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Investing.com - Citi downgraded Lifestyle Communities Ltd (ASX:LIC) from Buy to Neutral on Friday, slashing its price target to AUD4.50 from AUD9.00 following a recent Victorian Civil and Administrative Tribunal (VCAT) decision.
The downgrade comes after VCAT ruled that certain contracts used by the retirement community operator were void, prompting Citi to remove all deferred management fees (DMF) from its estimates and valuation models.
Despite decent sales activity in the first half of calendar year 2025, with 98 sales recorded, Citi analyst Suraj Nebhani expressed concerns about potential risks to the company’s interest cover ratio (ICR) covenant.
Lifestyle Communities management has indicated it intends to continue charging DMF until a final VCAT order is received, though Citi has taken what it describes as a "conservative view" by eliminating these fees from its financial projections.
The investment bank also cited "near term sales uncertainty" following the VCAT decision and resulting negative publicity as factors that could create additional downside risk for the company, leading to the new Neutral/High Risk rating.
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