SUM - Summerset Group

[Goldstein]

Interesting debate.

The argument might hold a bit of water if there was a glut of residential care. But the heat coming out of the housing market may only marginally affect demand for units when the fact is they are well over-subscribed for all the major players.

If in the event interest rates did start affecting demand for units SUM could look at buying the prospective occupants' real state. Difficult, but another service SUM could provide.

[Xerof]

tumeric, given all the RBNZ is attempting to do is slow the price escalation, not reverse it, I still feel a mountain is being made of a molehill.

[Snow Leopard]

Does anyone recall how the last cooling of the property market affected Ryman's:
1) Profits
2) Share Price

Best Wishes
Paper Tiger

[gv1]

Onething for sure is that people will never STOP ageing. I had the neighbour who was put in retirement village by her children no matter what they received for her house.


It pains me to say this ;) but for quite possibly the first time ever I agree with Snapiti regarding interest rates and their potential effect on this sector.

I would also add that rising interest rates can not only have the effect of slowing house sales volume they can also work to suppress house prices as well. Furthermore the RBNZ have a range of macro-prudential tools which they can specifically use to target the housing market. For those that are interested these tools are:

1) countercyclical capital buffer (require bank to hold extra margin of capital during boom period)
2) sectorial capital overlay (similar to (1) but more target - holding extra capital against an extra sector – e.g. housing)
3) Loan to value ratio (limits amounts of high loan to value lending or low deposit lending that banks are allowed to do– These types of loan tend to fuel house prices and therefor employing this tool is a way of controlling house prices).
4) Core funding ratio
and recently they announced that from June 30th this year, landlords with 5 of more houses will be classed as small business owners and therefore will be subject to greater scrutiny and commercial borrowing rates.

Therefore IF the retirement sector is linked strongly to the housing market then a strong case could be made that RBNZ policy could affect SUMs SP.

[Snow Leopard]

There is the consideration of how reported profit, which mainly (for SUM) comes from
a) annual revaluations of existing property
b) the difference between the initial market value of new properties and their total cost of build.

To what extent do short-term factors influence those revaluations?

Underlying profit may be a little different of course!

Best Wishes
Paper Tiger

[Xerof]

Does anyone recall how the last cooling of the property market affected Ryman's:
1) Profits
2) Share Price

Best Wishes
Paper Tiger

http://www.rymanhealthcare.co.nz/images/Share_performance.jpg

http://www.rymanhealthcare.co.nz/images/Underlying_profit.jpg

Property last peaked ~ July 2007

GFC was proximal....

Interest rate collapse was also proximal

good luck trying to work out the true influencers

[Beagle]

Interesting debate above but its seems theoretical at best and certainly not represented by current indicators.
House asking prices at record high.
http://www.stuff.co.nz/business/money/9788186/House-asking-prices-at-record-high?cid=edm:businessday:dailybrief

[skid]

The main reason I originally brought up these issues(playing devils advocate) was after reading an article about how some retirement villages took a hammering in the USA when the property market went Kaput.
Im not saying it will get that bad here,but simply showing that it is a possible scenario that should at least be considered.
''People will always get old'' will not cut it in a hostile market like they had.

[gv1]

Its the scare mongers who make money in the hostile market not the faint hearted.

[Beagle]

Disagree completely Roger.

That's what makes a two way market in shares doesn't it, you sell, i'll keep buying.
Fact is average house prices in the high demand Auckland area (circa mid $600K) are vastly higher than the average cost of a retirement unit SUM are looking to supply in the mid-late $300K range. SUM have a concentration of supply planned for the Auckland market, unlike Ryman. Average folks can have a new SUM retirement unit, a new Jaguar, a world trip and still have money left over to invest at higher interest rates to generate a return to pay their monthly opex fees, which are probably less than the cost of rates and repairs on their own home.

[MAC]

Having had a close look at all this over the last few weeks I'm increasingly seeing less if any linkage between the residential housing market and the aged care retirement service market.

I think a lot of people get hung up on the word 'retirement' and consider the prospect of a nice house in Tauranga or a retirement crib (batch for you Northerners), it's not like that.

