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Another company which believed it could make money by offering basic services to the poorer section of the community.
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Community Life was the retirement village venture of Theo Baker. It listed with a glowing prospectus in November 2004 and was soon in trouble. Like Village Life it targeted those who could not afford a home and who lived on the pension. Profits were to be made by taking a percentage of the pension and a high occupancy rate. These were more modest villages.
The model did not work because of rising building costs, an inability to raise rentals and probably a preference by these elderly to stay where they were and spend their pensions on living the way they wanted to. What was over after paying the rent would not have covered beer, cigarettes and a few dreams of becoming rich at the pokies or the lotto.
Elsewhere, Powerlan boss Theo Baker has returned to the market with a vehicle focused on budget self-care accommodation for seniors. His Community Life closed over-subscribed two weeks ago after raising $20 million and is expected to list on Friday. The company will have a capitalisation of $41.9 million with Mr Baker holding a majority stake. Burdett Buckeridge Young was the lead manager for the non-underwritten offer.
Nove 2004 Public listing
The float proceeds and another $10 million in borrowings will be used to fund the development of about 10 sites.
Retirement villages line up to list Australian Financial Review November 16, 2004
The market is digesting Community Life's capacity to develop about 10 retirement villages, based on a low budget rental model, off its small base of managing about 30 units.
Nov 2004 Some reservations
Aged-care groups prepare for growth Australian Financial Review November 26, 2004
One new provider, Community Life, has been "established to address the growing imbalance between the number of senior Australians and the availability of affordable and accessible seniors' accommodation".
Dec 2004 The model and plans
It aims to develop communities and rent the accommodation units - this is different from the normal practice whereby seniors pay a management fee or buy properties from the developer. Fortnightly rental for senior residents will be equal to 85% of the aged pension and 100% of government rent assistance, and it will also include three meals a day and other services. Community Life plans to develop 180 seniors' accommodation units this financial year.
The core business is aimed at developments for seniors, but Community Life also hopes to develop and manage low-cost rentable student accommodation. It already owns 32 student accommodation units in Newcastle and has plans to complete 33 more this year.
The company is acquiring property in Gunnedah, Argenton, Hervey Bay, Inverell and Maryborough with the aim of developing 60 units of seniors' accommodation on each site. It is still waiting on development approval for properties in Caboolture and Rockhampton for 60 and 118 unit developments respectively.
Grey rental market Shares Magazine December 1, 2004
Investors have questioned the company's capacity to develop all the sites. Community Life has secured a $10 million facility to fund development but does not plan to draw on it this year.
Dec 2004 Investor doubts
Retirement group plans to list Australian Financial Review December 4, 2004
Recent entrant Community Life, a rental-based player, is trading at a 40 per cent discount to its offer price, despite several positive developments and the purchase of more land at Hervey Bay, Queensland.
Apr 2005 Still wary
Aged care offers healthy growth Australian Financial Review April 6, 2005
The board were soon in disarray with irreconcilable differences and resignations. Community life sold its villages into a trust. In effect the trust owns the villages and Community life runs them.
The business model seemed to be flawed in a very fundamental way yet few if any of the analysts or investors seemed to examine it carefully. Later some were scathing. The company is busy re-evaluating its business model with a view to moving to the successful deferred payment model which targets the wealthy elderly.
Listed retirement unit developer Community Life announced plans yesterday to spin off a property trust as it looks to resuscitate itself with a corporate restructure.
Apr 2005 A property trust
The group's shares had stalled in the face of investor concerns about how it would fund the development of up to 1300 retirement units.
After it raised $20 million and listed in November, Community Life's shares nearly halved from $1 to a mid-March low of 54¢. They closed 5 ¢ down at 56¢ yesterday.
Community Life had yet to decide whether it would list the trust.
"We have spoken to a couple of banks who have a number of wholesale clients who have an appetite for this type of product," Mr Baker said. "It may well be an unlisted trust in the first instance."
Mr Baker said that Community Life was not able to maintain its commitment to pay dividends. However, once the trust was established it would propose a 6.5 ¢ per share return of capital, which was in line with the forecast dividend.
Community Life looks to trust spin-off while it restructures Australian Financial Review April 27, 2005
Today Pierpont reads prospectuses, where the forecasts are written by experts who claim to foresee the future, the predicted profits disappear in a puff of smoke and the dark, tangled woods are full of wolves and trolls lurking in wait for innocent investors whose savings are often eaten alive.
