment methodology is determined by considering the nature of the cost. Land acquired with the intention of constructing investment property on it is classified as investment property from the date of acquisition. Depreciation is not charged on investment property. Note 6 provides details on capitalised borrowing costs. Annual Report 2022 Notes to the financial statements (continued) Balance at beginning of period Additions Disposals Transfer to property, plant and equipment Fair value movement Foreign exchange movement Total investment property Development land measured at fair value1 Retirement villages measured at fair value2 Retirement villages under development measured at cost Total investment property 2022 $000 2021 $000 4,580,196 3,638,760 573,389 434,643 (4,999) (12,034) - (18,718) 268,757 537,497 376 48 5,417,719 4,580,196 2022 $000 2021 $000 603,829 485,225 4,351,031 3,772,522 462,859 322,449 5,417,719 4,580,196 1 Included in development land are pieces of land that were acquired close to balance date and as such were excluded from the valuation of investment property. These pieces of land have been accounted for at fair value, which has been determined to be cost due to the proximity of the transaction to balance date. At 31 December 2022 the land at cost was $162.5 million (2021 $95.3 million). 2 Included in retirement villages measured at fair value is $45.0 million related to completed retirement units at cost, which reflects fair value due to the proximity of completion 78 to balance date (2021: nil). Manager's net interest 2022 $000 2021 $000 3,116,800 2,606,955 Plus: revenue received in advance relating to investment property 159,694 140,192 Plus: liability for residents' loans relating to investment property Total investment property 2,141,225 1,833,049 5,417,719 4,580,196 The Group is unable to reliably determine the fair value of the non-land portion of retirement villages under development at 31 December 2022 and therefore these are carried at cost. This equates to $462.9 million of investment property (2021: $322.4 million). The fair value of investment property as at 31 December 2022 was determined by independent registered valuers CBRE NZ and Jones Lang LaSalle Limited ("JLL") for villages including land in New Zealand, and CBRE Valuations Pty Limited ("CBRE AU") for land in Australia. The fair value of the Group’s investment property is determined on a semi-annual basis, based on market values, being the estimated amount for which a property could be exchanged on the date of the valuation between a willing buyer and a willing seller in an arm’s length transaction after proper marketing wherein the parties had each acted knowledgeably, prudently and without compulsion. As required by NZ IAS 40 - Investment Property, the fair value as determined by the independent registered valuer is adjusted for assets and liabilities already recognised on the balance sheet which are also reflected in the cash flow analysis. To assess the fair value of the Group's interest in each New Zealand village, CBRE NZ and JLL have undertaken a cash flow analysis to derive a net present value. The Group's development land has been valued by CBRE NZ using the direct comparison approach. The valuers' view is that the most pressing issues facing the property market both nationally and globally are high inflation, high oil prices, sharply increasing energy costs, and ongoing disruption to global supply changes and the wider economic fallout from the current geopolitical crisis stemming from events in Ukraine. With these factors in mind, the valuers reiterate that their conclusions are based on data and market sentiment as at the date of the valuation and that a degree of caution should be exercised when relying upon the valuation. Significant assumptions used by CBRE NZ and JLL in relation to the New Zealand investment property include a discount rate of between 13.5% and 16.5% (2021: 13.5% to 16.5%), and a long-term nominal house price inflation rate (growth rate) of between 0% and 3.5% (2021: 0% to 3.5%). Other assumptions used include the average entry age of residents of between 73 and 88 years (2021: 73 and 89 years), and the stabilised departing occupancy periods of units of between 3.9 and 8.6 years (2021: 3.5 and 8.8 years). Sites under development in Australia have been valued separately by CBRE AU. Land is valued under the same methodology as development land in New Zealand. As the fair value of investment property is determined using inputs that are unobservable, the Group has categorised investment property as Level 3 under the fair value hierarchy in accordance with NZ IFRS 13 – Fair Value Measurement. Sensitivity analysis to significant changes in unobservable inputs within Level 3 of the hierarchy To assess the market value of the Group's interest in a retirement village, CBRE and JLL have undertaken a cash flow analysis to derive a net present value. As the fair value of investment property is determined using inputs that are significant and unobservable, the Group has categorised investment property as Level 3 under the fair value hierarchy in accordance with NZ IFRS 13 - Fair Value Measurement. 79 The sensitivities of the significant assumptions are shown in the table below: 31 December 2022 Valuation ($000) Difference ($000) Difference (%) 31 December 2021 Valuation ($000) Difference ($000) Difference (%) 1 Completed units excluding unsold stock. Adopted value1 Discount rate +50 bp Discount rate -50 bp Growth rates +50bp Growth rates -50bp 1,705,010 1,574,940 (61,655) 66,100 102,685 (94,300) (3.6%) 3.9% 6.0% (5.5%) (55,660) 59,760 92,180 (84,440) (3.5%) 3.8% 5.9% (5.4%) Annual Report 2022 Notes to the financial statements (continued) Other key components in determining the fair value of investment property are the average entry age of residents and the average occupancy of units. A significant decrease (increase) in the occupancy period of units would result in a significantly higher (lower) fair value measurement, and a significant increase (decrease) in the average entry age of residents would result in a significantly higher (lower) fair value measurement. Operating expenses Direct operating expenses arising from investment property during the period amounted to $57.7 million (2021: $46.6 million). Security At 31 December 2022, all investment property relating to registered retirement villages under the Retirement Villages Act 2003 are subject to a registered first mortgage in favour of the Statutory Supervisor to secure the Group’s obligations to the occupation right agreement holders. 12. Trade and other payables Trade and other payables are carried at amortised cost. Due to their short-term nature they are not discounted. Trade payables Accruals - development of retirement units and care centres Accruals - other Sundry payables Total trade and other payables 80 13. Employee benefits 2022 $000 4,413 2021 $000 4,535 140,020 174,650 21,791 12,332 16,354 6,718 178,556 202,257 A provision is made for benefits accruing to employees in respect of wages, salaries, annual leave and short-term incentives when it is probable that settlement will be required and the amount can be estimated reliably. Leave liabilities Other employee benefits Total employee benefits 14. Interest rate swaps 2022 $000 15,373 12,192 27,565 2021 $000 10,905 10,675 21,580 The Group uses interest rate swaps to manage its risk associated with interest rate fluctuations. Interest rate swaps are initially recognised at fair value on the date a contract is entered into and are subsequently measured at fair value on each reporting date. The fair values of the interest rate swaps are determined based on cash flows discounted to present value using current market interest rates. Cash flow hedges The Group has entered into interest rate swaps to manage its interest rate risk in relation to its floating rate debt. These interest rate swaps qualify for cash flow hedge accounting. When interest rate swaps meet the criteria for cash flow hedge accounting, the effective portion of the gain or loss on the hedging instrument is recognised in other comprehensive income, while the ineffective portion is recognised in the income statement. Amounts taken to reserves are transferred out of reserves and included in the measurement of the hedged transaction when the forecast transaction occurs. When interest rate swaps do not meet the criteria for cash flow hedge accounting, all movements in fair value of the hedging instrument are recognised in the income statement. Under the interest rate swap agreements that qualify for cash flow hedge accounting, the Group has a right to receive interest at variable rates and to pay interest at fixed rates. At 31 December 2022, the Group had interest rate swap agreements in place with a total notional principal amount of approximately $762.3 million, made up of $442.0 million denominated in NZD and $320.3 million in AUD (2021: $444.7 million, made up of $312.0 million denominated in NZD and $100.0 million in AUD). Of the swaps in place, at 31 December 2022 $535.5 million (2021: $339.8 million) are being used to cover approximately 78% (2021: 91%) of the floating rate debt principal outstanding. These agreements effectively change the Group’s interest exposure on the principal covered by the interest rate swaps from a floating rate to fixed rates, which range between 0.56% and 4.85% (2021: 0.56% and 3.87%). The fair value of these agreements at 31 December 2022 is a $26.5 million asset, comprised of $0.7 million of swap liabilities and $27.2 million of swap assets (2021: liability of $3.7 million, comprised of $7.2 million of swap liabilities and $3.5 million of swap assets). Of this, a liability of nil is estimated to be current (2021: $881,000). The agreements cover notional amounts for terms of up to seven years. The notional principal amounts and the period of expiry of the cash flow hedge interest rate swap contracts are as follows: Less than 1 year Between 1 and 2 years Between 2 and 3 years Between 3 and 4 years Between 4 and 5 years Between 5 and 6 years Between 6 and 7 years Total Current Forward starting Total 2022 $000 45,000 60,000 76,694 84,032 178,130 2021 $000 70,000 45,000 60,000 51,536 83,844 190,081 124,302 128,388 10,000 762,325 444,682 535,550 339,766 226,775 104,916 762,325 444,682 81 Fair value hedges The Group has entered into interest rate swaps to manage its interest rate risk in relation to its fixed rate debt arising from the retail bonds. The hedge is for the future fair value movements in the retail bonds as a result of market interest rate movements. The Group has designated $225.0 million of its retail bonds in fair value hedge relationships. Both the hedging instrument (interest rate swap) and the hedged risk are recognised at fair value. The change in the fair value of both items offset in the statement of comprehensive income to the extent the hedging relationship is effective. The reduction in fair value of the interest rate swaps of $11.8 million (2021: reduction of $16.2 million) has been recognised in finance costs and has been offset with a similar fair value gain on the retail bonds to leave an ineffective amount in finance costs of nil (2021: $3,000). Under the interest rate swap agreements that qualify for fair value hedge accounting, the Group has a right to receive interest at fixed rates and to pay interest at floating rates. At 31 December 2022, the Group had interest rate swap agreements in place with a total notional principal amount of $225.0 million (2021: $225.0 million). Of the interest rate swaps in place, at 31 December 2022 $225.0 million (2021: $225.0 million) are being used to cover 60% (2021: 60%) of the fixed interest rate retail bonds outstanding. Annual Report 2022 Notes to the financial statements (continued) The notional principal amounts and the period of expiry of the fair value hedge interest rate swap contracts are as follows: Less than 1 year Between 1 and 2 years Between 2 and 3 years Between 3 and 4 years Total Current Total 15. Residents’ loans 2022 $000 100,000 2021 $000 - - 100,000 125,000 - - 125,000 225,000 225,000 225,000 225,000 225,000 225,000 Residents’ loans are amounts payable under occupation right agreements. An occupation right agreement confers a right of occupancy to a villa, apartment, serviced apartment, care suite or memory care apartment. The consideration received on the grant of an occupation right agreement is allocated to the resident's loan in full. These loans are non-interest bearing and are payable when both an occupation right agreement is terminated and there has been settlement of a new occupation right agreement for the same unit and the proceeds from the new settlement have been received by the Group. Residents’ loans are initially recognised at fair value and subsequently measured at amortised cost. The Group holds a contractual right to set-off the deferred management fee receivable on termination of an agreement against the resident's loan to be repaid. Residents’ loans are therefore recognised net of the deferred management fee receivable on the balance sheet. Deferred management fees are payable by residents in consideration for the supply of accommodation and the right to share in the use of community facilities. Deferred management fees are paid in arrears, with the amount payable calculated as a percentage of the resident's loan amount as per the resident's occupation right agreement. Deferred management fee receivable is calculated and recorded based on the current tenure of the resident and the contractual right to deferred management fee earned at balance date. Refer to Note 4 for further detail on recognition of deferred management fee revenue. 82 Balance at beginning of period 2022 $000 2021 $000 2,276,945 1,872,736 Net receipts for residents' loans - resales of occupation right agreements 51,481 63,832 Receipts for residents' loans - new occupation right agreements Total gross residents’ loans Deferred management fees and other receivables Total residents’ loans 353,411 340,377 2,681,837 2,276,945 (516,485) (429,809) 2,165,352 1,847,136 16. Leases The leases to which NZ IFRS 16 applies are the leases of office premises and car parks occupied by the Group in New Zealand and Australia. In respect of these leases, a right of use asset is disclosed along with a corresponding lease liability. The right of use assets are depreciated on an SL basis, while the lease liability is measured at the present value of the lease payments that are not yet paid, discounted using the Group's incremental borrowing rate. The Group has elected not to recognise right of use assets and lease liabilities for short-term leases that have a lease term of 12 months or less and leases of low-value assets. The Group recognises the lease payments associated with these leases as incurred as a rental expense over the lease term. Right of use assets are classified as property, plant and equipment, and lease liabilities are disclosed as such in the Group's statement of financial position. The weighted average incremental borrowing rates used to measure lease liabilities at the date of application are between 3.19% and 4.67% (2021: 3.19% and 4.67%). When the Group has the option to extend a lease, management uses its judgement to determine whether or not an option would be reasonably certain to be exercised. Management considers all facts and circumstances, including their past practice and any cost that will be incurred to change the asset if an option to extend is not taken, to help determine the lease term. Other assumptions and judgements used by management include calculating the appropriate discount rate. As a lessee Right of use assets disclosed: Balance at beginning of period Additions Disposals Depreciation charge for the year Balance at end of period Lease liabilities disclosed: Less than 1 year Between 1 and 5 years More than 5 years 83 2022 $000 10,345 5,064 (301) 2021 $000 8,955 2,795 (64) (1,651) (1,341) 13,457 10,345 2022 $000 1,709 8,106 6,155 2021 $000 1,412 6,506 4,720 Total lease liabilities at end of period 15,970 12,638 Annual Report 2022 Notes to the financial statements (continued) Amounts recognised in the profit and loss: Interest on lease liabilities Expenses relating to short-term and low-value asset leases Depreciation on right of use assets Total amounts recognised in profit or loss Amounts recognised in statement of cash flows: Total cash outflows for leases 2022 $000 557 371 1,651 2,579 2022 $000 2,431 2021 $000 496 200 1,341 2,037 2021 $000 2,081 As a lessor The Group acts as a lessor under occupation right agreements with village residents, along with a small number of residential rental properties. The assets leased by the group as a lessor are disclosed as investment property and lease income on occupation right agreements is generated in the form of deferred management fees. The lease term is determined to be the greater of the expected period of tenure or the contractual right to revenue. The Group uses the portfolio approach to account for leases of units to village residents and allocates individual leases to different portfolios depending on the type of unit. The Group does not have any subleases. 