The aged care retirement market provides a service, and for those in the eligible 75 year old and over target market who have just sold their house will obviously want to prioritise security, care and obtain some relief in knowing they will be looked after.

If the residential housing market dips and they get 10% less for that house, sorry Snapiti you won't get to buy a porsche with the inherited balance you'll probably just get a nice holden.

[Goldstein]

There is the consideration of how reported profit, which mainly (for SUM) comes from
a) annual revaluations of existing property
b) the difference between the initial market value of new properties and their total cost of build.

To what extent do short-term factors influence those revaluations?

Underlying profit may be a little different of course!

Best Wishes
Paper Tiger

Your post PT got me wondering about the revaluation techniques used by SUM and others. I haven't got time to look into it, perhaps somebody else can enlighten us.

The point is that the annual revaluations might be linked to stock-standard real estate indicators. However if the general real estate sector cools, while demand remains steady or even increases for residential care then the current revaluation techniques may not represent fair value.

[MAC]

I do understand, I just think that if someone develops dementia to a certain point or can no longer be secure in looking after themselves for whatever reason, if they had a fall like my Grandmother did, they won't care much if their kids get a lower sale price for their house because they sold when they had too.

I'd be appalled, as I think you would be too, if your kids kept you in discomfort for a better longer term sale price and inheritance.

When you become older and wiser, so they tell me, and you are closer to god, money seems to matter less.

[Snow Leopard]

http://www.rymanhealthcare.co.nz/images/Share_performance.jpg

http://www.rymanhealthcare.co.nz/images/Underlying_profit.jpg

Property last peaked ~ July 2007

GFC was proximal....

Interest rate collapse was also proximal

good luck trying to work out the true influencers

I think the graphs illustrates the point very well.
For a well-run retirement company (I presume we all think that SUM is well run and have learnt from the way RYM does things):
They can keep increasing their profits through the normal swings in the economy;
Despite that the share price goes up and down (but with an up bias).

Best Wishes
Paper Tiger

[Snow Leopard]

Your post PT got me wondering about the revaluation techniques used by SUM and others. I haven't got time to look into it, perhaps somebody else can enlighten us.

The point is that the annual revaluations might be linked to stock-standard real estate indicators. However if the general real estate sector cools, while demand remains steady or even increases for residential care then the current revaluation techniques may not represent fair value.

That sort of thinking reduces your investment returns in the long term.

Best Wishes
paper Tiger

[MAC]

It is hard to know what the valuer's are thinking, would be nice to see one of the valuer's reports as Summerset or the others really don't provide all that much in their HY or FY.

There are three markets to consider;

a) Residential property (mum, dad the kids and renters)
b) Commercial property
c) Aged care retirement village market, as a sub sector of commercial (service)

It maybe a coincidence that aged care village valuations have been increasing along with the residential property market, or it could be that both markets have been on the rise. I propose the latter is probably right.

Given the demographic trends there is every probability that aged care village market valuations would continue to rise even if the residential market were to take a dip. The small market of prospective village owner operators is very small, and even if SUM or RYM were selling demand would be good and valuations enduring.

Also, we are not far away from the boomer bell curve, it’s probable the boomers will all want out of the residential market and will all want to secure aged care. The bell curve starts about now as the oldest boomer is 69 and will end in around 25 year’s time when they have flushed through the system.

It's even possible, in just a few years time, that we could see an end to the secular residential bull market and the start of a secular bear, but the aged care market however should be booming.

The valuer’s will get it right provided they are actually valuing the right market, but Summerset management are smart enough to ensure they do.

[couta1]

I do understand, I just think that if someone develops dementia to a certain point or can no longer be secure in looking after themselves for whatever reason, if they had a fall like my Grandmother did, they won't care much if their kids get a lower sale price for their house because they sold when they had too.

I'd be appalled, as I think you would be too, if your kids kept you in discomfort for a better longer term sale price and inheritance.

When you become older and wiser, so they tell me, and you are closer to god, money seems to matter less.
This post captures the essence of the majority of families and residents attitudes in Sum and Rym villages I talk to and once these elderly folk feel safe and secure and part of a community the importance of money becomes less again

[Goldstein]

That sort of thinking reduces your investment returns in the long term.

