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Summerset posts 10% rise in 2014 earnings, expects faster growth in 2015

Summerset Group, New Zealand's third-largest listed retirement village operator, posted a 10 percent gain in annual earnings and said it expects benefits from last year's expansion to help lift earnings growth this year.

The Wellington-based company said underlying earnings, which exclude unrealised property valuation gains, increased to $24.4 million in calendar 2014, from $22.2 million in 2013.

Summerset expects earnings growth to accelerate this year as the front-loaded costs last year of opening new villages in Karaka, Hobsonville and New Plymouth, almost doubling the size of its Trentham village, and opening new care centres in Dunedin, Hamilton and Nelson are offset by fees from new residents. Earnings will also benefit from a higher development margin and an increased build rate of retirement units, it said.

"We had a lot of investment into last year with new villages and new care centres opening," said chief executive Julian Cook. "We did think it was important to signal to people that the level of investment last year, which we had flagged fairly extensively, was going to lead to additional costs in the business. Now that's all been put in place, we do think earnings growth will revert to a more normal trajectory which will be higher than 10 percent."

He declined to provide a more specific forecast.

This year, the company has only one new village scheduled for completion in Wigram.

Summerset expects to meet or exceed its target development margin of 17 percent this year, after achieving a 16.6 percent rate in the second half of 2014. The development margin, which Summerset forecast at its 2011 IPO would reach 17 percent by 2016, has steadily improved from 15.7 percent in 2014, 13.2 percent in 2013, 12 percent in 2012 and 6.2 percent in 2011 as the company benefits from taking management and design of its construction sites in house.

"That side of the business is running slightly better and slightly faster than we had thought, which is good," said Cook. "We do think we will be able to push it beyond 17 over time, absolutely. We have internalised our development teams over the last few years. We still think we have got a lot of gains to come out over time so we do think those margins will steadily pick up into the future as well. We would expect at least maybe another 3 percent over time."

The company is on track to achieve its target of building 300 retirement units this year, up from 261 in 2014, 209 in 2013, and 160 in 2012. It expects future development beyond this year of "at least" 300 units, Cook said.

Shares in Summerset slipped 0.6 percent to $3.42, and have gained 24 percent so far this year.

New Zealand retirement village operators are acquiring land and preparing for a record building spree in anticipation of increased demand as people born in New Zealand's post-war era reach the target age for operators, including Summerset and its larger rivals Ryman Healthcare and Metlifecare. Summerset has a land bank of about 1,900 retirement units and 550 care beds and is examining potential new sites across the country, as it expects the population aged over 75 to triple from 2014 to 2068, it said today.

"We see strong demand for what we are building," Cook said.

Summerset will pay a final dividend of 2.1 cents per share, taking its total payment for the year to 3.5 cents, ahead of the 3.25 cents the year earlier. The latest payment will be made on March 25.

Its annual net profit rose to $54.2 million, or 24.94 cents per share, from $34.2 million, or 15.87 cents, a year earlier. The measure includes a $52.5 million gain on the fair value movement of investment property for the latest year, ahead of the $29.7 million gain the previous year. The total value of its assets rose 24 percent to $1.04 billion.

Summerset's revenue rose 20 percent to $54.3 million as expenses increased 24 percent to $47.8 million.

Its sales of new occupation rights increased 25 percent to 286, while resales of occupation rights declined 1.1 percent to 172.