84 17. Interest-bearing loans and borrowings Interest-bearing loans and borrowings include secured bank loans and unsubordinated fixed-rate retail bonds. Interest-bearing loans and borrowings are recognised initially at fair value net of directly attributable transaction costs. Subsequent to initial recognition, the borrowings are measured at amortised cost, with any difference between the initial recognised amount and the redemption value being recognised in profit or loss over the period of the borrowing using the effective interest rate. Two of the three retail bonds, SUM010 and SUM020, are designated in fair value hedge relationships, which means that any change in market interest rates results in a change in the fair value adjustment of that debt. SUM030 is not hedged. Transaction costs incurred in arranging financing are capitalised and amortised over the term of the relevant debt instrument. Repayable within 12 months Retail bond - SUM010 Repayable after 12 months Secured bank loans Retail bond - SUM010 Retail bond - SUM020 Retail bond - SUM030 Total loans and borrowings at face value Transaction costs for loans and borrowings capitalised: Opening balance Capitalised during the period Amortised during the period Closing balance Total loans and borrowings at amortised cost Fair value adjustment on hedged borrowings Carrying value of interest-bearing loans and borrowings Coupon 2022 $000 2021 $000 4.78% 100,000 - Floating 699,400 374,940 4.78% 4.20% 2.30% - 100,000 125,000 125,000 150,000 150,000 1,074,400 749,940 85 (5,096) (521) 1,357 (3,888) (2,194) 986 (4,260) (5,096) 1,070,140 744,844 (9,646) 2,171 1,060,494 747,015 The non-cash movements included in the table above are the transaction costs for loans and borrowings amortised during the period and the fair value adjustment on hedged borrowings. A summary of the changes in the Group's borrowings is provided below: Borrowings at the start of the year Net cash borrowed Cash change in deferred financing costs Non-cash change in deferred financing costs Non-cash change in fair value adjustment Borrowings at the end of the year 2022 $000 2021 $000 747,015 687,099 324,460 77,364 (521) 1,357 (2,194) 986 (11,817) (16,240) 1,060,494 747,015 Annual Report 2022 Notes to the financial statements (continued) The weighted average interest rate for the year to 31 December 2022 was 3.42% (2021: 3.00%). This includes the impact of interest rate swaps (see Note 14). Effective 11 November 2022, the Group refinanced an AUD tranche of the syndicated facility that was due to expire within the next year and obtained new AUD facilities. The secured bank loan facility at 31 December 2022 has a limit of approximately $1,160 million (2021: $1,110 million). Lending of NZ$310 million expires in November 2024, lending of NZ$50 million and AU$130 million expires in September 2025, lending of NZ$315 million and AU$185 million expires in September 2026 and lending of AU$170 million expires in September 2027. The Group has issued three retail bonds listed on the NZDX: ID SUM010 SUM020 SUM030 Amount $100 million $125 million $150 million Maturity 11 July 2023 24 September 2025 21 September 2027 Security The bank loans and retail bonds rank equally with the Group’s other unsubordinated obligations and are secured by the following securities held by a security trustee: • • • • • • a first-ranking registered mortgage over all land and permanent buildings owned (or leased under a registered lease) by each New Zealand-incorporated guaranteeing Group member that is not a registered retirement village under the Retirement Villages Act 2003; a second-ranking registered mortgage over the land and permanent buildings owned (or leased under a registered lease) by each New Zealand-incorporated guaranteeing Group member that is a registered retirement village under the Retirement Villages Act 2003 (behind a first-ranking registered mortgage in favour of the Statutory Supervisor); a first-ranking registered mortgage over all land and permanent buildings owned (or leased under a registered lease) by each Australian-incorporated guaranteeing Group member; a General Security Deed, which secures all assets of the New Zealand- incorporated guaranteeing Group members, but in respect of which the Statutory Supervisor has first rights to the proceeds of security enforcement against all assets of the registered retirement villages to which the security trustee is entitled; a General Security Deed, which secures all assets of the Australian-incorporated guaranteeing Group members; and a Specific Security Deed in respect of each marketable security of Summerset Holdings (Australia) Pty Limited, held by Summerset Holdings Limited. 18. Financial instruments Exposure to credit, market and liquidity risk arises in the normal course of the Group’s business. The Board adopts policies for managing each of these risks as summarised below. Categories of financial instruments Financial assets All financial assets of the Group are classified at amortised cost except for interest rate swaps, which are classified as fair value through profit and loss, and those assets that are designated in a hedge relationship. Financial liabilities All financial liabilities except interest rate swaps and retail bonds are classified as liabilities at amortised cost. Refer to Note 17 for detail on the retail bonds. Credit risk Credit risk is the risk of financial loss to the Group if a resident or counterparty to a financial instrument fails to meet their contractual obligations. The Group’s exposure to credit risk relates to receivables from residents and bank balances. The Group manages its exposure to credit risk. The Group’s cash is held with its principal banker, with the level of exposure to credit risk considered minimal, with low levels of cash generally held. Receivables balances are monitored on an ongoing basis and funds are placed with high-credit-quality financial institutions. The level of risk associated with sundry debtors is considered minimal due to the recoverability of this balance being assessed as high. The Group does not require collateral from its debtors and the Directors consider the Group’s exposure to any concentration of credit risk to be minimal. 86 The carrying amount of financial assets represents the Group’s maximum credit exposure. The status of trade receivables is as follows: Not past due Past due 31 to 60 days Past due 61 to 90 days Past due more than 90 days Total 2022 2021 GROSS RECEIVABLE $000 IMPAIRMENT $000 GROSS RECEIVABLE $000 IMPAIRMENT $000 3,991 385 210 337 4,923 (56) (18) (17) (148) (239) 3,029 260 88 164 (45) (13) (10) (41) 3,541 (109) In summary, trade receivables are determined to be impaired as follows: Gross trade receivables Impairment Net trade receivables 2022 $000 4,923 (239) 4,684 2021 $000 3,541 (109) 3,432 Market risk Market risk is the risk that changes in market prices such as interest rates will affect the Group’s income. The objective of market risk management is to manage and control market risk exposures within acceptable parameters, while optimising the return on risk. 87 Interest rate risk The Group’s exposure to interest rate risk is managed by seeking to obtain the most competitive rate of interest at all times. The Group has entered into interest rate swap agreements in order to provide an effective cash flow hedge against the variability in floating interest rates. The Group has also entered into other interest swap agreements to reduce interest rate repricing risk in relation to retail bonds. See Note 14 for details of interest rate swap agreements. To comply with the Group’s risk management policy, the hedge ratio is based on the interest rate swap notional amount to hedge the same notional amount of bank loans or retail bonds. This results in a hedge ratio of 1:1. This is the same as used for actual risk management purposes, and such a ratio is appropriate for the purposes of hedge accounting as it does not result in an imbalance that would create hedge ineffectiveness. In these hedge relationships the main sources of ineffectiveness are: • a significant change in the credit risk of either party to the hedging relationship; • where the hedge instrument has been transacted on a date different to the rate set date of the bank loan or retail bonds, interest rates could differ; and • differences in repricing dates between the swaps and the borrowings. Other than these sources, due to the alignment of the hedged risk in the hedged item and hedged instrument, hedge ineffectiveness is not expected to arise. At 31 December 2022 it is estimated that a general increase of one percentage point in interest rates would decrease the Group’s profit by approximately $6.7 million (2021: decrease by $3.7 million) and increase total comprehensive income by approximately $14.3 million (2021: decrease by $1.8 million). Liquidity risk Liquidity risk is the risk that the Group will not be able to meet its financial obligations as they fall due. The Group manages liquidity by maintaining adequate reserves and undrawn banking facilities, by continuously monitoring forecast and actual cash flows, and matching the maturity profiles of financial assets and liabilities. The Group manages liquidity risk on residents’ loans and related sundry debtors through the contractual requirements of occupation right agreements, whereby a resident’s loan is repaid only on receipt of the loan monies from the incoming resident. Annual Report 2022 Notes to the financial statements (continued) The following table sets out the contractual cash flows for all financial liabilities for the Group (including contractual interest obligations on bank loans and retail bonds): Financial liabilities Trade and other payables Residents’ loans 2022 2021 LESS THAN 1 YEAR $000 GREATER THAN 1 YEAR $000 LESS THAN 1 YEAR $000 GREATER THAN 1 YEAR $000 178,556 2,165,352 - - 202,257 1,847,136 - - Interest-bearing loans and borrowings 145,751 1,075,950 21,819 812,625 Interest rate swaps Lease liability Total (839) 1,709 5,341 14,261 6,378 1,412 18,061 11,226 2,490,529 1,095,552 2,079,002 841,912 Residents’ loans are non-interest bearing and are not required to be repaid following termination of an occupation right agreement until receipt of cash for the new resident loan from the incoming resident. Residents' loans are classified as being repayable on demand, and therefore fully repayable within 12 months, because the Group does not have an unconditional right to defer repayment of residents' loans for at least 12 months after balance date. Based on historical information including estimated periods of tenure as disclosed in Note 4, it is estimated that $202.8 million (2021: $168.6 million) is expected to become payable in the 12 months following balance date. To date, cash for new residents’ loans received has exceeded cash to repay residents’ loans, net of deferred management fees. 88 Foreign currency risk Foreign currency risk is the risk that the value of the Group's assets, liabilities and financial performance will fluctuate due to changes in foreign currency rates. The Group is primarily exposed to currency risk through its subsidiaries in Australia. The risk to the Group is that the value of the overseas subsidiaries' financial position and financial performance will fluctuate in economic terms and as recorded in the Group financial statements due to changes in foreign exchange rates. Due to limited activity in the Australian subsidiaries in 2022, the Group did not have a material exposure to foreign exchange risk. Fair values The carrying amounts shown in the balance sheet approximate the fair value of the financial instruments, with the exception of retail bonds, shown below: Retail bonds Total 2022 2021 CARRYING AMOUNT $000 FAIR VALUE $000 CARRYING AMOUNT $000 FAIR VALUE $000 (363,207) (343,417) (374,153) (374,328) (363,207) (343,417) (374,153) (374,328) The fair value of retail bonds is based on the price traded at on the NZX market as at 31 December 2022. The fair value of the retail bonds is categorised as Level 1 under the fair value hierarchy in accordance with NZ IFRS 13 – Fair Value Measurement. The fair value of interest rate swaps is determined using inputs from third parties that are observable, either directly (i.e. as prices) or indirectly (i.e. derived from prices). Based on this, the Company and Group have categorised these financial instruments as Level 2 under the fair value hierarchy in accordance with NZ IFRS 13 – Fair Value Measurement. Capital management The Group’s capital includes share capital, reserves and retained earnings. The objective of the Group’s capital management is to ensure a strong credit position to support business growth and maximise shareholder value. The Group is subject to capital requirements imposed by the bank lenders (through covenants in the Syndicated Facility Agreement) and bondholders (through covenants in the Master Trust Deed). The Group has met all of these externally imposed capital requirements for the year ended 31 December 2022 (2021: all requirements met). The Group capital structure is managed, and adjustments are made, with Board approval. There were no changes to objectives, policies or processes during the year ended 31 December 2022 (2021: none). 19. Share capital and reserves At 31 December 2022, there were 232,116,894 ordinary shares on issue (2021: 230,215,366). All ordinary shares are fully paid and have no par value. All shares carry one vote per share and carry the right to dividends. Share capital On issue at beginning of year Shares issued under the dividend reinvestment plan Shares paid under employee share plans Employee share plan option cost On issue at end of year Share capital (in thousands of shares) On issue at beginning of year Shares issued under the dividend reinvestment plan Shares issued under employee share plans On issue at end of year 2022 $000 2021 $000 324,899 303,499 16,484 15,230 2,145 684 5,372 798 344,212 324,899 2022 2021 229,427 227,073 1,504 629 1,102 1,252 231,560 229,427 89 The total shares on issue at 31 December 2022 of 232,116,894 for the Company differs from the share capital for the Group due to shares held in 100% owned subsidiary, Summerset LTI Trustee Limited. As at 31 December 2022, 557,242 shares are held by Summerset LTI Trustee Limited for employee share plans, which are eliminated on consolidation. Refer to Note 21 for further details on employee share plans. Revaluation reserve The revaluation reserve is used to record the revaluation of care centre buildings. Hedging reserve The hedging reserve is used to record gains or losses on instruments used as cash flow hedges. Foreign currency translation reserve The foreign currency translation reserve is used to record the gain on translation of foreign currency subsidiaries to the Group's reporting currency. Dividends On 23 March 2022 a dividend of 8.6 cents per ordinary share was paid to shareholders and on 19 September 2022 a dividend of 10.7 cents per ordinary share was paid to shareholders (2021: on 22 March 2021 a dividend of 7.0 cents per ordinary share was paid to shareholders and on 20 September 2021 a dividend of 9.9 cents per ordinary share was paid to shareholders). A dividend reinvestment plan applied to the dividends paid. 688,127 ordinary shares were issued in relation to the plan for the March 2022 dividend and 815,721 ordinary shares were issued in relation to the plan for the September 2022 dividend. (2021: 493,015 ordinary shares were issued in March 2021 and 608,493 ordinary shares were issued in September 2021). Annual Report 2022 Notes to the financial statements (continued) 20. Earnings per share and net tangible assets Basic earnings per share Earnings ($000) Weighted average number of ordinary shares for the purpose of basic earnings per share (in thousands) Basic earnings per share (cents per share) Diluted earnings per share Earnings ($000) Weighted average number of ordinary shares for the purpose of diluted earnings per share (in thousands) Diluted earnings per share (cents per share) Number of shares (in thousands) 90 Weighted average number of ordinary shares for the purpose of basic earnings per share Weighted average number of ordinary shares issued under employee share plans Weighted average number of ordinary shares for the purpose of diluted earnings per share 2022 2021 269,072 543,664 230,656 228,256 116.66 238.18 2022 2021 269,072 543,664 231,233 229,525 116.36 236.86 2022 2021 230,656 228,256 577 1,269 231,233 229,525 At 31 December 2022, there were a total of 557,242 shares issued under employee share plans held by Summerset LTI Trustee Limited (2021: 788,621 shares). Net tangible assets per share Net tangible assets ($000) Shares on issue at end of period (basic and in thousands) Net tangible assets per share (cents per share) 2022 2021 2,185,772 1,917,850 231,560 229,427 943.93 835.93 Net tangible assets are calculated as the total assets of the Group less intangible assets and less total liabilities. This measure is provided as it is commonly used for comparison between entities. 