May 2005 A critic's view
But the tendency for prospectus profits suddenly to turn invisible is undeniable. To pick an example at random, consider the performance of Community Life Ltd since it listed last November. It raised the not inconsiderable sum of $20 million for the commendable purpose of building rental accommodation for seniors and students. It did this on the basis of a prospectus that forecast a net profit of $8.8 million for the year to June 2005.
The trolls got to this one all right, because late last month Community Life announced it, er, wasn't going to quite make the forecasts. What intrigues Pierpont (and to judge by his mailbox, one or two of Community Life's investors) is that the market seemed to foresee this was going to happen long before the directors realised it.
The shares have since crashed to 30 ¢, which means Community Life has wiped out 70 per cent of its subscribers' funds in just six months since listing. What went wrong is not totally clear from the sparse but reassuring statements made by Community Life to the ASX. Until Anzac Day, it just kept saying that everything was on track: statements that now look highly inaccurate.
For that reason, it was proposing that as its retirement villages were built, it would sell them into a controlled property trust. This is not quite the same as the business model set out in the prospectus. When it launched, Community Life reckoned its big asset was intellectual property in the design of retirement villages. Community Life proposed to hire development companies to build retirement villages and the development companies would pay royalties to Community Life for the intellectual property.
The prospectus forecast that in the 2005 financial year, it would receive $8.6 million in royalties from developers using its intellectual property which would comprise almost all its revenue for that year.
Pierpont poured himself a flute of Bollinger brain food and brooded over this business model. The main question bothering your correspondent was whether such a royalty was really income. Pierpont felt that if he were to put this deal to Bob the Builder, the conversation would go something like this.
Pierpont: How much to build my retirement village?
Bob: At a guess, $16 million.
Pierpont: Oh, and you'll have to pay an $8 million royalty for using my methodology.
Bob: . . . plus overheads, comes to $24 million.
Any sane builder (there are a few) would simply add the royalty to his costs. So the client could boast about the great royalty he was receiving, but his retirement village would be that much more expensive.
Theo (Baker) agreed with Pierpont that the earnings were skinny. He said Community Life had been banking on 95 per cent occupancy, the pension continuing to increase at the long-term rate of 4.5 per cent a year compound and building costs staying in line with inflation.
The last factor was the one that went awry. Theo said building costs had soared by 20 per cent and thrown out his calculations.
The Grimm tale of a prospectus Australian Financial Review May 27, 2005
Retirement-living minnow Community Life yesterday announced a board shake-up, after its independent directors resigned on Friday.
Jun 2005 Directors resign - irreconcilable differences
On Friday, Community Life was served a notice seeking a general meeting to vote on the removal of the three and the appointment of two new non-executive directors.
Community Life said that as a result, and "citing irreconcilable differences between the CEO and founder, Theo Baker, in respect to the terms of the strategic review the company is undertaking", the three had resigned.
Mr Baker said the company had to decide on its direction as an organisation providing affordable rental accommodation to retirees, saying: "There are a lot of question marks around that rental model."
He cited rising development costs, concerns about occupancy levels and the rate of pension increases.
Mr Baker said that if it came to the crunch the company still had other options, including developing deferred-management-fee villages. He noted that the construction and housing markets were coming off the boil.
Mr Baker said Community Life owned eight properties and had more under conditional contracts. These were being assessed in light of whether the group decided to commit more funds to expansion, he said.
Board changes at retirement company Australian Financial Review June 21, 2005
Community Life quietly abandoned its seniors rental model when it saw that its business model was not working. It concentrated on students instead. How it disposed of its unprofitable renting seniors and what happened to the need for budget accommodation for pensioners is not mentioned in the press.
Property developer Community Life Ltd announced a loss for the half year ended December 31, 2005 of $88,092 on revenue down 77 percent to $607,535.
Mar 2006 Serving the needed abandoned as profits dictate
The company has been progressing its development applications in respect of its land holdings based on their most profitable use consistent with the boards decision to opt out of the seniors rental accommodation business as announced on August 18 2005.
Students accommodation developments are proceeding at the companys Waratah, NSW site while development of the Bendigo, Vic, Rockhampton, Hervey Bay, Caboolture and Maryborough sites all in Queensland are being pursued.
COMMUNITY LIFE HAS $88K LOSS Australian Company News Bites March 10, 2006
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This page created Sept 2006 by Michael Wynne