Can you invest in your own lifestyle?
Lifestyle Communities Limited (ASX: LIC) develops and manages affordable independent living communities for working, semi-retired and retired people under the Lifestyle brand. It has a pipeline of 1,465 sites under management or development. All of the Lifestyle sites are in VIC.
The business model is that the customer buys the home, then the property is leased for a 90-year term. When the home is sold to another occupant, the business receives a deferred management fee, calculated as a scaled percentage of the resale price.
The leasing is an income annuity scheme which on the average brings in $160/week for each home, and the company estimates that the average occupant will remain about 10-12 years before reselling.
The company had full-year NPAT after abnormals of $8.71 million in 2013, an 18.6% increase from the prior corresponding period. It seems to be that after some development in the business, the rental and other income are increasing and building momentum.
ALE Property Group (ASX: LEP) is a property investment and fund management company with 87 pubs in its portfolio. That would be a beer drinker's dream lifestyle of owning their own pub, but as an investor, you can own a piece of each.
The total portfolio was valued at $786 million in June 2013, and in that financial year its NPAT was $25.3 million, up from $16 million in 2012.
As a real estate investment trust (REIT), we want to check the return ratios. Return on equity was 6.86% and return on assets was 4.86%, so you would expect something in the mid-to-high single digits for real estate return.
What's more important is a long track record of total shareholder return. It has delivered attractive rates of 21.3% and 19.7% over the past 10 years and five years respectively.
Aveo Group (ASX: AOG), formerly known as FKP Property Group, develops, owns and manages retirement communities. With 76 communities across Australia, it has about 12,000 residents. The property portfolio is valued at around $800 million.
Recently, it has been selling down its non-retirement assets to concentrate solely on what it believes is a strong business demographic in elderly living.
In both 2012 and 2013, it returned respective net losses of $359 million and $178.9 million after abnormals due to heavy write-downs. These kinds of financial setbacks can happen when a business is restructuring, so investors need to examine what, if any, remaining issues there may be with assets to understand future earnings.
Foolish takeaway
So it is possible to live a certain way and enjoy part ownership in the company. These three are real estate related, so you need reasonable expectations about returns that are better suited for long-term horizons.
Nonetheless, the same investment rules and principles apply. They are that balance sheet strength and clear and discernible business structures are required.
