ASX:LIC
Lifestyle Communities Ltd
Investment Summary
The fund managers believe that Lifestyle Communities Ltd (LIC) is facing significant challenges despite its potential. They highlight that the company’s recent capital raise of $275 million and weaker first-half results have cast a shadow on its positive growth outlook. In their opinion, while LIC's management has demonstrated competence and low cancellation rates for deposits, the extended sales to settlements timeframes are a primary concern impacting the balance sheet and driving the need for additional capital. Furthermore, the managers acknowledge that annuity cashflows remain strong and could leverage future occupancy growth. Despite this, they have decided to exit their position as the outlook for the coming periods has diminished, with lowered guidance on settlements leading to a decrease in share price. While they retain optimism about LIC's long-term prospects, they express caution regarding short-term operational hurdles and are contemplating re-entry should market conditions improve.
Commentary From The Managers
Endeavor Asset Management
30 Apr 2024
$12.03
- Endeavor Asset Management sold their investment in Lifestyle Communities (LIC) due to concerns over extended ‘sales to settlements’ timeframes affecting the company’s balance sheet. <liInformation gathered through the network indicated little improvement in the sales dynamic, which raised doubts about the company's future growth.
- LIC's second half guidance for FY24 heavily relied on timely settlements, prompting Endeavor Asset Management to exit at an average price of $14.72/share.
- Post-exit, LIC announced lower settlement forecasts, leading to a share price drop to around $12/share, validating Endeavor Asset Management's decision.
- While optimistic about LIC’s long-term prospects and management quality, Endeavor Asset Management remains cautious due to short-term settlement and development cost challenges.
- The fund continues to monitor the share price for potential re-entry opportunities.
Endeavor Asset Management
28 Feb 2024
$14.97
- Endeavor Asset Management acknowledges a weak first-half result for Lifestyle Communities (LIC).
- The recent $275 million capital raise has led to some investor disappointment.
- Development expenditure has increased as anticipated, but delays in home settlements have negatively impacted the balance sheet.
- Management notes that cancellation rates remain low (less than 1% for deposits over $5,000).
- Settlements are expected to catch up in upcoming periods.
- The equity raise has overshadowed positive long-term growth prospects for LIC.
- Annuity cashflows from rental revenue and fees show strong growth, indicating future leverage from increased occupancy.
- The replenished balance sheet places LIC in a strong position to capitalize on discounted land being sold by financially troubled companies.
- This strategy should improve development margins over time due to lower land costs.
- Endeavor Asset Management continues to hold its existing LIC shares but did not participate in the capital raise.
Please note: The completeness, accuracy or current status of the investments referenced are not guaranteed.