21. Employee share plans Senior employee share plan - share option scheme The number of options granted to each participant equals the incentive remuneration value divided by the volume weighted average price on the NZX during the 10 trading day period. Where applicable, the exercise price of the granted share options is determined from the volume weighted average price on the NZX during the 10 trading day period determined by the Board prior to the grant. Effective from the 2021 annual option grant, the option exercise price is set at nil and therefore no option valuation is required. Balance at beginning of period Granted during the year Exercised during the year Forfeited during the year Balance at end of period Exercisable at end of period 2022 2021 NUMBER OF OPTIONS 000's WEIGHTED AVERAGE EXERCISE PRICE NUMBER OF OPTIONS 000's WEIGHTED AVERAGE EXERCISE PRICE 2,306 - (514) (165) 1,627 972 $6.73 - $6.82 $8.08 $6.57 $8.31 2,612 535 (412) (429) 2,306 903 $7.78 $1.89 $6.34 $7.43 $6.73 $6.90 Options outstanding as at 31 December 2022 have a weighted average remaining life of 1.93 years (2021: 2.55 years). There was no annual option grant in 2022 as the scheme was under review as at 31 December 2022. For the 2021 annual option grant, 50% of the vesting criteria is time-based only (non-hurdled) for all Participants; for the remaining 50% of the vesting criteria, the following performance hurdles apply to all Participants: 91 • • • • 50% underlying net profit after tax 20% relative earnings growth 20% customer initiatives 10% employee initiatives For annual option grants made between 2018 and 2020, while there is a requirement to remain employed by Summerset up to vesting date, there are no performance hurdles for vesting of share options to senior management team members, other than the members of the Executive Leadership Team. For certain one-off option grants outside of the annual option grant process, performance hurdles are set relating to specific performance milestones for the relevant Participant. The maximum terms for options granted range between three and six years. The share option scheme is an equity-settled scheme and measured at fair value at the date of the grant. The fair value determined at the grant date of the equity-settled share-based payments is expensed over the vesting period, based on the Group’s estimate that the share options will vest. Where applicable, these options were valued using the Black-Scholes valuation model, and the option cost for the year ending 31 December 2022 of $2,147,000 has been recognised in the income statement of the Company and the Group for that period (2021: $995,000). The Group has no legal or constructive obligation to repurchase or settle the share options in cash. Valuation assumptions for those options with an exercise price: Discount to reflect options may not meet vesting criteria Risk free rate of return Volatility 2022 15% 2021 15% 0.5% - 2% 0.5% - 2% 23% - 26% 23% - 26% All-staff employee share plan The Group operates an all-staff employee share plan. A total of 1,706 employees participated in the share issue under the plan for the year ended 31 December 2022 (2021: 1,368 employees). In 2022, the Group contributed $1,000 per participating employee (being the total value of the shares issued). A total of 167,188 Company shares were issued under the scheme at $10.16 per share (2021: Annual Report 2022 Notes to the financial statements (continued) 99,864 shares at $13.53 per share). The shares are held by Summerset LTI Trustee Limited and vest to participating employees after a three-year period. The cost for the year ending 31 December 2022 of $566,000 has been recognised in the income statement of the Company and the Group for that period (2021: $368,000). 22. Related party transactions Refer to Note 21 for employee share plan details. Transactions with companies associated with Directors The Group also enters into transactions with other entities that some of the Directors may sit on the board of. These transactions are entered into in the normal course of business. For a full list of all material director interests, please refer to the Disclosures section on page 126 of this report. 23. Key management personnel compensation The compensation of the key management personnel of the Group is set out below: Directors’ fees Short-term employee benefits Share-based payments Termination payments 92 Total 2022 $000 877 5,485 1,273 62 7,697 2021 $000 782 4,572 542 - 5,896 Refer to Note 21 for employee share plan details for key management personnel. 24. Commitments and contingencies Guarantees As at 31 December 2022, the Group had the following guarantees in place: • • • • NZX Limited holds a guarantee in respect of the Group, as required by the NZX Listing Rules, for $75,000 (2021: $75,000). Summerset Retention Trustee Limited holds guarantees in relation to retentions on construction contracts on behalf of the Group. As at 31 December 2022, $13.0 million was held for the benefit of the retentions beneficiaries (2021: $10.0 million). Auckland Transport holds a performance guarantee for $65,000 (2021: $65,000). Tauranga City Council holds a performance guarantee for $350,000 (2021: $350,000). • Quattro RE Limited holds a demand guarantee in relation to the lease of the office premises for $120,819 (2021: nil). Capital commitments At 31 December 2022, the Group had $63.2 million of capital commitments in relation to construction contracts (2021: $210.5 million). Contingent liabilities WorkSafe New Zealand is investigating a construction site fatality which occurred at the Group’s St Johns site on 4 November 2022. This investigation is ongoing, and the Group is cooperating fully with this process. The directors of Summerset cannot reasonably estimate the adverse financial effect (if any) on the Group if the ongoing investigation is ultimately resolved against the Group’s interests. There were no other known material contingent liabilities at 31 December 2022 (2021: nil). 25. Subsequent events On 20 February 2023, the Group announced it was considering making an offer of up to NZ$125 million guaranteed, secured, unsubordinated fixed rate bonds, for a five year period. Under the proposed offer, the Group will have the ability to accept an additional NZ$50 million of oversubscriptions at its discretion. The offer is scheduled to open during the week commencing 27 February 2023. On 23 February 2023, the Directors approved a final dividend of $26.9 million, being 11.6 cents per share. The dividend record date is 10 March 2023 with a payment date of 23 March 2023. There have been no other events subsequent to 31 December 2022 that materially impact on the results reported. 93 Annual Report 2022 Independent Auditor’s Report to the Shareholders of Summerset Group Holdings Limited Report on the audit of the financial statements Opinion We have audited the financial statements of Summerset Group Holdings Limited (“the company”) and its subsidiaries (together “the Group”) on pages 58 to 93, which comprise the statement of financial position of the Group as at 31 December 2022, and the income statement, statement of comprehensive income, statement of changes in equity and statement of cash flows for the year then ended of the Group, and the notes to the consolidated financial statements including a summary of significant accounting policies. In our opinion, the consolidated financial statements on pages 58 to 93 present fairly, in all material respects, the consolidated financial position of the Group as at 31 December 2022 and its consolidated financial performance and cash flows for the year then ended in accordance with New Zealand equivalents to International Financial Reporting Standards and International Financial Reporting Standards. 94 This report is made solely to the Company's shareholders, as a body. Our audit has been undertaken so that we might state to the Company's shareholders those matters we are required to state to them in an auditor's report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company and the Company's shareholders, as a body, for our audit work, for this report, or for the opinions we have formed. Basis for opinion We conducted our audit in accordance with International Standards on Auditing (New Zealand). Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Financial Statements section of our report. We are independent of the Group in accordance with Professional and Ethical Standard 1 International Code of Ethics for Assurance Practitioners (including International Independence Standards) (New Zealand) issued by the New Zealand Auditing and Assurance Standards Board, and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Ernst & Young provides other assurance related and remuneration advisory services to the Group. Partners and employees of our firm may deal with the Group on normal terms within the ordinary course of trading activities of the business of the Group. We have no other relationship with, or interest in, the Group. Key audit matters Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the consolidated financial statements of the current year. These matters were addressed in the context of our audit of the consolidated financial statements as a whole, and in forming our opinion thereon, but we do not provide a separate opinion on these matters. For each matter below, our description of how our audit addressed the matter is provided in that context. We have fulfilled the responsibilities described in the Auditor’s responsibilities for the audit of the financial statements section of the audit report, including in relation to these matters. Accordingly, our audit included the performance of procedures designed to respond to our assessment of the risks of material misstatement of the financial statements. The results of our audit procedures, including the procedures performed to address the matters below, provide the basis for our audit opinion on the accompanying consolidated financial statements. Valuation and classification of investment property and freehold land and buildings Why significant How our audit addressed the key audit matter As disclosed in notes 9 and 11 of the consolidated financial statements: • • the Group’s investment property portfolio was valued at $5,418 million at 31 December 2022 and included completed investment property and investment property under development. the Group’s freehold land and buildings were valued at $288 million at 31 December 2022. This included freehold land and buildings operated by the Group for the provision of care services and land and buildings to be developed into care facilities in the future. The Group’s accounting policy is to measure these assets at fair value. Independent valuations of all investment property and freehold land and buildings were carried out by third party valuers, CBRE Limited and Jones Lang LaSalle Limited (the Valuers). The valuation of investment property and freehold land and buildings is inherently subjective given that there are alternative assumptions and valuation methods that may result in a range of values. Investment property and freehold land and buildings are recorded in the consolidated financial statements based on the value determined by the Valuers. Summerset derives revenue from properties it holds from both deferred management fees and the provision of services to residents. NZ IAS 40 requires properties to be classified as an investment property where the revenue from the supply of ancillary services is insignificant to the arrangement as a whole. Judgement is required to assess the significance of ancillary services in this context.  To address the key audit matter, we: External valuations • • read the valuation reports and discussed them with the Valuers. We assessed the valuation approach and confirmed that this was in accordance with the relevant accounting standards; and tested, on a sample basis, whether property specific information supplied to the Valuers by the Group reflected the underlying property records held by the Group. Assumptions and estimates • • • held discussions with the Valuers to gain an understanding of the assumptions and estimates used and the valuation methodology applied. This included understanding the impact that market uncertainty had on their assessment of significant inputs and assumptions. We also sought to understand and consider whether any restrictions had been imposed on the valuation process; considered whether the valuation incorporated appropriate assumptions for a sample of individual properties to reflect their characteristics, overall quality, geographic location and desirability as a whole; and engaged our in-house Real estate valuation experts to challenge the work performed by the Valuers and assess the reasonableness of the assumptions used based on their knowledge gained from reviewing valuations of similar properties, known transactions and available market data. Our work over the assumptions focused on the largest properties within the portfolio and those properties where the assumptions used and/or year-on-year fair value movement suggested a possible outlier compared to the rest of the portfolio and the market data for the sector. Estimated valuation range As a result of the judgement involved in determining valuations for individual properties and the existence of alternative assumptions and valuation methods, there is a range of values which can be considered reasonable when evaluating the independent property valuations used by the Group. If we identified an error in a property valuation or determined that the valuation was outside of a reasonable range, we evaluated the error or difference to determine if there was a material misstatement in the consolidated financial statements. Classification We considered management’s assessment of the classification of each type of property as either investment property or freehold land and buildings, including assessment against the requirements of the accounting standards, including the significance of ancillary services. Disclosures We considered the adequacy of the disclosures made in notes 9 and 11 to the financial statements. These notes explain the key judgements made in relation to the classification and valuation of investment property and freehold land and buildings and the estimation uncertainty involved in the process. 95 Annual Report 2022 Deferred Management Fee Revenue Recognition Why significant How our audit addressed the key audit matter Deferred management fee (“DMF”) revenue is 39% of the Group’s total revenue. The Group recognises deferred management fee revenue from residents over the expected period of tenure. The amount of revenue recognised in each year is subject to the Group’s judgement of each resident’s expected tenure in the village as well as the terms of the occupational right agreement and the type of unit occupied.  A change in the assumed tenure may have a material impact on revenue recognised in the year. Disclosures in relation to DMF revenue and the associated DMF receivable and revenue in advance balances are included in note 4 to the consolidated financial statements. To address the key audit matter, we: • • • • for a sample of residents, assessed the accuracy of a sample of the factual inputs to, and calculation of, the DMF revenue recognised during 2022 with reference to the occupancy right agreements; assessed the movements year on year in revenue recognised by each village based on an expectation derived from underlying village data; compared the Group’s assessment of assumed tenure against actual observed tenure; and assessed the adequacy of the related financial statement disclosures. Information other than the financial statements and auditor’s report The Directors of the company are responsible for the Annual Report, which includes information other than the consolidated financial statements and auditor’s report. Our opinion on the consolidated financial statements does not cover the other information and we do not express any form of assurance conclusion thereon. 96 In connection with our audit of the consolidated financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the consolidated financial statements or our knowledge obtained during the audit, or otherwise appears to be materially misstated. If, based upon the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard. Directors’ responsibilities for the financial statements The Directors are responsible, on behalf of the entity, for the preparation and fair presentation of the consolidated financial statements in accordance with New Zealand equivalents to International Financial Reporting Standards and International Financial Reporting Standards, and for such internal control as the Directors determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. In preparing the consolidated financial statements, the Directors are responsible for assessing on behalf of the entity the Group’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the Directors either intend to liquidate the Group or cease operations, or have no realistic alternative but to do so. Auditor’s responsibilities for the audit of the financial statements Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with International Standards on Auditing (New Zealand) will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these consolidated financial statements. A further description of the auditor’s responsibilities for the audit of the financial statements is located at the External Reporting Board’s website: https://www.xrb.govt.nz/standards-for-assurance-practitioners/auditors-responsibilities/audit-report-1/. This description forms part of our auditor’s report. The engagement partner on the audit resulting in this independent auditor’s report is Grant Taylor. Chartered Accountants Wellington 23 February 2023 97 Annual Report 2022 98 Artist impression Summerset Boulcott Governance Summerset has adopted the principles below as an appropriate way to demonstrate its commitment to best practice governance and to provide transparency in the Company’s approach to corporate governance for the benefit of its shareholders and other stakeholders. These principles are from the NZX Corporate Governance Code issued in June 2022 ('NZX Code'). Each principle of the NZX Code is set out below with an explanation on how Summerset meets it. As at 31 December 2022, Summerset considers that it was in full compliance with NZX Listing Rules and the NZX Code. The Code of Ethics Policy, Diversity and Inclusion Policy, Securities Trading Policy and Guidelines, Whistle Blowing Policy, Supplier Code of Conduct, Modern Slavery Policy and Anti-Bribery and Corruption Policy can be found on the Company’s website and internal intranet alongside other governance documents. Principle 1: Code of ethical behaviour 'Directors should set high standards of ethical behaviour, model this behaviour and hold management accountable for these standards being followed throughout the organisation.' Ethical standards The Board maintains high standards of ethical conduct and expects the Company’s employees to act legally and with integrity in a manner consistent with the policies, guiding principles and values that are in place. These include the following: • Code of Ethics This guide sets out the basic principles of legal and ethical conduct expected of all employees and Directors. The Company encourages open and honest communication by staff about any current or potential problem, complaint, suggestion, concern or question. 