Buyout or equity raising likely for Lifestyle Communities

An Ingenia property in at Logan in Queensland.

The $1bn listed retirement living operator Lifestyle Communities remains on watch for a buyout or an emergency equity raising.

Some observers have suggested that the group, with $320m of net debt, may have to tap the market to boost its balance sheet.

Yet Lifestyle Communities says it has no plans to raise equity, and there are analysts that agree.

Others believe it’s more likely that a rival capitalises on its weakness and launches a bid for the company.

The deal that makes the most sense, observers say, is a purchase of Lifestyle Communities by the $1.9bn listed rival Ingenia Communities Group, which could use its own shares to pay for the business.

David Di Pilla’s HMC Capital owns major stakes in both stocks.

Ingenia’s $1bn holiday parks business could be sold to fund a deal to buy its rival.

Sources say it’s equally possible that Mirvac buys the business.

There’s also chatter that Macquarie Group is interested in the space, so it could also be a contender.

Major synergies exist in bringing together Ingenia and Lifestyle Communities, with the latter serving mostly the Victorian market and Ingenia operating in Queensland and NSW.

Mirvac has exposure to the space through its purchase of retirement living business Serenitas.

The share price of Lifestyle Communities has fallen since July, after allegations from homeowners at Wollert in northwest Melbourne surfaced in the media.

They took their complaints to the Victorian Civil and Administrative Tribunal.

The allegations relate to the company’s right to charge deferred management fees, which Lifestyle Communities says are permissible in all states except South Australia.

The company said in July that it would defend the allegation.

Lifestyle Communities said that in Victoria, most land lease operators charged a deferred management fee – a sum paid to the operator when a resident permanently leaves the village which is usually deducted from their ongoing contributions.

Lifestyle Communities said it had always preferred the DMF model because it lowered the upfront entry cost for people buying into one of the communities.

But the cost of solving the issue by paying customers back their fee is less than the decline in the equity value of the group since the scandal erupted, sources say.

Lifestyle Communities told the market at its annual general meeting in November that the media coverage had an impact on sales, and while it continued to make sales, the company had seen an increase in cancellations, with 64 of its 89 new home sales shelved.

Monthly new leads also halved, as did gross sales per month.

Lifestyle Communities had been generally selling over 50 homes per month until June, but in October sold just 16.

Low consumer confidence driven by elevated inflation and multiple interest rate rises resulted in deteriorating conditions in the Victorian property market in the past financial year.

Lifestyle Communities says restoring its reputation is a key priority.

Already, the company has raised $275m to provide balance sheet strength through the cycle, and additional funds to support future land acquisitions and growth. Lifestyle Communities expects settlements for the first half of the 2025 financial year to be in the range of 120 to 130, compared to 124 in the previous corresponding period.

For the year to June, Lifestyle Communities had $319.9m of net debt. It reported a $49.9m net profit, compared to an $81.9m net profit in the previous corresponding period.