How this business unlocks upward growth via downsizing

Two years under some of the world’s strictest coronavirus lockdowns has left many older Victorians eager to free up the capital locked in their homes and work through their bucket lists.

For Lifestyle Communities, this new lease on life that many Baby Boomers are currently experiencing has driven demand for the business’s properties – and the lifestyles they afford their tenants.

Lifestyle Communities owns 24 ‘communities’ across Victoria. These communities consist of affordable retirement housing options and access to club houses and communal luxuries (like boats) for residents to use.

“Really, they’re like resorts,” managing director James Kelly said.

The houses are sold for 75% to 80% of the median home price, and those moving in typically free up $212,000 from the equity in their previous homes – money they can put towards living the life they want.

“They’ve lost two years of their lives to tick off their bucket lists, and we’re seeing this renewed energy and push around people wanting to get on with downsizing and seize the moment,” Mr Kelly said.

Unlike other retirement communities, residents moving into one of Lifestyle Communities’ homes purchase their house outright, but do not buy the land, and instead pay a leasing fee to the company – generating revenues for the business.

There’s also an exit fee – roughly 20% of a home’s resale value – applied when a resident moves out, creating additional earnings for Lifestyle Communities.

This model also means the money invested in developing land into a community is eventually recycled and can be put back into purchasing and developing new sites to expand the business.

It’s so effective, Mr Kelly said, that the company has only had to undergo one round of capital raising back in 2012, with that capital and some of the additional funds generated through fees supporting the business’s growth since then.

Pengana Capital Group senior fund manager Ed Prendergast said Lifestyle Communities’ predictable growth and solid management team made the company an attractive option for his fund.

Mr Prendergast noted the company’s leasing fees have created strong recurring revenues, while the addition of new communities to the overall portfolio means there is a strong potential for further growth both in these fees and from the exit fees.

“That’s why we’re invested, because there is that potential,” he said.

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