David Di Pilla’s HMC buys into Lifestyle Communities

The fund – which in September said it had started investing capital in its sixth and seventh companies, out of a maximum of 10 – also said on Tuesday that it could acquire a further 4.5 per cent through a total return swap arranged for a stake of 5,541,491 shares.

“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,” HMC Capital private equity head Victoria Hardie told The Australian Financial Review.

“It’s early days in our investment into [the company] and we are yet to engage with the company regarding opportunities to drive value creation for shareholders, but we look forward to building a constructive relationship with the board and management team.”

Lifestyle Communities has had a tough year. A weak Victorian market hit by sustained high borrowing costs has prevented the company’s downsizer customers from selling their homes, which in turn has hit settlement revenue and triggered a capital raise.

Even including Tuesday’s bounce, the company’s shares remain down 26 per cent since the start of July, while the 33-member S&P/ASX200 real estate index has gained 9 per cent.

Co-founder and managing director James Kelly – who founded the company in 2003 and led it from a market capitalisation of $18 million in 2007 to more than $1 billion today – said last month he would retire from the business at the end of the year.

The HMC fund, which had $800 million deployed at end-June, is an unlisted, open-ended fund launched in August 2022, in which the parent company has co-invested $260 million.

Analysts hailed the investment by HMC as a positive step for Lifestyle Communities, which announced an independent review of its business model in the wake of an ABC TV report criticising the deferred management fee it charges, worth up to 20 per cent of what departing residents make from selling their homes.

“We see this as a positive announcement, especially given HMC Capital is known to be an activist investor striving to make changes to the business to achieve positive returns,” Citi analyst Suraj Nebhani said.

Mr Nebhani kept his neutral rating on the stock, saying the medium-term performance of the company would depend on the outcome of a legal challenge to its fee structure in the Victorian Civil and Administrative Tribunal, but said he hoped for good news at the company’s annual general meeting next week.