Facing discontent from its customers and shareholders while drawing the attention of regulators, property developer and retirement communities operator Lifestyle Communities (ASX: LIC) has hit back at allegations of shady marketing tactics designed to target vulnerable retirees.
The response from Lifestyle Communities Managing Director, James Kelly was included in a trading update by the operator forewarning a withdrawal of its profit guidance amid its challenging economic climate.
Based on unaudited data, Lifestyle expects its FY24 operating profit after tax to be in the range of $52.4 million to $53.4 million which would be down on the $71.1 million generated in FY23.
Rising interest rates were cited as a key impact on profits with just 311 new home settlements in their communities, down on the 356 in FY23.
Within the update, Lifestyle Communities prominently featured that its homeowner customers made an average profit of $86k on the sale of their property if they chose to exit their community, after paying what the Company calls their “Deferred Management Fee” (DMF) which is the exit fees being challenged by residents in Lifestyle’s Wollert community.
Allegations against Lifestyle surfaced earlier in the week following an ABC Investigations expose into the tactics employed by Lifestyle Communities which is alleged to charge excessive fees to its residents upon exit when competitor operators do not.
As a landlease operator, Lifestyle Communities offer retirement community housing options to retirees where they buy homes in the community, but lease the land from Lifestyle. Doing so means there is a lower entry cost to home ownership while gaining access to community amenities. The model is designed to give residents a higher quality of home than if they were to buy land outright, while Lifestyle earns ongoing rent from the land and capital gain from the land’s appreciation.
On exit, the homeowner sells the home only, but is subject to the DMF which ABC Investigations revealed go up to 20% of the sale price, at which point they are capped. For a $500,000 sale after 5 years of living in the home, the homeowner might only receive $400,000 and then also have to pay rent on the land for the time in between listing and sale. Addressing this rental fee, which is still charged in the event the resident died, Lifestyle said the average time-on-market in FY24 for established homes was 63 days.
“The FY24 result, in a challenging market, is a testament to the resilience of our model and how strongly it continues to resonate with customers,” said Lifestyle Communities Managing Director, James Kelly.
“We have always preferred the DMF model because it lowers the upfront entry cost for people buying into one of our communities. This enables customers to release more equity to supplement their lifestyle. Capital gains made over time typically assist with paying the DMF.”
80 residents of Lifestyle Wollert are now taking Lifestyle Communities to VCAT which will likely set a precedent on the validity of Lifestyle’s exit fees model, which the plaintiffs allege are unlawful under Victoria’s Residential Tenancy Act which Lifestyle is vigorously defending.
“As noted previously, we reject the allegations made in the Victorian Civil and Administrative Tribunal (VCAT) applications by the group of homeowners at Wollert and will defend them accordingly,” said Kelly.
“Given the angst the media coverage has caused homeowners across our communities, we have written to VCAT to request an urgent case management hearing with a view to progressing things as quickly as possible.”
“We have been heartened by the support from our homeowners across all our communities who felt the portrayal of Lifestyle Communities in the media coverage was not representative of our business or their lived experience. ”
The VCAT proceedings are taking place in the background of frustration from Lifestyle Communities shareholders who were tapped on the shoulder for a $275 million capital raise in February 2024 at an Offer Price of $16 per new shares. Two months later, Lifestyle reported a profit downgrade and LIC shares today have slipped below $10 for the first time since 2020 when Covid impacted its new home sale capacity.
The Company has acknowledged that it made a poor choice of words when explaining to investors its marketing tactics that targeted single/widowed women, through its use of the tagline, ‘Miss Lonely, Miss Homely and Miss Active’ and “targeting her between the eyes”.
Acknowledging the reputational damage that the recent media attention has brought to Lifestyle Communities, the Company has withdrawn its future profit guidance, “due to the difficulty in quantifying the impact the uncertainty caused by recent media coverage might have on future sales and settlements”.
Following the release of today’s profit update, LIC shares hit a low of $9.08 in early morning trade which was a 17.8% drop on their last close price of $11.05 on Thursday afternoon.
Alfred Chan is a Business Reporter at The Sentiment specialising in ASX-listed small cap companies, a bloodstock enthusiast and former equities analyst.
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