Australia’s foremost provider of rental accommodation for seniors Queensland New South Wales Victoria South Australia Western Australia Tasmania 21 June 2005 The Manager Company Announcements Australian Stock Exchange Limited 20 Bridge Street Sydney NSW 2000 Dear Sir or Madam VILLAGE LIFE LTD (ASX Code VLL) TRADING RE-COMMENCEMENT AND PROFIT FORECAST – VILLAGE LIFE LTD Overview Village Life Ltd (‘VLL or the Company’) requests that the voluntary suspension of trading in VLL shares be lifted to allow trading in its shares to recommence on Tuesday 21st June 2005. The voluntary suspension was requested by the Company to ensure that it continued to comply with ASX Listing Rule 3.1. During the period of the suspension from trading the Company obtained independent expert advice from Ernst and Young to assist in the confirmation of a revised profit forecast for the current Financial Year. I t is clear that the Company’s growth has imposed considerable strain on its management resources and operating structures. As a consequence the Company’s development schedule of villages has fallen behind levels that were previously anticipated. In addition the significant number of completed villages coming on stream has stretched the Company’s tenanting capacity to a point where declines in occupancy rates have been experienced in some established villages and longer periods have been taken to achieve optimum tenancy in new villages. Senior management has also been distracted by the need to concentrate on the capital raisings necessary to fund that development program. The current property boom has further exacerbated the situation by increasing development costs and creating shortages of skilled labour with consequential development delays. These difficulties have combined to lead to a very significant decline in projected profitability for FY05. Directors, while particularly disappointed by the effect of these problems on the current years profit for all shareholders, take some comfort that the problems associated with rapid growth can be addressed by appropriate management and restructuring. Indeed there are current positive trends across the portfolio of villages under management. This growth however has led to the Company currently operating 79 villages with a significant footprint Australia wide representing 3,974 units under management, resulting in the Company being the largest commercial provider of seniors rental accommodation in Australia. The Company clearly needs to consolidate its management, systems and structures to ensure it is able to take advantage of the growth opportunities which exist in this expanding demographic. Village Life Ltd ABN 47 081 797 033 61 Park Road Milton Qld 4064 PO Box 1162 Milton Qld 4064 Phone 07 3514 6400 Fax 07 3514 6499 www.villagelife.com.au Australia’s foremost provider of rental accommodation for seniors Queensland New South Wales Victoria South Australia Western Australia Tasmania The Company anticipates positive cash flow continuing in the foreseeable future. VLL remains debt free and will have Net Tangible Assets of approximately $21 million at 30 June 2005. However the Directors consider it prudent not to pay a final dividend in respect to FY05. Amended Financial Forecast for Year Ending 30 June 2005 (FY05) Net Profit After Tax (NPAT) for FY05 is estimated to be between $1.5m and $1.8m. This anticipated result does not include any assessment for the carrying value of the Company’s investment of 5,104,194 units in the Village Life Trust (‘VTR’). Currently the investment appears in the Company’s accounts at cost of $5,104,194. At Fridays market closing price of 81 cents the value of the Company’s investment was $4,134,397.00. The value of units in VTR could be enhanced as a result of the appointment yesterday of ING Management Limited (“ING”) as the Responsible Entity for VTR. Directors will review the carrying value of this investment in the normal course when finalising the annual accounts. As articulated in the Company’s previous announcement dated 23 May 2005, the primary contributing factor in the current profit downgrade was the deferral of three substantial development projects. Of these three projects, the Company has decided not to proceed with one development (Sydenham) with the two remaining sites (Sunshine Road and Welcome Inn 2) currently being re-designed with a view to developing these in FY06 in accordance with the Company’s profitability objectives. Because there was uncertainty about the outcome of the VTR Unitholders’ meeting held on the 20th of June 2005, the Company has taken a prudent approach to its development activities by delaying commitments to new projects until the VTR Unitholders approved all resolutions. As the Company recognises development profit on the basis of percentage to completion of construction, these delays reduced the Company’s anticipated development profit for FY05. Following the successful result of the Unitholder meeting which resolved amongst other things the appointment of ING as Responsible Entity for VTR, the Company is now in a position to proceed with these developments. GST Provision The Company has made a prudent financial provision relating to GST as a result of uncertainty surrounding the classification of Village Life villages as commercial residential premises. The Company has received external expert advice that its classification is correct, but believes it prudent to include a provision for the FY05 year. Village Life Ltd ABN 47 081 797 033 61 Park Road Milton Qld 4064 PO Box 1162 Milton Qld 4064 Phone 07 3514 6400 Fax 07 3514 6499 www.villagelife.com.au Australia’s foremost provider of rental accommodation for seniors Queensland New South Wales Victoria South Australia Western