99 • Diversity and Inclusion Policy This policy outlines the Company’s guiding principles for diversity and inclusion. Refer to Principle 2 for further details. • Securities Trading Policy In accordance with the Company’s Securities Trading Policy, the NZX Listing Rules and the Financial Markets Conduct Act 2013, Directors and employees of the Company are subject to limitations on their ability to buy or sell Company shares. • Whistle Blowing Policy This policy encourages employees to come forward if they have concerns regarding serious wrongdoing, and ensures that employees have access to a confidential process in which they can report any issues in relation to serious wrongdoing without fear of reprisal or victimisation. • Supplier Code of Conduct and Modern Slavery Policy These documents set out the minimum standards expected of Summerset’s suppliers and support Summerset’s commitment to sustainable, ethical and inclusive procurement. • Anti-Bribery and Corruption Policy This policy sets out Summerset’s zero-tolerance approach to bribery and corruption. It also makes clear that donations to political parties are not permitted. • Code of Conduct This policy sets out the expected behaviours while in employment with the Company. Company employees are expected to act honestly, conscientiously, reasonably and in good faith, while at all times having regard to their responsibilities, the interests of Summerset, and the welfare of our residents and staff. • Gift Policy This policy governs the acceptance and reporting of benefits given to staff by third parties. • Conflicts of Interest Summerset's Code of Ethics outlines the standards of integrity, professionalism and confidentiality to which all employees and Directors of the Company must adhere with respect to their work and behaviour. To maintain integrity in decision-making, each Director must advise the Board of any potential conflict of interest if such arises. If a conflict of interest exists, the Director concerned will have no involvement in the decision-making process relating to the matter. • Interests Register In accordance with the Companies Act 1993 and the Financial Markets Conduct Act 2013, the Company maintains an Interests Register in which all relevant transactions and matters involving the Directors are recorded. Annual Report 2022 Principle 2: Board composition and performance 'To ensure an effective board, there should be a balance of independence, skills, knowledge, experience and perspectives.' Role of the Board of Directors The Board of Directors is elected by Shareholders and has responsibility for taking appropriate steps to protect and enhance the value of the assets of the Company in the best interests of its Shareholders. The Board has adopted a formal Board Charter detailing its authority, responsibilities, membership and operation. The key responsibilities of the Board include setting the overall direction and strategy of the Company, establishing appropriate policies and monitoring performance of management. The Board appoints the Chief Executive Officer and delegates the day-to-day operating of the business to the Chief Executive Officer. The Chief Executive Officer implements policies and strategies set by the Board and is accountable to it. The Board also has responsibility for ensuring the Company’s financial position is sound, and financial statements comply with generally accepted accounting practice, and that the Company adheres to high standards of ethical and corporate behaviour. A summary of the Board mandate is as follows: • A majority of the Board should be Independent Directors as defined in the NZX Listing Rules, • • The Chair of the Board should be independent, The Chair and the Chief Executive Officer should be different people, • Directors should possess a broad range of skills, qualifications and experience, and remain current on how best to perform their duties as Directors, • • 100 Information of sufficient content, quality and timeliness, as the Board considers necessary, will be provided by management to allow the Board to discharge its duties effectively, and The effectiveness and performance of the Board and its individual members should be re-evaluated on an annual basis. Directors receive an induction upon appointment to the Board to ensure their full knowledge of the Company and the industry in which it operates. The Directors are expected to keep themselves abreast of changes and trends in the business and to keep themselves up to date to ensure they best perform their duties as Directors of the Company. All Directors have been issued letters setting out the terms and conditions of their appointment. Delegation of authority The Board delegates to the Chief Executive Officer responsibility for implementing the Board’s strategy and for managing the Company’s operations. The Chief Executive Officer and management have Board-approved levels of authority and, in turn, sub-delegate authority in some cases to direct reports. This is documented in the Delegated Authority Policy. Retirement and re-election In accordance with the Company’s Constitution and the NZX Listing Rules, Directors are required to retire three years after their appointment or at the third Annual Shareholder Meeting following their appointment (whichever is later). Directors who have been appointed by the Board must also retire at the next Annual Shareholder Meeting following their appointment. The Board Charter states that it is not generally expected that a non-executive Director would hold office for more than 10 years or be nominated for more than three consecutive terms. The Board Charter also provides that Directors may accept other board appointments only where that does not detrimentally affect their performance as a Director of Summerset. In making this assessment, the number and nature of a Director’s other governance roles may be relevant. Directors may offer themselves for re-election by Shareholders each year at the Annual Shareholder Meeting. Procedures for the appointment and removal of Directors are also governed by the Constitution. The People and Culture Committee identifies and nominates candidates to fill Director vacancies for Board approval. Information about candidates for election or re-election is included in the Notice of Meeting to assist Shareholders in deciding whether or not to elect or re-elect the candidate. Board composition The Company’s Constitution prescribes that the Board shall be comprised of a minimum of three Directors, with at least two Directors ordinarily resident in New Zealand. As at 31 December 2022, the Board was comprised of seven non-executive Independent Directors. In determining whether a Director is Independent, the Board has regard to the NZX Listing Rules. The Board considers all current Directors to be Independent in that they are not executives of the Company and do not have a direct or indirect interest or relationship that could reasonably influence, in a material way, their decisions in relation to the Company. As at 31 December 2022, the non-executive Independent Directors were Mark Verbiest (Chair), Dr Andrew Wong, Anne Urlwin, Gráinne Troute, Dr Marie Bismark, Stephen Bull and Venasio-Lorenzo Crawley. Andrea Scown is a Future Director under the Institute of Directors’ Future Directors programme, which aims to develop New Zealand’s next generation of directors and provide experience in large companies around the country. Andrea joined the Board as a Future Director in November 2022. Future Directors fully participate in all Board matters but do not have voting or decision rights. The Board is comprised of Directors who have a mix of skills, knowledge, experience and diversity to adequately meet and discharge its responsibilities and to add value to the Company through efficient and effective governance leadership. The current Directors have a varied and balanced mix of skills relevant to the Group’s operations. A summary of the key skills and experience held across the Board as at 31 December 2022, is set out in the table on the following page. 101 Annual Report 2022 Mark Verbiest Dr Andrew Wong Anne Urlwin Gráinne Troute Dr Marie Bismark Stephen Bull Venasio- Lorenzo Crawley Governance Experience in listed company governance Executive leadership NZ and international business leadership and CEO experience Finance and accounting Senior executive or board experience in financial accounting and reporting, corporate finance and internal controls Customer and operations Deep understanding of business operations and sales, marketing and brand strategies Health and clinical Health and clinical industry experience (in New Zealand and/or Australian environments) Property and construction Property, construction and development management experience Health and safety Experience and understanding of health and safety and wellbeing requirements People and culture People and performance strategy and management experience Digital and technology Experience overseeing IT and digital innovation, and an understanding of the opportunity and risks associated with technological development Strategy Experience in the development and execution of growth strategies, and the ability to assess strategic options and business plans Australian experience Australian property and business experience, Australian clinical/ sector experience 102 More information on the Directors, including their interests, qualifications and security holdings, is provided on our website and in the Disclosures sections of this report. As a term of their appointment, Directors are required to acquire and hold shares in the Company to the value of one year’s worth of director fees, though the Board has the ability to waive this requirement and would do so in the appropriate circumstances. They have two years in which to acquire the shares. Once this requirement has been achieved at a point in time, it is deemed satisfied and is not affected by future fluctuations in share price. This shareholding requirement may be satisfied by a Director holding shares through an associated person or entity. The Board holds regular scheduled meetings. The Directors generally receive material for Board meetings five working days in advance, except in the case of special meetings, for which the time period maybe shorter owing to the urgency of the matter to be considered. The Company Secretary attends all Board meetings, and in this capacity is accountable directly to the Board, through the Chair, on all matters to do with the proper functioning of the Board. All Directors have access to the Executive Leadership Team to discuss issues or obtain information on specific areas in relation to items to be considered at Board meetings or other areas as considered appropriate. Key executives and managers are invited to attend and participate in appropriate sessions at Board meetings. Directors have unrestricted access to Company records and information. Directors are entitled to obtain independent professional advice relating to the affairs of the Company or other responsibilities. Prior approval of the Chair is required before seeking such advice and Directors are expected to ensure that the cost of such advice is reasonable. Diversity and inclusion The Company and its Board are committed to a workplace culture that promotes and values diversity and inclusiveness. This is outlined in the Company’s Diversity and Inclusion Policy, which is available on the Company’s website. Diversity is defined as the characteristics that make one individual different from another. Diversity encompasses gender, race, ethnicity, disability, age, sexual orientation, physical capability, family responsibilities, education, cultural background and more. Inclusion is defined as a sense of belonging, respecting and valuing all individuals, providing fair access to opportunity, and removing discrimination and other barriers to involvement. The Board recognises that inclusion leads to a better experience of work for Summerset’s employees, makes teams stronger, leads to greater creativity and performance, contributes to a more meaningful relationship with residents, their families and stakeholders, and ultimately increases value to Shareholders. The Board believes that diversity across the workforce makes Summerset stronger and better able to connect with, and bring the best of life to, residents on a day-to-day basis. When there is a variety of thinking styles, backgrounds, experiences, perspectives and abilities, employees are more able to understand residents’ needs and to respond effectively to them. 103 The Diversity and Inclusion Policy states that the objective of Summerset’s Diversity and Inclusion Policy is to: 'Actively engage, communicate and develop our people leaders and our employees to enhance the awareness and understanding of diversity and inclusion that enhances our organisational culture and positively contributes to delivering the “best of life” for our customers.' In 2022 we completed collection of broader diversity data from our employees and embedded diversity data collection into our onboarding processes to better understand the breadth of our staff demographic and help drive future diversity and inclusion initiatives. We also designed and developed a Diversity Inclusion Awareness and Inclusive Leadership programme, which was completed by all Executive Leadership Team members and senior managers during 2022, with plans in place to roll out to all people leaders during 2023.  We have also established a national diversity and inclusion steering group made up of a broad cross-section of our staff to support the design and development of Diversity & Inclusion initiatives centred around meaningful goals and targets. Each year the Board reviews and assesses performance against the financial year objectives. The Board notes that the Omicron outbreak during the first half impacted the achievement of some FY22 plans; however, significant progress was achieved for the year ended 31 December 2022. As at 31 December 2022 (and 31 December 2021 for the prior comparative period), the mix of gender of those employed by the Company is set out in the table on the following page. The Executive Leadership Team comprises the Chief Executive Officer, the CFO and all General Managers who report to the Chief Executive Officer. These figures include permanent full-time, permanent part-time, fixed-term and casual employees, but not independent contractors. Annual Report 2022 Directors Total GENDER Male Female Executive Leadership Team Male Female Male Female Gender diverse1 Total All staff Total staff 1 Self-identified 2022 2021 4 3 7 6 3 9 626 1,839 3 2,468 4 3 7 8 3 11 535 1,594 2 2,131 Board performance The Board is committed to evaluating its performance on a regular basis, generally with a formal, external review bi-annually and an internal self-review each intervening year. The process, including evaluation criteria, is considered by the People and Culture Committee and approved by the Board. 104 Executive Leadership Team performance The Board evaluates the performance of the Chief Executive Officer annually. The Chief Executive Officer reviews the performance of direct reports, and reports to the Board on those reviews. The evaluation is based on criteria that include the performance of the business and the accomplishment of longer-term strategic objectives. It may include quantitative and qualitative measures. During the most recent financial year, performance evaluations were conducted in accordance with this process. Principle 3: Board committees 'The Board should use committees where this will enhance its effectiveness in key areas, while still retaining Board responsibility.' Board committees The Board has four standing committees: the Audit and Risk Committee, the People and Culture Committee, the Clinical Governance Committee, and the Development and Construction Committee. Each committee operates under a charter approved by the Board, and any recommendations they make are to the Board. The charter for each committee is reviewed annually. All Directors are entitled to attend committee meetings. Audit and Risk Committee While the ultimate responsibility for ensuring the integrity of the Company’s financial reporting rests with the Board, the Company has in place processes to ensure the accurate presentation of its financial position. These include: • An appropriately resourced Audit and Risk Committee operating under a written charter, with specific responsibilities for financial reporting and risk management; • Review and consideration by the Audit and Risk Committee of the financial information and preliminary releases of results to the market, before making recommendations to the Board; • A process to ensure the independence and competence of the Company’s external auditors and a process to ensure their compliance with the Company’s External Audit Independence Policy (available on the Company’s website); • Responsibility for appointment of the external auditors residing with the Audit and Risk Committee; • Monitoring by the Audit and Risk Committee of the strength of the internal control environment by considering the effectiveness and adequacy of Summerset’s internal controls, reviewing the findings of the external auditor's review of internal control over financial reporting, and being involved in setting the scope for the internal audit programme; and • Ensuring that management has established a risk management framework and monitoring the Company’s risk profile and reporting of risk, including new and emerging sources of risk (including climate risk). One of the main purposes of the Audit and Risk Committee is to ensure the quality and independence of the external audit process. The Committee makes enquiries of management and the external auditors so that it is satisfied as to the validity and accuracy of all aspects of the Company’s financial reporting. All aspects of the external audit are reported back to the Audit and Risk Committee and the external auditors are given the opportunity at Committee meetings to meet with Directors. The Audit and Risk Committee must comprise a minimum of three Directors, the