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Why the Gateway Lifestyle Group share price sunk 9% lower today

The Gateway Lifestyle Group (ASX: GTY) share price slumped 9% down to $1.80 on Wednesday, following a trading update in which the retirement community operator downgraded its distributable earnings forecast.

In the release, the company explained that the slow residential housing market is causing an extension of the period between sale and settlement in Gateway’s properties, as incoming residents take longer to sell their family home. The company lowered its guidance for settlements in FY18 from 250 to a range of between 230 and 240.

Settlement volume is the main driver of the company’s short-term earnings, and its decline prompted a revision of the FY18 distributable earnings growth guidance, down to a range of 2% to 4%, compared to a previous estimate of 7%.

The company remains confident about the long-term value drivers of the business. Long-term recurring revenue for FY18 is estimated at $55 million, up 20% on the previous year. CEO Trent Ottawa commented: “With ongoing demand and strong enquiry levels at key projects, we have not sought to aggressively discount our product to achieve short term settlement volume.”

Gateway recently expanded its portfolio acquiring nearly 900 properties for a total consideration of $57 million.

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Motley Fool contributor Tommaso Autorino has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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