Developer and operator of land lease communities for citizens over 55 years old, Lifestyle Communities Limited (ASX: LIC) announced a strong set of results for 2015. Revenues grew 23.7% to $78.8 million and profit rose 36% to $16.7 million. The company also announced its inaugural dividend of 1.5 cents per share.
The result is even more impressive when you consider that during the year management decided to refinance long-term debt to take advantage of low interest rates. The company incurred $2.4 million of costs by paying off the existing facility early, which will be more than offset by future interest savings. Excluding these charges, after tax profit would have been $18.3 million.
Top line growth was driven by more settlements and higher annuity rentals from increased occupancy. 240 homes settled in 2015 compared with 211 in 2014 and average sale prices increased by 6% to $275,000.
New sale commitments were 211 down 21% from 267 but the reason for this is the company has effectively run out of stock until it completes some of the developments in its pipeline. A couple of developments are 50:50 joint ventures and so half of sales relating to these belong to third parties. Excluding these sales, new sales are down just 6% to 194 and so whilst management have guided a similar profit for next year, I think they are being conservative.
Lifestyle Communities recovers the cost of its developments upon settlement but receives ongoing weekly rental income once people move in to their homes. When homes are resold, they also take a cut of the sales proceeds depending on the duration that the home has been occupied but capped at 20%.
It may seem like the company is gouging people with these deferred charges but the upfront prices are low at under $300,000. Rent is $171 per week and can be offset against rental assistance for retirees. It covers outdoor maintenance and use of facilities which can include cinemas, pools and bowling greens. Finally in return for a cut upon resale, the company finds buyers, helps residents to maximise price and takes care of administration. In any event, the fact that 33% of new sales are referred from existing customers demonstrates a high level of satisfaction.
Whilst next year's result might be held back by constrained supply, longer term there is plenty of embedded growth in the business. During the year, the company acquired three new sites and has since acquired another taking the total to 13. Once these are all developed, Lifestyle Communities will have 2,315 homes in its portfolio and so far just 1,146 are settled.
Management's plan is to pay dividends out of annuity rental income after covering corporate and ongoing costs. This milestone was reached this year triggering the dividend announcement in Thursday's report. Even without any settlements in 2016, this revenue stream will grow from the full year impact of 2015 settlements. Also it takes a few years after opening a site for fees from resales to flow through and so these will ramp up over the next few years. Consequently, management has signalled that it expects to pay both an interim and final dividend in 2016.