Australia Tasmania Operational Review While the Board maintains confidence in both the strength of its existing business model and the abilities of its management team in executing this strategy, the Company recently advised the market that it will undertake in the immediate future, a detailed and extensive independent assessment of its structure, systems and operation. The scope of this review encompasses the ongoing financial performance of the Company, its future business strategy and the establishment of key priorities including improved occupancy of its village portfolio. Expressions of interest to complete the review from a number of highly regarded consultants have been received and these are now being considered by the Board. The Company anticipate that the review will be completed during the first quarter FY06. I n parallel with the review the Board will continue to pursue the appointment of appropriate senior personnel to lead the company forward. The rapid expansion of the village portfolio proved a temporary distraction from the Company’s proven tenant acquisition programs which impacted negatively on occupancy and rental revenue during FY05. Whilst the majority of the Company’s mature villages continue to enjoy high levels of occupancy, operational management has had to deal with the tenanting of a large number of new villages. As a consequence, available resources have been stretched and in some cases established village occupancy has declined during the year and in addition it has taken longer periods to achieve optimum occupancy in new villages than previously expected. Management is confident that an increased focus on occupancy will restore all villages to a consistent level of high occupancy. The weighted average occupancy of all sites has increased by 1% in the last month. I n addition the appointment of ING as responsible entity for VTR at the VTR Unitholders meeting held on the 20th of June 2005 will allow VLL management to primarily focus on the delivery and management of the village portfolio without the distraction of capital raising efforts for VTR. The Company has arrangements with ING for either syndication or acquisition of new villages as fully set out in the announcement to the ASX on 2 June 2005 by VTR. Additionally, a marked increase in commercial construction costs and industry related expenses has been absorbed by the Company during the course of the current reporting period. These increases have been recognised as a property industry-wide affliction as a result of amplified activity within a buoyant market sector. Village Life Ltd ABN 47 081 797 033 61 Park Road Milton Qld 4064 PO Box 1162 Milton Qld 4064 Phone 07 3514 6400 Fax 07 3514 6499 www.villagelife.com.au Australia’s foremost provider of rental accommodation for seniors Queensland New South Wales Victoria South Australia Western Australia Tasmania Fiscal Year 2006 I t is intended that FY06 will be a year of consolidation for VLL. Challenges typically associated with construction and tenanting encountered during the past 12 months have arisen as a result of the Company’s rapidly expanding portfolio of properties exacerbated by difficult development conditions throughout the country. Whilst there are signs that the property and construction market is normalising, VLL will modify its development program subjecting all projects to a stringent risk management formula to ensure both the development and operational outcomes are consistent with the Company’s objectives. The Board is continuing to examine the development market carefully and it is anticipated that a rationalisation of construction costs will occur as the demand for skilled labour and services normalises as a result of expected declining activity. The Company recognises that it maintains a significant strategic position in the seniors rental accommodation sector and intends to protect and enhance its valuable portfolio of villages through the improved execution of its management systems. Following the VTR Unitholders meeting on the 20th of June 2005, VTR has contracted to acquire 7 additional villages. These 7, together with the two villages previously acquired and still in construction means there will be 8 villages comprising 406 accommodation units completing construction during FY06 and 67 units completing in FY07. There are a number of other projects intended for sale to VTR in FY06 including 3 of 4 projects which were deferred from FY05. Licensees also have a strong pipeline of properties which can commence development in FY06 provided the construction and property markets are conducive. The relationship between VLL and its licensees does not stipulate the number of villages a licensee must develop during the course of a particular financial year. Whilst the Company expects an improved trading result in FY06 it is difficult to quantify projections appreciating that a significant portion of VLL’s income is derived from development profit and license fees. While the Board had previously anticipated being in a position to provide profit guidance for FY06, it will not consider this until the external corporate review has been completed. Whilst the Company anticipates that development activity will slow in the short to medium term, its aspirations for long term growth and market leadership remain undiminished. Village Life Ltd ABN 47 081 797 033 61 Park Road Milton Qld 4064 PO Box 1162 Milton Qld 4064 Phone 07 3514 6400 Fax 07 3514 6499 www.villagelife.com.au Australia’s foremost provider of rental accommodation for seniors Queensland New South Wales Victoria South Australia Western Australia Tasmania John Krimmer Tony Roberts Joint Managing Director Joint Managing Director
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