majority of whom must be Independent. The Committee is chaired by an Independent Director who is not the Chair of the Board. The Committee currently comprises Anne Urlwin (Chair), Mark Verbiest, Gráinne Troute, Stephen Bull and Venasio-Lorenzo Crawley. The Audit and Risk Committee generally invites the Chief Executive Officer, Chief Financial Officer and General Manager Corporate Services, Head of Finance, internal auditors and external auditors to attend meetings. The Committee also meets and receives regular reports from the external auditors without management present, concerning any matters that arise in connection with the performance of their role. People and Culture Committee The role of the People and Culture Committee is to assist the Board in establishing and reviewing remuneration policies and practices, culture, leadership and capability, succession, employee development, inclusion, diversity and engagement for the Company and in reviewing Board composition. Specific objectives include: • Supporting the Board in ensuring the Company's vision and commitment to its people strategy is aligned with, and an enabler of, the Company's business strategy; • Assisting the Board in planning the Board’s composition; • • Evaluating the competencies required of prospective Directors (both non-executive and executive); Identifying those prospective Directors and establishing their degree of independence; • Developing the succession plans for the Board, and making recommendations to the Board accordingly; • Overseeing the process of the Board’s annual performance self-assessment and the performance of the Directors; • Assisting the Board in establishing remuneration policies and practices, and setting and reviewing the remuneration of the Company’s Chief Executive Officer, Executive Leadership Team and Directors; and • Monitoring remuneration policy and practice and making recommendations to the Board in relation to any substantive changes. The People and Culture Committee must comprise a minimum of three Directors, the majority of whom must be Independent. The Committee currently comprises Gráinne Troute (Chair), Mark Verbiest, Dr Marie Bismark, Anne Urlwin and Venasio-Lorenzo Crawley. The Board’s policy is that the Board needs to have an appropriate mix of skills, experience and diversity to ensure that it is well equipped. The Board reviews and evaluates on a regular basis the skill mix required, and identifies any existing gaps. 105 Annual Report 2022 Clinical Governance Committee The role of the Clinical Governance Committee is to assist the Board in ensuring a systematic approach to maintaining and improving the quality of care provided by the Company. Specific objectives include: • • Providing oversight that appropriate clinical governance mechanisms are in place and are effective throughout the organisation; Supporting the leadership role of the Chief Executive Officer in relation to issues of quality, safety and clinical risk; • Working with management to identify priorities for improvement; • • Ensuring that the principles and standards of clinical governance are applied to the health improvement and health protection activities of the Board; and Ensuring that appropriate mechanisms are in place for the effective engagement of representatives of residents and clinical staff. The Clinical Governance Committee must comprise a minimum of three Directors. The Committee currently comprises Dr Marie Bismark (Chair), Anne Urlwin, Gráinne Troute and Dr Andrew Wong. Development and Construction Committee The role of the Development and Construction Committee is to assist the Board in: • • Supporting management to establish and achieve development and construction objectives within the Company’s long-term plan; Supporting management to develop and implement strategies to achieve the Company’s development and construction objectives in line with best practice; • Helping the Company maintain appropriate risk management strategies to identify, mitigate and manage development and construction risks; • Maintaining a good understanding of, and confidence in, the Company’s frameworks, systems, processes and 106 personnel required to manage the Company’s development and construction activities effectively, including the assessment and realisation of opportunities and the application of appropriate risk management; and • Working with management to identify areas for improvement and innovation in construction and development practices. The Development and Construction Committee must comprise a minimum of three Directors. The Committee currently comprises Stephen Bull (Chair), Mark Verbiest, Anne Urlwin, Venasio-Lorenzo Crawley and Dr Andrew Wong. Attendance at Board and committee meetings A total of eight Board meetings, seven Audit and Risk Committee meetings, six People and Culture Committee meetings, three Clinical Governance Committee meetings and three Development and Construction Committee meetings were held in 2022. Director attendance at Board meetings and committee member attendance at committee meetings is shown on the table on the next page. Board Audit and Risk Committee People and Culture Committee Clinical Governance Committee Development and Construction Committee Total number of meetings held Mark Verbiest1 James Ogden3 Anne Urlwin4 Dr Andrew Wong5 Gráinne Troute Dr Marie Bismark Stephen Bull6 Venasio-Lorenzo Crawley7 8 8 3 8 8 8 8 7 8 7 7 3 7 72 7 72 52 72 6 62 2 6 62 6 6 42 6 3 22 12 3 3 3 3 22 32 3 3 1 3 32 32 32 2 32 1 Mark Verbiest: appointed to the People and Culture Committee from 1 May 2022 2 Attended the meeting as a non-committee member (where relevant, prior to appointment to the committee, as noted in this table and its footnotes) 3 James Ogden: retired as a director effective 27 April 2022 4 Anne Urlwin:  appointed as Chair of the Audit and Risk Committee from l May 2022; retired as Chair of the Development and Construction Committee from 1 May 2022 5 Dr Andrew Wong: appointed to Development and Construction Committee from 1 May 2022 6 Stephen Bull: appointed as a director effective 1 March 2022; appointed to the Audit and Risk Committee, and Development and Construction Committee (as Chair), from 1 May 2022 7 Venasio-Lorenzo Crawley: appointed to the Audit and Risk Committee, and Development and Construction Committee from 1 May 2022 Principle 4: Reporting and disclosure 'The Board should demand integrity in financial and non-financial reporting, and in the timeliness and balance of corporate disclosures.' 107 Making timely and balanced disclosures The Company is committed to promoting Shareholder confidence through open, timely and accurate market communication. The Company has in place procedures designed to ensure compliance with its disclosure obligations under the NZX and ASX Listing Rules. The Company’s Market Disclosure and Communications Policy sets out the responsibilities of the Board and management in disclosure and communication, and procedures for managing this obligation. Copies of key governance documents, including the Code of Ethics, Securities Trading Policy and Guidelines, Board and Committee Charters, Diversity and Inclusion Policy, Board and Executive Remuneration Policy, and Market Disclosure and Communications Policy are all available on the Company’s website at https://www.summerset.co.nz/investor-centre/governance-documents. Non-financial disclosures, such as the Company’s approach to health and safety, our people, the community and the environment are included within this Annual Report. Principle 5: Remuneration 'The remuneration of Directors and executives should be transparent, fair and reasonable.' Remuneration of Directors and the Executive Leadership Team is reviewed by the Board’s People and Culture Committee. Its membership and role are set out under Principle 3. The committee makes recommendations to the Board on remuneration packages, keeping in mind the requirements of the Board and Executive Remuneration Policy. The level of remuneration paid to the Directors and the Executive Leadership Team will be determined by the Board. However, Directors’ fees must be within the limits approved by the Shareholders of the Company. Further details on remuneration are provided in the Remuneration section of this Annual Report. Annual Report 2022 Principle 6: Risk management 'Directors should have a sound understanding of the material risks faced by the issuer and how to manage them. The Board should regularly verify that the issuer has appropriate processes that identify and manage potential and material risks.' 108 The Board is responsible for overseeing the management of risks across Summerset’s business. Summerset has robust risk management and reporting frameworks in place, whereby material business risks are regularly identified, monitored and managed.  Summerset’s Audit and Risk Committee is responsible for providing oversight over the Company’s risk management framework and compliance with that framework. Key risks are regularly reported to the Board, together with Summerset’s approach to risk management.  Summerset's risk management framework was reviewed by the Board in the 2021 financial year and a move to an enterprise risk management policy effective from 2022 was endorsed by the Board. The members of Summerset’s Executive Leadership Team are required to regularly identify the major risks affecting the business, record them in the Risk Register (which identifies the likelihood and consequence of each risk to Summerset’s business), and develop structures, practices and processes to manage and monitor these risks. Summerset has a co-sourced model for internal audit and an in-house Risk and Assurance Manager. As part of the co-sourced model, Summerset has engaged KPMG as its partner to assist with carrying out internal audit work on various parts of the Group’s operations, and all major risk and internal control issues are reported on at each Board meeting. Health and safety (including in relation to risks, performance and management) is discussed regularly at Board meetings and specific reviews are sought as required. Monthly reporting is prepared and used to assist in risk management, covering areas such as health and safety incidents, injury and near-miss frequency rates, and actions undertaken. Further information is covered in the health and safety section of this Annual Report on pages 28 and 29. Summerset has a Tax Governance Policy in place, which sets out its tax risk management objectives, tax reporting requirements to the Audit and Risk Committee, and policies and processes to manage tax risk. This Tax Governance Policy is reviewed by the Board every two years. The Board is satisfied that Summerset has effective policies and processes in place to ensure the Company is meeting its obligations. Summerset adopts a risk-averse stance in relation to tax issues and, where possible, seeks certainty on tax positions through proactive engagement with tax authorities. Summerset has considered whether it has any material exposure to economic, environmental and social sustainability risks (as defined in the ASX Corporate Governance Principles) and has determined the following: • Climate change risk Summerset expects to operate in a climate that will progressively experience more acute challenges and risks arising from increasing climate variability. This is likely to have various impacts on the longer-term plans and operation of the Group – specifically in relation to the design, build and construction of villages, as well as in the provision of care services to frail residents and the overall lifestyle satisfaction enjoyed in Summerset’s villages.  As such this requires a planned approach to assessing climate change risks and opportunities, and public disclosure from 2024 under the TCFD mandatory reporting requirements and the XRB’s climate-related financial disclosure standards. Summerset is committed to progressing towards TCFD/XRB compliant reporting as outlined in the roadmap table on page 50.  • Property market risk Property market factors could adversely affect sales volumes, occupancy levels or prices. This may have a flow-on impact to the value of Summerset’s property assets and the associated property valuations, which would in turn impact Summerset’s financial performance. • Staff retention and capability risk In a tight and highly competitive labour market, Summerset is at risk of staff shortages. Key areas within our construction and nursing teams will continue to be monitored closely. • Corporate governance and compliance risk Failure to comply with regulatory, societal and investor expectations in relation to corporate governance and environmental sustainability could impact Summerset’s reputation and financial performance over the longer term. Summerset's governance procedures are continually monitored. • Strategy and innovation risk There is a moderate risk with regard to Summerset’s strategic direction and ability to continue to innovate. Summerset’s intention is to stay at the forefront in all areas of its business, including technology, design, development and care. Summerset fosters a culture of continuous improvement and invests in innovation through a programme that enables the organisation to anticipate and respond to changes. • Diversity and inclusion risk While our Diversity and Inclusion Strategy and annual plans fulfil all our obligations in this area and we continue to improve our culture, there is always some level of risk, particularly in a tight labour market. This will continue to be monitored regularly through staff surveys and employees being actively engaged in this area. Page 103 provides more information on the Company's Diversity and Inclusion Strategy. • Construction and development risk Summerset faces construction and property development risks when developing new villages. These risks include project delays, default risk, governance and design risk, and potential labour and materials shortages. Supply chain cost inflation due to COVID-19 related shortages and delays remains ongoing. • Clinical care risk This is a high-risk area for Summerset, which requires constant monitoring, management and policy review. Good training and professional development, retention of staff, and investment in health and safety all help mitigate risk in this area. The increasing level of investment required in this area is likely to affect care profitability. • Resident and customer experience risk Providing top-level resident and customer experience at all times is a challenge due to the nature of the organisation. Summerset has various methods in which it manages and monitors these issues closely, including move-in surveys, ongoing resident feedback surveys, close one-on-one feedback sessions, and close contact with residents, families, next of kin and prospective residents. • Occupational health and safety risk The physical and mental wellbeing of all Summerset staff is one of our top priorities. Summerset maintains a strong focus on managing the increased risk to staff associated with COVID-19. 109 Annual Report 2022 • Australia market entry risk Entering a new market requires a measured and well-researched approach. Summerset is mitigating many new market entry risks through having established a local team, entering a well-researched market, and developing product and service offerings, procedures and processes tailored for the new market. Progress in Australia will be closely managed and has tracked well to date. • Data privacy and confidentiality risk Summerset actively monitors and manages these risks through its risk management and reporting frameworks. • Asset maintenance and upgrades risk Summerset has a coordinated approach to asset management and upgrades in all areas of the business. The Summerset Asset Management Plan dictates likelihood of replacement, and coupled with reactive maintenance analysis and trending directs a proactive application to our replacement programme.  Asset upgrade standards are clearly defined and well documented, and industry accepted national asset grading methodology is enforced.  • Sector penetration rates risk Summerset is fortunate to operate in the high-growth New Zealand retirement sector. The risk is a declining penetration (or participation) in the market. Current forecasts show this is unlikely to be the case in New Zealand, but it is a risk to be monitored. Competitors making significant changes to their revenue models or pricing strategy could impact on the revenue earned by Summerset. • Reputational risk Summerset operates in a sensitive market involving care of vulnerable members of society. Summerset’s performance and reputation could be adversely impacted should it suffer adverse publicity, particularly in respect of care or health and safety issues. • Regulatory change risk Changes in regulation could have a material impact on Summerset’s business operations. The existing New Zealand retirement villages regulatory regime is currently being reviewed.  