Best Wishes
paper Tiger

Quite possibly. I'm aware I don't have the time to commit to research that others do.

Another way to reduce your returns over the long run may be to consider that once you have done your research you know all there is to know about a company or sector.

[Beagle]

People pointing to the historical pattern of RYM's SP declining in the context of the housing market cooling from 2007 onward might like to consider the following.
1. Nearly all share prices declined with the effects of the global financial crisis from 2007 to early 2009.
2. Nearly all asset classes were affected by the GFC so the extent to which RYM's SP decline can be attributed to a cooling in the housing market as the primary reason is highly debateable.
3. Last but certainly not least, RYM's underlying profit increased year after year after year notwithstanding the effects of the global finacial crisis or housing slowdown, (unlike the vast majority of other companies).

[Harvey Specter]

People pointing to the historical pattern of RYM's SP declining in the context of the housing market cooling from 2007 onward might like to consider the following.
1. Nearly all share prices declined with the effects of the global financial crisis from 2007 to early 2009.
2. Nearly all asset classes were affected by the GFC so the extent to which RYM's SP decline can be attributed to a cooling in the housing market as the primary reason is highly debateable.
3. Last but certainly not least, RYM's underlying profit increased year after year after year notwithstanding the effects of the global financial crisis or housing slowdown, (unlike the vast majority of other companies).Yip - the share price fall was in relation to investors being more conservative in general due to the GFC, not because the underlying business was effected. THose who follow Buffet would have seen it as a perfect time to buy a great business at a discounted price. The only issue with this is having spare cash to invest.

[NZSilver]

Yip - the share price fall was in relation to investors being more conservative in general due to the GFC, not because the underlying business was effected. THose who follow Buffet would have seen it as a perfect time to buy a great business at a discounted price. The only issue with this is having spare cash to invest.

To right Harvey! - I really hope sum stays low so I can keep buying more as cash comes avalible. Im happy for the SP to stay around 3.40 and even will be even happier to see it drop towards 3.30.

[Food4Thought]

Totally agree. A great time to buy, even better if you have parents who in the future need care. I also wouldn't be surprised if a foreign business tries to buy out some of these care firms as they are a consistent earner. Not glamorous, but neither is waste management.

[In4a$]

To right Harvey! - I really hope sum stays low so I can keep buying more as cash comes avalible. Im happy for the SP to stay around 3.40 and even will be even happier to see it drop towards 3.30.
A top up at $3.30 would be nice, I reckon price will be $4.+ by December.

[Frankenstein]

I assume SUM is similar to RYM in this respect, but is anyone able to tell me if SUM sell their initial occupancy rights of new units at a discounted price and what this discount is? My understanding is the discount is made because prospective occupants are buying off plans rather than being able to see and move into a finished unit straight away.

[Harvey Specter]

I assume SUM is similar to RYM in this respect, but is anyone able to tell me if SUM sell their initial occupancy rights of new units at a discounted price and what this discount is? My understanding is the discount is made because prospective occupants are buying off plans rather than being able to see and move into a finished unit straight away.I dont think there is a discount. Unlike a normal apartment building where the developer needs a certain amount of pre-commitments before the bank allows him to start, SUM has its funding lines sorted in advance. 'Pre-sales' only start once the development has actually started, not before like apartment buildings. Therefore the resident has very little risk regarding the complex being built, or the move in date, whereas with a normal apartment, you dont even know if it will get built, let alone a move int date, even your deposit is locked up in the trust account indefinitely.

[gv1]

big volumes, somethings up.

[winner69]

big volumes, somethings up.


Any idea what gv1

[gv1]

I wish winner69. Just highlighting to investors big volumes, one 200000 went through earlier on. I have noticed with few stocks, funds buy large and then something good is announced.

[Goldstein]

Nice run up to divvy with good volumes.

I wonder whether the change in dividend yield will have an impact on the share prices of MET and SUM

Currently we have:
MET 0.72%
SUM 0.72%
RYM 1.33%
with SUM changing to 0.94% (with the divvy going from 2.5 to 3.25cps) at today's share price.

