The Lifestyle Communities Ltd (ASX: LIC) share price is having a day to forget on Tuesday.
In afternoon trade, the ASX 200 real estate stock is down 13% to $12.32.
Why is this ASX 200 real estate stock crashing?
Investors have been hitting the sell button today after the retirement communities company released a trading update.
As I mentioned here earlier this week, this ASX 200 real estate stock was among the most shorted shares on the ASX with a short interest of 7.4%. This high level of short interest was due to the company's struggles with subdued settlement rates.
In light of this, it will come as little surprise to learn that Lifestyle Communities has just downgraded its settlements guidance for FY 2024.
Management notes that when it released its half-year results in February, it expected approximately 350 new homes to settle in FY 2024. This was based on pre-sales contracts held at that time and experience from prior years of conversion rates.
Unfortunately, beachside and northwest Melbourne locations have been slower to settle than predicted.
As a result, new home settlements for FY 2024 are now estimated to be in the range of 290 to 310.
Longer term outlook
The ASX 200 real estate stock expects a better performance in FY 2025. Based on projects it currently has in the market, its settlement expectations for FY 2025 are 425 to 475.
Assuming marketing conditions and settlement timeframes hit its targets, its settlement range for FY 2023 to FY 2025 will be 1,080 to 1,130. In light of this, management remains comfortable with the FY 2024 to FY 2026 guidance range of 1,400 to 1,700 new home settlements.
The ASX 200 real estate stock's managing director, James Kelly, said :
Our construction program is on track, and we have no issue delivering homes for settlement when needed. We were pleased to achieve 110 new home sales in the first quarter of calendar year 2024 which indicates that demand for our product remains. It's a matter of external timing for customers to sell their homes which remains difficult to forecast.
Should you buy the dip?
Analysts at Goldman Sachs have been very bullish on the company for some time. So, this news has been a big disappointment. Particularly given the commentary it provided to the market when raising funds a couple of months ago. The broker commented:
LIC's revised settlement guidance comes as a disappointment following the outlook provided with the capital raising two months prior. We acknowledge that the external sales environment remains relatively soft, and that LIC is executing on its development pipeline, though the second downgrade this calendar year suggests that forward visibility on sale-to-settlement conversion remains challenging. We expect consensus estimates to be revised downwards based on the lower new home and resale settlements, and note likely investor concerns around the substantial settlement ramp-up implied in FY26 to reach the low-end of LIC's reiterated medium term guidance.
As things stand, Goldman Sachs has a buy rating and a $21.32 price target on its shares. However, this could change once the broker has updated its financial model to reflect today's update.