In addition, Australia introduced changes to its aged care regime in April 2022 following the Royal Commission into Aged Care Quality and Safety and we will continue to implement further changes as recommended by the Royal Commission. Principle 7: Auditors 110 'The Board should ensure the quality and independence of the external audit process.' The Board’s relationship with its auditors, both external and internal, is governed by the Audit and Risk Committee Charter, External Audit Independence Policy and the Internal Audit Charter. These charters and policies set out the types of engagements that can be performed by the external and internal auditors. The Audit and Risk Committee actively monitors the amount of any non-audit work completed by the external auditor to ensure that independence is maintained. The external auditor (Ernst & Young) attends the Company’s Annual Shareholder Meeting and is available to answer questions from Shareholders in relation to the external audit. Ernst & Young was first appointed as external auditor of Summerset in 2004. In 2017, a full tender for the external audit services was completed and Ernst & Young was reappointed through this process. The lead audit partner was last changed in 2018, with the appointment of Grant Taylor. The lead audit partner will rotate for the 2023 audit. KPMG was appointed in the role of internal auditor of the Company in December 2016. With the establishment of a co-source model approach to internal audit in 2020, it currently remains the Company's co-source partner. The internal audit role is governed by the Internal Audit Charter, which states the objectives and scope of internal audit activities. The primary objective of internal audit is to increase the strength of the Company’s control environment. This is guided by a philosophy of adding value to improve the operations of the Company. The internal audit assists the Company in accomplishing its objectives by bringing a systematic and disciplined approach to evaluating and improving the effectiveness of its governance, risk management and internal controls. The Internal Audit Programme is set annually by the Audit and Risk Committee. The Internal Audit Charter sets out the scope of internal audit activities and this encompasses, but is not limited to, objective examinations of evidence to provide independent assessments on the adequacy and effectiveness of operations, governance, risk management and control processes for Summerset. This includes evaluating whether: • • The actions of Summerset’s officers, directors, staff, and contractors comply with Summerset’s policies, procedures and applicable laws, regulations and governance standards; The results of operations or programmes are consistent with established goals and objectives; • Operations or programmes are being carried out effectively and efficiently, with adequate internal controls; • • • Established processes and systems enable compliance with the policies, procedures, laws and regulations that could significantly impact Summerset; Information and the means used to identify, measure, analyse, classify and report such information is reliable and has integrity; and Resources and assets are acquired economically, used efficiently and protected adequately. Principle 8: Shareholder rights and relations 'The Board should respect the rights of shareholders and foster constructive relationships with shareholders that encourage them to engage with the issuer.' Respecting the rights of Shareholders The Company seeks to ensure that its Shareholders understand its activities by communicating effectively with them and giving them ready access to clear and balanced information about the Company. To assist with this, the Company’s website is maintained with relevant information, including copies of presentations and reports. The Company’s key corporate governance policies are also included on the website. The Company’s major communications with Shareholders during the financial year include its annual and half-year reports and the Annual Shareholder Meeting. The annual and half-year reports are available in electronic and hard-copy format. Communicating with Shareholders The Company welcomes communication and feedback from Shareholders. The Company’s investor centre (on its website) provides a Company phone number and email address for communications from Shareholders and investor relations enquiries. All Shareholder communications are responded to within a reasonable timeframe. The Company provides options for Shareholders to receive and send communications electronically, to and from both the Company and its share and bond registrar. The Company’s investor centre includes contact details for Link Market Services, through which all Company shares and bonds are managed. 111 Shareholder voting rights Shareholders have the right to vote on major decisions as required by the NZX Listing Rules. Further information on Shareholder voting rights is set out in the Company’s Constitution. Notice of Annual and Special Shareholder Meetings Notice of Annual and Special Shareholder Meetings are sent to Shareholders and published on the Company’s website at least 20 working days prior to the relevant meeting. 112 Board of DirectorsMARK VERBIEST Chair, IndependentVENASIO-LORENZO CRAWLEY IndependentGRÁINNE TROUTE IndependentANDREA SCOWNFuture DirectorVIEW DIRECTOR BIOGRAPHIES AT:www.summerset.co.nz/investor-centre/board-of-directors113 MARK VERBIEST Chair, IndependentSTEPHEN BULL IndependentANNE URLWIN IndependentDR MARIE BISMARK IndependentDR ANDREW WONG Independent114 Executive Leadership TeamVIEW EXECUTIVE LEADERSHIP BIOGRAPHIES AT:www.summerset.co.nz/investor-centre/our-leadership-team/STEWART SCOTT General Manager Development – AustraliaSCOTT SCOULLARChief Executive OfficerDEAN TALLENTIRE General Manager ConstructionELEANOR YOUNGGeneral Manager Operations and Customer Experience115 FAY FRENCHGeneral Manager SalesWILL WRIGHT Chief Financial Officer and General Manager Corporate ServicesKAY BRODIE General Manager Marketing and CommunicationsAARON SMAILGeneral Manager DevelopmentDAVE CLEGGGeneral Manager People and CultureAnnual Report 2022 Remuneration Remuneration overview Remuneration philosophy Summerset’s purpose is to 'Bring the Best of Life' to our residents. Achieving this is dependent on motivated employees performing at a consistently high level. A competitive and affordable remuneration structure that is equitable and attractive is an important contributory factor for maintaining this high level of employee engagement. Remuneration encompasses wages, salaries, incentives, non-reimbursing allowances and a range of employee benefits including KiwiSaver. Executive remuneration is set by the People and Culture Committee in accordance with the principles laid out in the People and Culture Committee Charter. Market position Summerset benchmarks pay rates, comparing market rates while ensuring affordability (i.e. paying at the level necessary to attract and retain good people while controlling costs). A review of market relativity is conducted annually to ensure that Summerset remains competitive and has cost-effective pay practices. The market review draws on several data sources, for example: • Remuneration survey data from the New Zealand Aged Care Association; • Competitive remuneration information available by subscription to remuneration specialist databases; and 116 • Wage and employment information produced by Statistics New Zealand. The market review helps us to determine whether we've remained competitive with the market and implement strategies to adjust pay ranges as required in the annual remuneration review process. Benefits Summerset offers an attractive benefits package to permanent employees, including: • • • • • • • Southern Cross Health Essentials health insurance; Employee Share Scheme – currently $1,000 worth of Summerset shares each year subject to Trust Deed and Scheme Rules; Birthday leave; 10 days of sick leave available from day one of employment; Long-service leave and additional surgical health insurance after five years; Employee Assistance Programme; Recruitment referral payments; • Quarterly draw to win vouchers worth $3,000; • Contributions to fundraising and sports teams; • Interest-free loans during times of hardship; • Weekend allowance, uniforms and overtime for care centre roles; • Professional Development and Recognition Programme payments and indemnity insurance for nurses; • Meals for night shift staff; and • Short-term incentives and long-term incentive share option plan for specific roles. Director remuneration The total amount of remuneration and other benefits received by each Director during the year ended 31 December 2022 is provided below. These amounts reflect actual payments to directors during the year, and consequently, depending on each Director's quarterly billing cycle, payroll periods and the actual payment date, the amounts stated may vary between directors and may not be representative of the directors' fees earned for the year ended 31 December 2022. Director Board fees Mark Verbiest  Anne Urlwin $180,000 (Chair) $95,000 Dr Andrew Wong $94,760 Gráinne Troute $96,250 James Ogden1 $15,000 Dr Marie Bismark $90,000 Stephen Bull2 $86,878 Venasio- Lorenzo Crawley $94,760 Audit and Risk Committee Clinical Governance Committee People and Culture Committee Development and Construction Committee $13,333 (incoming Chair) $3,000 (outgoing Chair) $2,500 (outgoing Chair) $13,750 (Chair) $15,000 (Chair) $11,058 (incoming Chair) Total remuneration $180,000 $110,833 $94,760 $110,000 $18,000 $105,000 $97,936 $94,760 Total $752,647 $16,333 $15,000 $13,750 $13,558 $811,288 1 Retired from Board on 27 April 2022 2 Appointed to Board on 1 March 2022 Directors’ fees were reviewed during 2022 and increases were approved by Shareholders, effective from 1 May 2022.  As at 31 December 2022, the maximum aggregate amount of remuneration payable by Summerset to Directors (in their capacity as Directors) was $904,450 per annum for the non-executive Directors (2021: $840,000) and annualised standard Directors’ fees were $831,200, inclusive of additional remuneration for committee Chairs (2021: $768,000).  In respect of Australian-based directors, the Board has decided to pay those Directors in Australian dollars at the same face value the New Zealand directors are paid.  This results in those Directors receiving slightly more fees (as recorded in the table above).  As at 31 December 2022, the only Director who received payment in Australian dollars was Stephen Bull.  As at 31 December 2022, the standard Director fees per annum are as follows:  Board of Directors Audit and Risk Committee Clinical Governance Committee People and Culture Committee Development and Construction Committee Position Fees (per annum) Chair $181,200 Member $97,500 Chair Chair Chair Chair $20,000 $15,000 $15,000 $15,000 117 Annual Report 2022 No additional fees are paid to committee members. Directors’ fees exclude GST, where appropriate. Directors are entitled to be reimbursed for costs directly associated with carrying out their duties, including travel costs. Directors and Officers also have the benefit of Directors’ and Officers’ liability insurance. Cover is for damages, judgements, fines, penalties, legal costs awarded and defence costs arising from wrongful acts committed while acting for Summerset. There are some exclusions within the policy. The insurance cover is supplemented by the provision of Director and Officer indemnities from the Company, but this does not extend to criminal acts. Executive remuneration The remuneration of members of the Executive Leadership Team (Chief Executive Officer and direct reports) is designed to promote a high-performance culture and to align Executive reward to the development and achievement of strategies and business objectives that create sustainable value for Shareholders. The Board is assisted in delivering its responsibilities and objectives for Executive remuneration by the People and Culture Committee. The role and membership of this committee is set out in the Governance section of this report.   Summerset’s remuneration policy for members of the Executive Leadership Team provides the opportunity for them to receive, where performance merits, a potential total remuneration package in the upper quartile for equivalent market-matched roles. The People and Culture Committee reviews the annual performance outcomes for all Executive Leadership Team members, including the Chief Executive Officer. The review takes into account external benchmarking to ensure competitiveness with comparable market peers, along with consideration of an individual’s performance, skills, expertise and experience. 118 Market alignment of Executive remuneration 2020-2022 Over the past two years the People and Culture Committee has been progressively reviewing and adjusting Executive remuneration to more closely align with the market, and the rest of the NZX. The overarching goal was to ensure this was achieved whilst retaining strongly performing members of the Executive Leadership Team who successfully managed the business through the COVID-19 environment (which resulted in considerable operational complexities). This remuneration alignment journey has seen significant adjustments to the structure of the Long-Term Incentive (LTI) scheme. Related adjustments were made to the Executive fixed remuneration that in part compensated for the stepped changes in the Executive LTI Scheme. Detail on the changes made to the LTI scheme are set out below under the heading Long-term incentives.  Total remuneration for Executives is made up of three components: fixed remuneration, short-term incentive (STI) and long-term incentive (LTI). The remuneration packages for members of the Executive Leadership Team, including the CEO, do not include severance or exit payments, payable on termination of their appointment. Fixed remuneration Fixed remuneration consists of a base salary and benefits. Summerset’s policy is to pay fixed remuneration with reference to the market median. Short-term incentives Short-term incentives (STIs) are at-risk payments designed to motivate and reward for performance, for the financial year that they relate to. The target value of an STI payment is set annually, as a percentage of the Executive Leadership Team member’s fixed remuneration. For 2022, the relevant percentages were 20–30% (2021: 20–40%). A proportion of the STI (80% for CEO and 40-60% for the other Executive Leadership Team members) is related to achievement of annual business performance metrics, which aim to align executives to a shared set of key performance indicators (KPIs) based on business priorities for the next 12 months. Target areas which applied to the shared KPIs for 2022 are outlined on the table on the next page. Target Underlying EBITDA* New sales development margin* Resales net cash* Retirement unit delivery Customer satisfaction Customer clinical quality of care Health and safety People and culture Total payable Minimum performance On-target weighting Maximum performance 36% 9% 9% 20% 2.5% 5% 5% 5% 40% 10% 10% 20% 5% 5% 5% 5% 80% 20% 20% 20% 5% 5% 5% 5% 91.5% 100% 160% There are three performance levels within each financial (*) target – gate-opener, on-target and maximum performance – with 100% of the amount allocated to that target area being payable when the on-target level is achieved. The Retirement unit delivery target has 100% payable when on-target performance is achieved. The Customer satisfaction target has two performance levels – gate opener and on-target performance with 50% and 100% respectively being payable.   The three remaining non-financial measures and the % payable for each target area are assessed against Board approved annual objectives each year. The balance of the STI is related to individual performance measures. If the gate-opener underlying EBITDA performance against budget is not achieved, no STI payment will be made. The gate-opener is based on achieving 100% of underlying EBITDA performance target (90% pay-out in relation to this target). In addition, the areas of new sales development margin and the resales net cash pay out at 90% on achievement of performance targets. Minimum performance is when all of the gate-opener performance targets are achieved and there is full achievement of all other targets, which results in 91.5% of the shared targets being payable. 119 A 100% pay-out is based on achieving 110% of the financial targets (*) and meeting all the other Shared KPI targets criteria. The maximum performance levels allow employees to be rewarded for exceptional performance results. The maximum amount of an STI payment for an Executive Leadership Team member is 160% of the STI on-target amount for that individual and would require material overachievement at 125% or more of the financial targets (*) and maximum achievement of every other KPI target and individual performance measures. Long-term incentives Long-term incentives (LTIs) are at-risk payments made through a share options plan, designed to align the reward of Executive Leadership Team members with the enhancement of shareholder value over a multi-year period.  LTI Plan The Executive Leadership Team members are participants in an LTI option plan. Under this plan, Executive Leadership Team members are granted share options. These share options are exercisable in relation to shares in Summerset Group Holdings Limited. Option grants are made annually, with the value of each grant being set at the date of each grant and determined as a percentage of the Executive Leadership Team member’s fixed remuneration. As noted above there have been progressive changes to the LTI plan which were implemented in relation to the 2021 and 2022 grants.  For certain one-off option grants made for strategic reasons from time to time outside of the annual option grant process, performance hurdles are set relating to specific performance milestones for the relevant participant. Annual Report 2022 2018, 2019 and 2020 For the three option grants made under the LTI plan in 2018, 2019 and 2020, the relevant participation percentages for Executives ranged from 20% to 40% of fixed remuneration. The number of Options granted was calculated utilising the Black Scholes risk-weighted methodology, with an option exercise price based on a 10-day volume weighted average price (VWAP) of Summerset shares prior to grant date. Vesting of share options was subject to achievement of performance hurdles, which are assessed over two- and three-year periods. 2021 This was the first step by the People and Culture Committee to closer align Executive Remuneration to the market with the relevant participation percentages for Executives ranging from 20% to 30%. The number of Options granted was based on a 10-day VWAP prior to grant date. Options were zero priced and vesting is in two tranches at three and four years. 