About: Lifestyle (LIC) is a land lease model in regional Victoria, where they develop, own and manage affordable independent living communities for people over the age of 55.

Why it’s in the portfolio: Centered around the retirement living thematic, demographic changes from the aging population are driving an increase in the size of the potential market. LIC has a strong management team aligned to shareholders and a strong business model with recurring earnings. The growing awareness of LIC's brand for retirement living is leading to increased sales rates, a key driver of earnings growth. Land lease communities increasingly differentiating to traditional retirement villages and becoming better understood as a sector and asset class. There has been recent corporate activity in the space, operators National Lifestyle and Gateway Lifestyle have recently been acquired by industry players. We think the upside lies in the market underestimating the sales rates and number of homes to be developed and sold over the coming few years.

Fundamentals: LIC has a market capitalisation of $550m. Its balance sheet is sound with unused financing facilities to fund future developments. Currently trading on a PER 14x FY19 and PB between 2-3.

What could go wrong? Slower than expected sales rates would slow development pace and earnings, impacting the share price. Slower sales rates can be caused by a significant property downturn that would slow home owners selling existing homes when downsizing / moving to retirement living.