Today, Gateway Lifestyle Group’s [ASX:GTY] share price is hovering around $2.40. Though today’s price action has been nothing special — and is, in fact, a slight decrease — that share price says a lot about the future of the company.
But to know why, you’ve got to know a bit about Gateway Lifestyle.
Who is this company?
Founded in 2009, this land lease community owner and operator company has slowly grown to be the largest of its kind in Australia. It was listed on the ASX in 2015, and has since then expanded across the country.
Their mission is all about giving its customers an affordable home which they can own while leasing the land. As such, their market is driven by Australia’s ageing population and housing affordability issues. With a troubling property market — as in Australia — comes the high demand for land lease communities.
What’s their plan?
Gateway Lifestyle are aware that their earnings drivers for the short and long-term are different.
Short-term earnings come from new home settlements, profits made per home, and other corporate costs. But these are not what will keep the company alive.
In their FY18 trading update, they revealed that the time between sale and settlement was increasing, as it was taking residents a while to sell their family homes. This resulted in a short-term loss of settlements, obviously.
But Gateway Lifestyle insisted they are not planning to modify their strategies to fix this short-term concern.
CEO Trent Ottawa stated:
‘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. Our long term strategy of growing the long term recurring revenue through the settlement of new homes and acquisitions will continue.’
And that’s exactly what Gateway Lifestyle seem to be doing.
On 2 May, the company announced on the ASX the completion of an acquisition of Rosetta and Seachange Villages, totalling at $45 million. The report concluded:
‘This improves the overall quality of Gateway Lifestyle’s portfolio and establishes it as one of the largest operators of land lease communities in South Australia, with a platform for further expansion in South Australia’s major non-metropolitan retirement destination.’
After this move, the expected long-term recurring revenue for Gateway Lifestyle at 30 June 2018 is $55 million.
So it certainly seems like a smart decision. And now, people are starting to notice.
The recent bidding war
Two other housing-based companies — Hometown America and Brookfield Assets — are keen get their hands on the affordable housing that Gateway Lifestyle is exposed to.
They’ve been fighting over shares for the past month.
On 13 June, a non-binding proposal from Hometown was announced on the ASX. They were offering Gateway Lifestyle $2.10 per security to acquire 100% of their stapled securities. But the offer was subject to due diligence.
Gateway Lifestyle claimed they would assess the offer and see if it would be beneficial to the company and its shareholders. They didn’t accept it.
Then, on 24 June, Hometown made a revised proposal. They upped the offer to $2.35 per security, and due diligence on a non-exclusive basis. Hometown also reiterated that since 23 June, they held an interest of 18.2% in Gateway Lifestyle securities after buying out a large shareholder.
It was a much better looking offer. But it came about too late…
In the meantime, on 21 June, Brookfield assets made an offer of $2.30 per security, with an exclusive six-week period for due diligence.
We are in the midst of that six-week block as we speak.
But the deal still isn’t completely set in stone yet…
The future for Gateway Lifestyle
Hometown’s $2.35 offer values Gateway Lifestyle at $714 million
Remember, at the moment, shares are trading on the ASX at $2.39.
This suggests that the market is expecting Brookfield to come back with an even better offer.
Gateway Lifestyle have ensured they ‘will keep the market informed of material developments.’
It seems like a stock worth watching, at least as long as this bidding war continues.
For Markets and Money
PS: Maybe Gateway Lifestyle hasn’t quite convinced you of their ability to be a sound investment, but they’re certainly a part of the right market. They may be playing on the property market’s weaknesses, but we think Australia is due for a turn around. If you’re curious, check out our report on ‘Why Australian Property is on the Verge of a Decade Long Boom’.