50% of each tranche vests based on time (retention) and 50% vests based on performance hurdles. Consistent with prior years, the performance hurdle portion of each tranche is based on the following measures: 50% Absolute earnings (cumulative actual underlying net profit after tax for the Group against budget) 20% Relative earnings (earnings per share growth of the Group compared to a defined peer group) 10% Clinical strategy delivery 10% People (5% staff engagement; 5% staff turnover) 10% Customer satisfaction (5% village residents; 5% care centre residents) The Absolute and Relative Earnings performance hurdles both have gate-openers, which, if met, result in 50% of the options related to that performance hurdle vesting for that tranche.  The Clinical Strategy hurdle and the % of related options vesting is assessed by the Board relative to the improvements in clinical systems and quality achieved during the vesting period.  The People and Customer hurdles each have targets which if met result in 100% of the related options vesting. Where all performance hurdles for a tranche meet their gate-opener and target criteria requirements, and including that tranche's time-based options, a total of 55.6% of that tranche's options vest. On-target performance of all performance hurdles for tranche results, including that tranche's time-based portion, results in a total of 74.1% of that tranche's options vesting. 100% of the options for each tranche vests when the absolute and relative earnings financial performance hurdles achieve 125% (or above) of the on-target performance requirements, and all other performance hurdles meet their on-target performance criteria – this includes the tranche's time-based options. With the change in vesting periods from two and three years to three and four years, the Board approved a one-off transition grant for existing participants in 2021. The transition grant consisted of two tranches with the first tranche vesting at two years and the second tranche at three years. The options granted were zero-priced and are time (retention) based with no performance hurdle requirements. 173,238 options were issued in December 2021 (including 73,740 transition grant options). 2022 In 2022 the LTI plan was further amended and is now more closely aligned with broader practice in other NZX-listed companies. Options remain zero-priced and vesting occurs in two tranches at three and four years. The vesting of all options is now subject to the achievement of two financial performance hurdles – 75% based on absolute Total Shareholder Return (aTSR) and 25% based on relative Total Shareholder Return (rTSR) (compared to a defined peer group). Non-financial hurdles and time-based vesting have been removed. In 2022 the option grants as a percentage of the Executive Leadership Team member’s fixed remuneration increased to a range between 30% and 50% as part of the alignment to market. A 10-day VWAP prior to the original planned December 2022 grant date was used to calculate the number of Options granted. Performance hurdles are set by the Board with the objective of aligning executive reward to the development and achievement of strategies and business objectives creating sustainable value for shareholders. The Board considers the 2022 LTI performance hurdles now better reflect the drivers of sustainable value for shareholders. 120 Senior Leadership Team LTI Plan In addition to the LTI share option plan in place for Executive Leadership Team members, Summerset also operates an LTI share option plan for other senior managers. The 2018, 2019 and 2020 LTI grants for senior managers were time (retention) based. For this group, no individual performance hurdles applied to LTI grants. The number of Options granted were calculated utilising the Black Scholes risk-weighted methodology, with an option exercise price based on a 10-day VWAP prior to grant date. Vesting of share options was over two- and three-year tranche periods. Effective from 2021, and including the changes made in 2022, all senior managers invited to participate do so on the same terms and conditions as the Executive Leadership Team (as detailed above). The number of options to be granted for the 2022 LTI are based on a percentage of base remuneration ranging from 15% to 25% (2021: 10–18%). 2022 LTI Option grants delayed  Due to the changes to the schemes’ performance hurdles noted above made in late 2022, the issuing of options was deferred to facilitate implementation of the changes and no share options were granted to Executive Leadership Team members or Senior Managers in December 2022 as would usually occur. Options will be issued to participants early in 2023. Options vested in 2022 348,803 Executive share options vested as at 31 December 2022. The 2019 tranche 2 grant performance hurdles resulted in a 90% vesting (167,840 Options) and the 2020 tranche 1 grant performance hurdle resulted in a 95% vesting (180,963 Options). These Options are therefore currently exercisable subject to Board confirmation of satisfaction of performance hurdle achievement and approval. The Executive Leadership Team includes the Chief Executive Officer. The Chief Executive Officer Remuneration section provides further details of share option movements under the LTI Plan for the Chief Executive Officer. Chief Executive Officer remuneration 121 Remuneration for years ended 31 December 2020 to 2022 TABLE A – FY2022 remuneration package of the CEO TABLE A Fixed remuneration Pay for performance Salary Other ↵ benefits1 Subtotal STI LTI Subtotal Total remuneration FY2022 $649,631 $25,369 $675,000 $202,5002 $337,5003 $540,000 $1,215,000 1 Other benefits for the current CEO include a car park and KiwiSaver. 2 STI component in CEO package, based on 30% of fixed remuneration at target (based on 100% payout). 3 LTI component in CEO package, based on 50% of fixed remuneration target (see LTI section above).   Annual Report 2022 TABLE B – provides the FY2020–2022 remuneration packages actually paid to the current and former CEO. Note the current CEO was appointed on 29 March 2021 (Remuneration includes both his time as CFO and his time as newly appointed CEO), and the former CEO's employment ended 26 March 2021. TABLE B Fixed remuneration Pay for performance Salary Other  benefits1 Subtotal STI LTI Subtotal Total remuneration FY2022 $649,631 $25,369 $675,000 $206,0712 $337,5003 $543,571 $1,218,571 FY20214 $607,155 $24,095 $631,250 $166,071 $475,8885 $641,959 $1,273,209 Former CEO FY2021 $166,410 $681 $167,091 $291,2406 $07 $291,240 FY2020 $623,242 $1,758 $625,000 $261,6258 $09 $261,625 $458,331 $886,625 1 Other benefits for the current CEO include a car park and KiwiSaver.    2 STI for FY2021 performance period (paid FY2022) for current CEO. 3 LTI component in current CEO package, based on 50% of fixed remuneration (see LTI section above) 4 STI component in CEO package, based on 30% of fixed remuneration (based on 100% payout).  5 LTI value granted in FY2021 period (which will vest based on performance criteria, in future years) for current CEO. This includes one-off transition options granted above the base LTI entitlement (see LTI section above). 6 STI for FY2020 performance period (paid FY2021) for former CEO. 7 No LTI awarded in the FY2021 period to former CEO. 8 STI for FY2019 performance period (paid FY2020) for former CEO. 9 No LTI awarded in the FY2020 period to former CEO. 122 KiwiSaver The Chief Executive Officer is a member of KiwiSaver. As a member of this scheme, the Chief Executive Officer is eligible to contribute and receive a company contribution of 3% of gross taxable earnings. For FY22, the company’s contribution for Scott Scoullar was $19,489. The CEO’s STI payable in relation to the FY22 period (payable in February 2023) is $211,432 and is based on achievement of shared KPI targets as follows: FY2022 KPI Underlying EBITDA FY2022 KPI performance % STI payable On-target performance exceeded New sales development margin On-target performance exceeded Resales net cash 101% of gate opener achieved Retirement unit delivery On target performance achieved Customer satisfaction On target performance achieved Customer clinical quality of care On target performance achieved People and culture Health and safety Total payable On target performance partially achieved On target performance partially achieved 1 No payment of this STI component following the death of scaffolding contractor on St Johns construction site. 52.49% 13.51% 9.1% 20% 5% 5% 2.5% 0%1 107.6% Components of CEO FY2022 annualised remuneration 1,500,000 1,000,000 500,000 0 Fixed On-plan Maximum Fixed Short-term incentives Long-term incentives The Chief Executive Officer’s fixed remuneration comprised annual salary and taxable benefits set at $675,000 per annum. The STI and LTI (based on the value granted in the FY2022), were 30% and 50% respectively of fixed remuneration. STI had a maximum available payment of 160% of the on-target as noted above. The standard LTI grant for 2022 will vest based on performance to 31 December 2025 (tranche 1) and 31 December 2026 (tranche 2), subject to retention and performance criteria being met. Further details are included in the LTI Plan entitlements section. 123 Description of Chief Executive Officer remuneration for performance for the year ended 31 December 2022 Plan Description Performance measures Percentage awarded against on- plan performance LTI In February 2022, vesting for 63,889 options granted under the LTI Plan at $6.34 on 10 December 2018 was assessed per the Plan Rules. The assessment period was 1 January 2019 to 31 December 2021. The vesting criteria were assessed and 95% of the options vested. 50% based on absolute earnings 95.0% 25% based on relative earnings 10% based on employee strategy initiatives 10% based on customer satisfaction 5% based on clinical strategy initiatives In February 2022, vesting for 64,655 options granted under the LTI Plan at an exercise price of $7.62 on 9 December 2019 was assessed per the Plan Rules. The assessment period was 1 January 2020 to 31 December 2021. The vesting criteria were assessed and 95% of the options vested. 50% based on absolute earnings 25% based on relative earnings 10% based on employee strategy initiatives 10% based on customer satisfaction 95.0% 5% based on clinical strategy initiatives   Annual Report 2022 Chief Executive Officer – LTI Plan entitlements Tranche T2 2022 T1 2022 T2 2021 T1 2021 Transition T2 2021 Transition T1 2021 T2 2020 T1 2020 T2 2019 T1 2019 T2 2018 Performance and retention period No. of Options Exercise price at grant 2023-2026 2023-2025 2022–2025 2022–2024 2022–2024 2022–2023 2021–2023 2021–2022 2020–2022 2020–2021 2019–2021 17,815 17,815 10,635 10,635 7,877 7,877 31,780 34,927 50,000 61,422 60,694 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $10.85 Status Unvested Unvested Unvested Unvested Unvested Unvested Unvested $10.85 Vested – Not exercised $7.62 Vested – Not exercised $7.62 Vested – Not exercised $6.34 Vested – Not exercised Note the Chief Executive Officer is also a participant of the Employee Share Scheme: 124 Issue date 18 July 2022 19 July 2021 17 August 2020 22 July 2019 No. of shares Status 98 73 Vesting 18 July 2025 Vesting 19 July 2024 107 Vesting 17 August 2023 140 Vested 22 July 2022 Current Chief Executive Officer LTI share option movements for the year ended 31 December 2022 Balance at 1 January 2022 Forfeited Granted Exercised Balance at 31 December 2022 Dec 2018 grant Dec 2019 grant Dec 2020 grant Dec 2021 grants Dec 2022 grant 137,361 116,978 68,545 37,024 - - (76,667) (5,556) (1,838) - - - - - - - - - 35,6301 - Total 359,908 (7,394) 35,630 (76,667) 60,694 111,422 66,707 37,0242 35,630 311,477 Vesting status Vested Vested Partially vested Unvested Unvested Exercise price at grant $6.34 $7.62 $10.85 Nil Nil 1 To be granted in early 2023, relates to the year ended 31 December 2022 2 Includes 15,754 one-off transition options granted in December 2021 The table above includes options granted under the LTI plan prior to 29 March 2021, when the Chief Executive Officer took up this role (previously Chief Financial Officer). Employee remuneration The number of employees or former employees (including employees holding office as Directors of subsidiaries), who received remuneration and other benefits valued at or exceeding $100,000 during the financial year ended 31 December 2022 is specified in the following table. The remuneration figures shown in the 'Remuneration' column include all monetary payments actually paid during the course of the year ended 31 December 2022. The table also includes the value of options relating to the 2022 financial year, which will be granted to individual employees under Summerset’s LTI Plan in early 2023. The table does not include amounts paid after 31 December 2022 that relate to the year ended 31 December 2022. The method of calculating remuneration is consistent with the method applied for the previous year. Remuneration No. of employees Remuneration No. of employees $100,000 to $109,999 83 $110,000 to $119,999 $120,000 to $129,999 $130,000 to $139,999 $140,000 to $149,999 $150,000 to $159,999 $160,000 to $169,999 $170,000 to $179,999 $180,000 to $189,999 70 43 46 36 23 17 11 16 $190,000 to $199,999 7 $200,000 to $209,999 4 $210,000 to $219,999 $220,000 to $229,999 5 1 $230,000 to $239,999 5 $240,000 to $249,999 6 $250,000 to $259,999 2 $260,000 to $269,999 2 $270,000 to $279,999 2 $280,000 to $289,999 4 $310,000 to $319,999 $320,000 to $329,999 $330,000 to $339,999 $340,000 to $349,999 $350,000 to $359,999 $360,000 to $369,999 $380,000 to $389,999 $390,000 to $399,999 $400,000 to $409,999 $440,000 to $449,999 $450,000 to $459,999 $470,000 to $479,999 $490,000 to $499,999 $630,000 to $639,999 $650,000 to $659,999 $700,000 to $709,999 $770,000 to $779,999 $850,000 to $859,999 2 2 1 2 1 2 1 1 1 2 1 1 1 1 1 1 1 1 $1,230,000 to $1,239,999 1 Pay gap The pay gap represents the number of times greater the Chief Executive Officer remuneration is to the remuneration of an employee paid at the median of all Summerset employees. For the purposes of determining the median paid to all Summerset employees, all permanent full-time, permanent part-time and fixed-term employees are included, with part-time employee remuneration adjusted to a full-time equivalent amount. At 31 December 2022, the Chief Executive Officer’s salary of $649,631 was 11.0 times (2021: 11.4 times) that of the median employee at $58,760 per annum. The Chief Executive Officer’s total remuneration, including STIs and LTIs, of $1,218,571, was 18.8 times (2021: 21.6 times) the total remuneration of the median employee at $64,784 per annum. 125 Annual Report 2022 Disclosures Director changes during the year ended 31 December 2022 Stephen Bull was appointed to the Board on 1 March 2022.  James Ogden retired from the Board on 27 April 2022. Directors’ interests The following is an excerpt from the Company's Interests Register, showing the material interests of Directors as at 31 December 2022, together with any entries in the Interests Register made during the year for the purposes of section 211(1)(e) of the Companies Act 1993. Interests no longer held as at 31 December 2022 are disclosed in italics. 126 Director Entity Mark Verbiest Anne Urlwin Dr Marie Bismark Meridian Energy Limited Freightways Limited (retired 31 March 2022) ANZ Bank New Zealand Limited (retired 31 December 2022) Willis Bond Te Rūnanga Audit and Risk Committee of Te Rūnanga O Ngāi Tahu City Rail Link Limited Precinct Properties New Zealand Limited Cigna Life Insurance New Zealand Limited (retired 21 February 2022) Queenstown Airport Corporation Limited Vector Limited Ventia Services Group Limited Infratil Limited (appointed 1 January 2023) GMHBA Health Insurance Royal Australasian College of Physicians Veteran's Health Advisory Panel Melbourne Health (retired 22 August 2022) Public Health Medicine Specialist registered with New Zealand Medical Council Royal Women's Hospital, Melbourne North Western Mental Health (retired 22 August 2022) University of Melbourne Te Whatu Ora - Capital & Coast (appointed 22 August 2022) Australian Institute of Company Directors (Victoria) (appointed 1 December 2022) Position Chair Chair Director Consultant Independent Chair Director Director Director Director Director Director Director Director Fellow Member Psychiatry Registrar n/a Director Psychiatry Registrar Professor Psychiatry Registrar Council Member Director Entity Gráinne Troute Dr Andrew Wong Venasio- Lorenzo Crawley Stephen Bull Tourism Holdings Limited Investore Property Limited Tourism Industry Aotearoa Tourism Industry Transformation Plan  Duncan Cotterill (appointed June 2022) HealthCare Holdings Limited QCS (Quipt Clinical Supplies) Limited Health Tick Limited The Drug Detection Agency Group Limited Kakariki Hospital Limited  Ascot Hospitals and Clinics Limited New Zealand Radiology Group Limited MercyAscot Properties Limited Endoscopy Auckland Limited Auckland Radiation Oncology Limited Kensington Hospital Limited MercyAscot Orthopaedics Limited Auckland University of Technology Endoscopy Governance Group New Zealand AUT Business School Added Value Limited Contact Energy Limited Wingate Direct Property (added 1 March 2022 on appointment) MaxCap Industrial Opportunites Fund (added 1 March 2022 on appointment) Bridge Housing Limited (added 1 March 2022 on appointment) Position Director Director Chair Co-Chair Board Member Managing Director Director Director Director Director Managing Director Director Director Chair Chair Director Chair Adjunct Professor Member Advisory Board Chair Director / Shareholder Shareholder Investment Committee Member Investment Committee Member Director 127 Effective 27 April 2022, James Ogden ceased to be a Director. He did not make any entries in the Company's Interests Register during the period 1 January 2022 to 27 April 2022. Information used by Directors There were no notices from Directors of the Company requesting to disclose or use Company information received in their capacity as Directors that would not otherwise have been available to them. Directors’ security holdings Securities in the Company in which each Director has a relevant interest as at 31 December 2022 are specified in the table below: Director Mark Verbiest Anne Urlwin Dr Marie Bismark Gráinne Troute Dr Andrew Wong Venasio-Lorenzo Crawley Stephen Bull Total Ordinary shares SUM010 retail bonds SUM020 retail bonds SUM030 retail bonds 11,500* 32,046 24,438 25,409 10,500 4,285 6,700 – 30,000 – – – – – 114,878 30,000 – – – – – – – 0 – 30,000 – – – – – 30,000 *Sarah Verbiest has a legal and beneficial interest in 11,500 SUM ordinary shares. Annual Report 2022 Securities dealings of Directors During the year, Directors disclosed the following transactions in respect of Section 148(2) of the Companies Act 1993. These transactions took place in accordance with the Company’s Securities Trading Policy. Director Mark Verbiest Anne Urlwin Nature of relevant interest Power to acquire or dispose Beneficial interest Beneficial interest Beneficial interest Date of transaction 1 September 2022 23 March 2022 19 September 2022 25 September 2022 Dr Marie Bismark Legal and beneficial interest 23 March 2022 Legal and beneficial interest 19 September 2022 Gráinne Troute Legal and beneficial interest 23 March 2022 Legal and beneficial interest 19 September 2022 Number of securities acquired/ (disposed) 4,500 164 212 32,046 157 205 129 168 128 Stephen Bull Beneficial interest 19 April 2022 6,700 Director appointment dates Consideration On-market acquisition of ordinary shares at an average price of $11.02 per share Issue of shares under dividend reinvestment plan at $11.20 per share Issue of shares under dividend reinvestment plan at $10.76 per share Transfer of legal ownership of shares at $9.05 per share (no change in beneficial interest) Issue of shares under dividend reinvestment plan at $11.20 per share Issue of shares under dividend reinvestment plan at $10.76 per share Issue of shares under dividend reinvestment plan at $11.20 per share Issue of shares under dividend reinvestment plan at $10.76 per share On-market acquisition of ordinary shares at an average price of $11.45 per share The date of each Director’s first appointment to the position of Director is provided below. Since the date of appointment, Directors have been re-appointed at Annual Meetings when retiring by rotation as required. Director Mark Verbiest Anne Urlwin James Ogden* Dr Marie Bismark Gráinne Troute Dr Andrew Wong Venasio-Lorenzo Crawley Stephen Bull Appointment date 1 July 2021 1 March 2014 2 September 2011 1 September 2013 1 September 2016 1 March 2017 1 February 2020 1 March 2022 *James Ogden retired on 27 April 2022.  