HMC Capital snares stake in Lifestyle Communities

The activist investor has snared a stake in a land lease property developer whose business model has come under fire.

Managing Director of HMC Capital David Di Pilla. Picture: Jane Dempster

The acquisitive HMC Capital’s flagship share market investment fund has taken a stake in beaten down affordable housing company Lifestyle Communities, sparking a share price rally.

The David Di Pilla-led company’s HMC Capital Partners Fund 1 has added Lifestyle Communities to its line-up of investments, which includes companies that it sees as undervalued or in need of corporate restructuring.

It’s high-profile plays include a push for a change of corporate strategy at Lendlease and taking a stake in Sigma and driving its proposed merger with Chemist Warehouse.

The HMC Capital-run fund took a 2.69 per cent stake in Lifestyle Communities and has a cash-settled total return swap to take another 4.5 per cent interest, prompting the shares to shoot up 65c to $9.10.

HMC Capital head of private equity Victoria Hardie pointed to the opportunities for the company. “While Lifestyle Communities is facing some near-term challenges, we have high conviction in the attractive demographic tailwinds and growth opportunities for the land lease community sector over the medium to longer term,” she said.

Shares in mid-cap developer plunged in July after allegations were aired on the ABC by residents of a Victorian community challenging the company’s deferred management fees model.

Residents at the company’s Wollert community in northwest Melbourne, which had been marketed as low-maintenance, affordable, resort-style living, lodged a claim against Lifestyle Communities in the Victorian Civil and Administrative Tribunal over fees they believed were excessive and in breach of the law.

The developer rejected the claims, saying it had engaged with residents since February and it denied the allegations about its deferred management fees.

The company’s co-founder and managing director, James Kelly, said last month he would retire at the end of the year. Lifestyle Communities chair and property veteran David Blight will assume the role of executive chairman from January 1, while the company searches for a new chief executive.

In August, Lifestyle Communities booked a full-year net profit of $50m, down 39 per cent, while revenue of $243.2m was up 4.7 per cent. The result prompted brokers to downgrade the stock.

Citi analysts said the move was positive, ­“especially given HMC Capital is known to be an activist investor striving to make changes to the business to achieve positive ­returns”.

“We see potential for positive news on LIC’s business review at the annual general meeting on November 12. We therefore open a short-term positive view on LIC. However, we retain our neutral rating given a potential prolonged timeline for resolution on the VCAT complaints impacting sales and earnings for LIC,” Citi said.