If anybody has the data it would be good to see a hitstorical plot of RYM's dividend yield.

[777]

Nice run up to divvy with good volumes.

I wonder whether the change in dividend yield will have an impact on the share prices of MET and SUM

Currently we have:
MET 0.72%
SUM 0.72%
RYM 1.33%
with SUM changing to 0.94% (with the divvy going from 2.5 to 3.25cps) at today's share price.

If anybody has the data it would be good to see a hitstorical plot of RYM's dividend yield.


Waste of time looking at it. RYM and SUM are growth stocks at this stage of the game. Dividends are only being made to stop shareholders complaining. I imagine when deciding on the div they work out what is the lowest they can get away with. Two or three years from now divs will start meaning something.

[Beagle]

I think this is the first day in a very long time that the SP has closed for the day on its high. Perhaps those institution(s) that are profit taking from their Quadrant buy-in last year at $3.10 and responsible for selling, have finally got sellers fatigue or better still have run out of stock :)

On another note I see Barfoot's reported today that Auckland house sales volumes were only down 12% on last February, ( Reserve's bank's policies appear to be having only a modest effect).

I agree with comments directly above. Nobody buys this sector with their main focus being on dividends.

[Goldstein]

Just trying to understand the recent increase in share price.

Let's go with the conspricay theory then. I.e., Something's up.

[Wolf]

Looking for a breach of $3.50.
Why's everyone looking for an announcement, what could possibly happen? I wasn't expecting anything except maybe some funds buying sum?

[Toasty]

Just an observation. There were no bids or asks this morning just after 9am. One bid for 1000 shares turned up about 4 minutes after 9am but that's it so far. Seems a bit strange. I haven't seen that before. Even NTL had a little crop of offers etc after open.

[Xerof]

Just an observation. There were no bids or asks this morning just after 9am. One bid for 1000 shares turned up about 4 minutes after 9am but that's it so far. Seems a bit strange. I haven't seen that before. Even NTL had a little crop of offers etc after open.

it went ex dividend, but you wouldn't think so, given the current bids...... Fair value opening in theory is 3.448

[couta1]

See article in Dom Post re Trentham site extension update,to start April

[Goldstein]

Cheers Couta1.

Here's the article:
http://www.stuff.co.nz/business/industries/9800119/Retirement-village-plans-to-be-driven-by-demand

I quite like the way they have cafes, bowling greens etc. They seem to concentrate on lifestyle and build facilities that the residents actually want. Good on them.

[Harvey Specter]

Cheers Couta1.

Here's the article:
http://www.stuff.co.nz/business/industries/9800119/Retirement-village-plans-to-be-driven-by-demand

I quite like the way they have cafes, bowling greens etc. They seem to concentrate on lifestyle and build facilities that the residents actually want. Good on them.I can just imagine the meeting. Old person stands up and says "If you are going to build more units, we are going to need a wider bowling green".

[MAC]

Cheers Couta1.

Here's the article:
http://www.stuff.co.nz/business/industries/9800119/Retirement-village-plans-to-be-driven-by-demand

I quite like the way they have cafes, bowling greens etc. They seem to concentrate on lifestyle and build facilities that the residents actually want. Good on them.

I like the concept of expanding existing villages, building on local reputation and controlling the village build rate to match, or more probably to control and maintain a healthy demand.

“The homes would range in price from about $320,000 to $500,000”

The historic average list price for a Summerset independent living unit is $335,599. So, we may be starting to see some demand driven margin expansion starting here.

[Bjauck]

I like the concept of expanding existing villages, building on local reputation and controlling the village build rate to match, or more probably to control and maintain a healthy demand.

“The homes would range in price from about $320,000 to $500,000”.

If $500,000 gets a private 3 bedroom villa with a good outlook (maybe seeing the races from your terrace?) then it would be snapped up in a flash at Summerset by the Park, Manukau. Trentham prices may be a bit cheaper!

[Beagle]

Looks good. I like the way they continue to evolve their business plan and methodology.