He was also a Director from 1 October 2007 to 26 March 2009. Indemnity and insurance In accordance with Section 162 of the Companies Act 1993 and the constitution of the Company, the Company has arranged insurance for, and indemnities to, Directors and Officers of the Company, including Directors of subsidiary companies, for losses from actions undertaken in the course of their legitimate duties or costs incurred in any proceeding. Directors of subsidiary companies The remuneration of employees acting as Directors of subsidiaries is disclosed in the relevant banding of remuneration set out under the heading ‘Employee remuneration’ in the Remuneration section of the Annual Report. Employees did not receive additional remuneration or benefits for acting as Directors during the year. Scott Scoullar, Will Wright, Aaron Smail and Robyn Heyman were Directors of all the Company’s New Zealand incorporated subsidiaries as at 31 December 2022, with the exception of Summerset LTI Trustee Limited (the Directors of which are Mark Verbiest and Dr Marie Bismark). Scott Scoullar, Will Wright, Stewart Scott and Robyn Heyman were Directors of all the Company’s Australian incorporated subsidiaries as at 31 December 2022. No extra remuneration is payable to any Director of the Company for any Directorship of a subsidiary. Top 20 Shareholders as at 31 December 2022 Rank Registered Shareholder Number of shares % of shares 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 Custodial Services Limited Tea Custodians Limited* BNP Paribas Nominees NZ Limited (BPSS40)* HSBC Nominees (New Zealand) Limited* Citibank Nominees (NZ) Ltd* New Zealand Superannuation Fund Nominees Limited* Accident Compensation Corporation* HSBC Nominees (New Zealand) Limited* Forsyth Barr Custodians Limited JPMORGAN Chase Bank* FNZ Custodians Limited Hobson Wealth Custodian Limited New Zealand Depository Nominee New Zealand Permanent Trustees Limited* Premier Nominees Limited* National Nominees New Zealand Limited* JBWERE (NZ) Nominees Limited BNP Paribas Nominees (NZ) Limited* MFL Mutual Fund Limited* Cogent Nominees Limited* Total * Shares held through the New Zealand Central Securities Depository Limited 24,123,993 23,275,169 13,835,243 11,064,559 10,537,917 10,302,253 9,775,132 9,773,264 8,485,935 7,711,786 7,461,459 4,773,029 4,677,415 3,783,818 3,477,772 3,290,752 2,443,948 2,391,847 2,236,900 2,011,613 10.39% 10.03% 5.96% 4.77% 4.54% 4.44% 4.21% 4.21% 3.66% 3.32% 3.21% 2.06% 2.02% 1.63% 1.50% 1.42% 1.05% 1.03% 0.96% 0.87% 165,433,804 71.28% 129 Annual Report 2022 Spread of Shareholders as at 31 December 2022 Size of shareholding 1 to 1,000 1,001 to 5,000 5,001 to 10,000 10,001 to 50,000 50,001 to 100,000 100,001 and over Shareholders Number Shareholders % 4,007 4,209 1,128 761 52 49 39.26% 41.24% 11.05% 7.46% 0.51% 0.48% Shares Number 1,742,402 10,304,738 8,155,052 14,532,900 3,580,389 193,801,413 Total 10,206 100.00% 232,116,894 Shares % 0.75% 4.44% 3.52% 6.26% 1.54% 83.49% 100.00% Substantial product holder notices received as at 31 December 2022 According to the records kept by the Company and notices given under the Financial Market Conducts Act 2013, the following were substantial holders in the Company as at 31 December 2022. The total number of voting products on issue at 31 December 2022 was 232,116,894 ordinary shares. Shareholder Fisher Funds Management Limited Harbour Asset Management Limited* Relevant interest 16,753,143 16,015,699 % held at date of notice Date of notice 7.2175% 21 September 2022 6.925% 29 August 2022 130 * Includes the holding of related body corporate, Jarden Securities Limited Top 20 Bondholders as at 31 December 2022 SUM010 Rank Registered Bondholder Number of bonds % of bonds 1 2 3 4 5 6 7 8 9= 9= 11 12 13 14 15 16 17 18= 18= 18= Custodial Services Limited FNZ Custodians Limited Forsyth Barr Custodians Limited FNZ Custodians Limited Hobson Wealth Custodian Limited Pt (Booster Investments) Nominees Limited* Tea Custodians Limited* Forsyth Barr Custodians Limited Robert Andrew Wakelin & David Andrew Wakelin Alistair Wyatt White & Elisabeth Anne Marie White JBWERE (NZ) Nominees Limited Custodial Services Limited Investment Custodial Services Limited Craig Paul Werner & Lea Lynn Werner Commonwealth Bank Of Australia* Custodial Services Limited Hobson Wealth Custodian Limited Wellspring Television Limited Dunedin Diocesan Trust Board Green Lane Research & Education Fund Board 45,186,000 14,997,000 9,141,000 1,557,000 1,475,000 1,204,000 1,173,000 595,000 500,000 500,000 490,000 465,000 390,000 360,000 334,000 330,000 264,000 250,000 250,000 250,000 45.19% 15.00% 9.14% 1.56% 1.48% 1.20% 1.17% 0.60% 0.50% 0.50% 0.49% 0.47% 0.39% 0.36% 0.33% 0.33% 0.26% 0.25% 0.25% 0.25% 131 Total 79,711,000 79.72% * Bonds held through the New Zealand Central Securities Depository Limited Annual Report 2022 SUM020 Rank Registered Bondholder Number of bonds % of bonds 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16= 16= 18 19 20 Custodial Services Limited FNZ Custodians Limited Hobson Wealth Custodian Limited Forsyth Barr Custodians Limited Private Nominees Limited* FNZ Custodians Limited Best Farm Limited Investment Custodial Services Limited Tea Custodians Limited* Hobson Wealth Custodian Limited JBWERE (NZ) Nominees Limited Forsyth Barr Custodians Limited Hobson Wealth Custodian Limited FNZ Custodians Limited Custodial Services Limited Social Service Council Of The Diocese Of Christchurch Investment Custodial Services Limited Forsyth Barr Custodians Limited Kiwigold.Co.Nz Limited Custodial Services Limited Total * Bonds held through the New Zealand Central Securities Depository Limited 25,379,000 24,165,000 20,479,000 20,151,000 1,720,000 1,647,000 1,500,000 1,403,000 1,393,000 1,225,000 1,147,000 756,000 735,000 701,000 671,000 500,000 500,000 470,000 415,000 337,000 20.30% 19.33% 16.38% 16.12% 1.38% 1.32% 1.20% 1.12% 1.11% 0.98% 0.92% 0.60% 0.59% 0.56% 0.54% 0.40% 0.40% 0.38% 0.33% 0.27% 105,294,000 84.23% 132 SUM030 Rank Registered Bondholder Number of bonds % of bonds 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 Custodial Services Limited Forsyth Barr Custodians Limited FNZ Custodians Limited Tea Custodians Limited* Hobson Wealth Custodians Limited NZ Permanent Trustees Ltd Grp Invstmnt Fund No 20* Mmc Limited* Commonwealth Bank Of Australia* Westpac Banking Corporation* Investment Custodial Services Limited FNZ Custodians Limited JBWERE (NZ) Nominees Limited Forsyth Barr Custodians Limited JPMORGAN Chase Bank* FNZ Custodians Limited Jml Capital Limited Forsyth Barr Custodians Limited Hobson Wealth Custodian Limited Public Trust Rif Nominees Limited* Forsyth Barr Custodians Limited 43,708,000 19,420,000 17,835,000 17,096,000 10,323,000 4,000,000 2,800,000 2,335,000 1,326,000 1,300,000 1,225,000 1,183,000 1,173,000 957,000 784,000 700,000 668,000 590,000 497,000 455,000 29.14% 12.95% 11.89% 11.40% 6.88% 2.67% 1.87% 1.56% 0.88% 0.87% 0.82% 0.79% 0.78% 0.64% 0.52% 0.47% 0.45% 0.39% 0.33% 0.30% 133 Total 128,375,000 85.60% * Bonds held through the New Zealand Central Securities Depository Limited Spread of bondholders as at 31 December 2022 SUM010 Size of bondholding 1 to 5,000 5,001 to 10,000 10,001 to 50,000 50,001 to 100,000 100,001 and over Total Bondholders Number Bondholders % 9.87% 25.44% 54.56% 6.84% 3.29% Bonds Number 390,000 1,950,000 11,681,000 4,521,000 81,458,000 Bonds % 0.39% 1.95% 11.68% 4.52% 81.46% 100.00% 100,000,000 100.00% 78 201 431 54 26 790 Annual Report 2022 Bondholders Number Bondholders % 100.00% 125,000,000 Bonds Number 215,000 1,211,000 10,974,000 3,762,000 108,838,000 Bonds Number 235,000 1,591,000 11,187,000 3,771,000 133,216,000 6.58% 19.46% 62.17% 6.58% 5.21% 6.62% 23.10% 58.87% 6.34% 5.07% Bonds % 0.17% 0.97% 8.78% 3.01% 87.07% 100.00% Bonds % 0.16% 1.06% 7.46% 2.51% 88.81% 100.00% 43 127 406 43 34 653 47 164 418 45 36 710 Bondholders Number Bondholders % SUM020 Size of bondholding 1 to 5,000 5,001 to 10,000 10,001 to 50,000 50,001 to 100,000 100,001 and over Total SUM030 Size of bondholding 1,001 to 5,000 5,001 to 10,000 10,001 to 50,000 50,001 to 100,000 100,001 and over Total 100.00% 150,000,000 134 Waivers from the NZX Listing Rules No waivers from the application of NZX Listing Rules have been utilised by the Company during the year ended 31 December 2022. Credit rating The Company has no credit rating. Auditor fees Ernst & Young Wellington has continued to act as auditors of the Company. The amount payable by Summerset and its subsidiaries to Ernst & Young Wellington in respect of FY22 audit fees was $304,500 (noting that this fee includes assurance services in relation to Summerset's long-term incentive plan). In addition, Ernst & Young Wellington undertook assurance services in relation to Summerset's sustainability linked lending arrangements during the year; the fee for this engagement was $26,300. Ernst & Young also performed non-audit work in relation to remuneration advisory services, the fees for this engagement was $5,300. Donations In accordance with section 211(1)(h) of the Companies Act 1993, Summerset records that it donated $158,500 during the year ended 31 December 2022. Dividend reinvestment plan The last date of receipt for a participation election from a shareholder who wishes to participate in the dividend reinvestment plan is 13 March 2023. This Annual Report is authorised for and on behalf of the Board by: Mark Verbiest Director and Chair of the Board Anne Urlwin Director and Chair of the Audit and Risk Committee Authorised for issue on 23 February 2023 135   Annual Report 2022 Directory New Zealand Northland Summerset Mount Denby 7 Par Lane, Tikipunga, Whangārei 0112 Phone (09) 470 0282 Auckland Summerset Falls 31 Mansel Drive, Warkworth 0910 Phone (09) 425 1200 Summerset Milldale Argent Lane, Milldale, Wainui 0992 Phone (0800) 786 637 Summerset at Monterey Park 1 Squadron Drive, Hobsonville, Auckland 0618 Phone (09) 951 8920 Summerset at Heritage Park 8 Harrison Road, Ellerslie, Auckland 1060 Phone (09) 950 7960 Summerset by the Park 7 Flat Bush School Road, Flat Bush 2019 Phone (09) 272 3950 Summerset at Karaka 49 Pararekau Road, Karaka 2580 Phone (09) 951 8900 Summerset Parnell1 23 Cheshire Street, Parnell, Auckland 1052 Phone (09) 950 8212 1 Proposed village Summerset Half Moon Bay1 25 Thurston Place, Half Moon Bay, Auckland 2012 Phone (09) 306 1422 Summerset St Johns 180 St Johns Road, St Johns, Auckland 1072 Phone (09) 950 7982 Waikato – Taupō Summerset down the Lane 206 Dixon Road, Hamilton 3206 Phone (07) 843 0157 Summerset Rototuna 39 Kimbrae Drive, Rototuna North 3210 Phone (07) 981 7822 Summerset by the Lake 2 Wharewaka Road, Wharewaka, Taupō 3330 Phone (07) 376 9470 Summerset Cambridge 1 Mary Ann Drive, Cambridge 3493 Phone (07) 839 9482 Bay of Plenty Summerset by the Sea 181 Park Road, Katikati 3129 Phone (07) 985 6890 Summerset by the Dunes 35 Manawa Road, Pāpāmoa Beach, Tauranga 3118 Phone (07) 542 9082 Summerset Rotorua1 171-193 Fairy Springs Road, Rotorua 3010 Phone (0800) 786 637 Hawke’s Bay Summerset in the Bay 79 Merlot Drive, Greenmeadows, Napier 4112 Phone (06) 845 2840 Summerset in the Orchard 1228 Ada Street, Parkvale, Hastings 4122 Phone (06) 974 1310 Summerset Palms 136 Eriksen Road, Te Awa, Napier 4110 Phone: (06) 833 5852 Summerset in the Vines 249 Te Mata Road, Havelock North 4130 Phone (06) 877 1185 Taranaki Summerset Mountain View 35 Fernbrook Drive, Vogeltown, New Plymouth 4310 Phone (06) 824 8900 136 Summerset at Pohutukawa Place 70 Pohutukawa Place, Bell Block, New Plymouth 4371 Phone (06) 824 8532 Summerset Lower Hutt 1 Boulcott Street, Lower Hutt 5010 Phone (04) 568 1442 Manawatū – Wanganui Summerset in the River City 40 Burton Avenue, Wanganui East, Wanganui 4500 Phone (06) 343 3133 Summerset Masterton1 Landsdowne Masterton 5871 Phone (06) 370 1792 Nelson – Tasman Summerset on Summerhill 180 Ruapehu Drive, Fitzherbert, Palmerston North 4410 Phone (06) 354 4964 Summerset in the Sun 16 Sargeson Street, Stoke, Nelson 7011 Phone (03) 538 0000 Summerset Prebbleton 578 Springs Road, Prebbleton 7604 Phone (03) 353 6312 Otago Summerset at Bishopscourt 36 Shetland Street, Wakari, Dunedin 9010 Phone (03) 950 3102 Summerset Richmond Ranges 1 Hill Street North, Richmond, Tasman 7020 Phone (03) 744 3432 Marlborough Summerset Blenheim 183 Old Renwick Road, Springlands, Blenheim 7272 Phone (03) 520 6042 Canterbury Summerset Rangiora 141 South Belt, Waimakariri, Rangiora 7400 Phone (03) 364 1312 Summerset at Wigram 135 Awatea Road, Wigram, Christchurch 8025 Phone (03) 741 0870 Summerset at Avonhead 120 Hawthornden Road, Avonhead, Christchurch 8042 Phone (03) 357 3202 Summerset on Cavendish 147 Cavendish Road, Casebrook, Christchurch 8051 Phone (03) 741 3340 Summerset Kelvin Grove1 Stony Creek, Kelvin Grove, Palmerston North 4470 Phone (06) 825 6530 Summerset by the Ranges 104 Liverpool Street, Levin 5510 Phone (06) 367 0337 Wellington Summerset Waikanae 28 Park Avenue, Waikanae 5036 Phone (04) 293 0002 Summerset on the Coast 104 Realm Drive, Paraparaumu 5032 Phone (04) 298 3540 Summerset on the Landing 1-3 Bluff Road, Kenepuru, Porirua 5022 Phone (04) 230 6722 Summerset at Aotea 15 Aotea Drive, Aotea, Porirua 5024 Phone (04) 235 0011 Summerset at the Course 20 Racecourse Road, Trentham, Upper Hutt 5018 Phone (04) 527 2980 1 Proposed village 137 Annual Report 2022 Australia Victoria Summerset Cranbourne North 98 Mannavue Boulevard, Cranbourne North VIC 3977 Phone (1800) 321 700 Summerset Oakleigh South1 52 Golf Road, Oakleigh South VIC 3167 Phone (1800) 321 700 Summerset Mernda1 305 Bridge Inn Road, Mernda VIC 3116 Phone (1800) 321 700 Summerset Drysdale1 145 Central Road, Drysdale, VIC 3167 Phone (1800) 321 700 Summerset Torquay1 Grossmans Road and Briody Drive, Torquay VIC 3228 Phone (1800) 321 700 Summerset Chirnside Park1 266-268 Maroondah Hwy, Chirnside Park VIC 3116 Phone (1800) 321 700 Summerset Cragieburn1 1480 Mickleham Road, Craigieburn VIC 3064 Phone (1800) 321 700 138 1 Proposed village Company information Statutory Supervisor Public Trust Bond Supervisor The New Zealand Guardian Trust Company Limited Share Registrar Link Market Services, PO Box 91976, Auckland 1142, New Zealand Phone: +64 9 375 5998 Email: enquiries@linkmarketservices.co.nz Directors Mark Verbiest Dr Marie Bismark Stephen Bull Venasio-Lorenzo Crawley Gráinne Troute Anne Urlwin Dr Andrew Wong Company Secretary Robyn Heyman Registered offices New Zealand Level 27, Majestic Centre, 100 Willis Street Wellington 6011 PO Box 5187, Wellington 6140 Phone: +64 4 894 7320 Email: reception@summerset.co.nz www.summerset.co.nz Australia Deutsche Bank Place, Level 4, 126 Phillip Street, Sydney, NSW 2000 Auditor Ernst & Young Solicitor Russell McVeagh Bankers ANZ Bank New Zealand Limited Australia and New Zealand Banking Group Limited Bank of New Zealand National Australia Bank Limited Commonwealth Bank of Australia Westpac New Zealand Limited Westpac Banking Corporation Industrial and Commercial Bank of China Limited Bank of China Limited 139 The text of this document is printed on 120gsm Lenza Green 100% recycled paper sourced from recovered fibre certified FSC Recycled, cover is 350gsm Satin FSC Mix board from responsible sources printed using vegetable oil inks and manufactured under a strict ISO14001 Environmental Management System.summerset.co.nzsummerset.com.au

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