[winner69]

Another week passes and again RYM outperforms SUM

One day you guys will get it right

[couta1]

Another week passes and again RYM outperforms SUM

One day you guys will get it right
Put that wooden spoon away winner,we know those international index boys are driving up the price otherwise she would be flat aye:cool: No disrespect to Ryman though,great company but Sum will have its day

[Beagle]

Put that wooden spoon away winner,we know those international index boys are driving up the price otherwise she would be flat aye:cool: No disrespect to Ryman though,great company but Sum will have its day

Yeap, RYM's SP up circa 86% in the last year on 20% profit growth and SUM's SP up circa 35% on 46% profit growth.
You don't have to be a rocket scientist to see RYM's relative outperformance cannot continue in the medium / long term.

[ratkin]

the PEG ratio on SUM say's it is a screaming buy.
Disc already heavily wieghted in SUM

Only if you forecast in profits rising by 40% and it not going to work that way

[Beagle]

Only if you forecast in profits rising by 40% and it not going to work that way

We'll see. I'm with Snapiti. Even if there is some moderation in the growth rate this year due to the holding costs of owning a land bank sufficient for 7 years development, they're positioned extremly well for sustained long term growth and outperformance.

[ratkin]

We'll see. I'm with Snapiti. Even if there is some moderation in the growth rate this year due to the holding costs of owning a land bank sufficient for 7 years development, they're positioned extremly well for sustained long term growth and outperformance.


But at 40% over say three consecutive years?. Because if they only manage a very respectable 20%
then the PEG would still be well over one , depending on what you consider their p/e now

[Beagle]

But at 40% over say three consecutive years?. Because if they only manage a very respectable 20%
then the PEG would still be well over one , depending on what you consider their p/e now

Have a look back at the link I recently posted. They're targeting 250 new units this year, a growth rate of 25% over 2013, they're bringing all development in house this year and aiming to increase their development margin significantly and looking at procurement benifets for materials. As they continue to grow their leverage with suppliers grows, (economies of scale). Looking further ahead they plan on 300 new units in 2015 and they are extremly well positioned with their seven year land bank for further growth ahead after that as they continue to refine and develop their business model. I don't know what you're basing your assumption that growth will slow from 46% all the way down to 20% on, but I couldn't disagree with you more.

There's a lot of money to be made when you buy a company with exceptionally good long term growth prospects on a PEG ratio of less than 1. You only need to find a couple of these sort of stocks in your lifetime to retire very comfortably indeed, I can't put it any more plainly than that.

[ratkin]

There's a lot of money to be made when you buy a company with exceptionally good long term growth prospects on a PEG ratio of less than 1. You only need to find a couple of these sort of stocks in your lifetime to retire very comfortably indeed, I can't put it any more plainly than that.


If only it was that easy, there are plenty of stocks that fail to live up to their low PEGS. i know to my own cost

[Tevita]

While this is true not to many of those would have been in an industry offering such long term growth prospects such as looking after the ever increasing retirement sector.

There must be an added incentive to near retirees, especially in Auckland, when deciding whether to soldier on stubbornly in their own home defying the realities associated with old age, or to "give in" and enter a retirement home - that the home they have in so many cases owned for years has appreciated greatly in value. That a potential capital gain should be taken. Auckland is very much a special case in this respect for several reasons.

[Beagle]

RBNZ policies are having some muted effect on market volume, coming off a very high set of comparitive figures when interest rates were at 50 year lows, last year, which is to be expected. My contention is that whether a house takes 25 days to sell or 55 days is largly immaterial to the demand SUM are experiencing for their developments. I'll debate the rest of your points when I have more time.

[winner69]

RBNZ policies are having some muted effect on market volume, coming off a very high set of comparitive figures when interest rates were at 50 year lows, last year, which is to be expected. My contention is that whether a house takes 25 days to sell or 55 days is largly immaterial to the demand SUM are experiencing for their developments. I'll debate the rest of your points when I have more time.

Coming off very high set of comparative numbers - not really Roger

Number of house sales at the moment are only about average

Current 12 month number is 79,397 which is only 5% more than a year ago. This mini cycle peaked at 80,677 in November last. Long term average is about 80,000

Long way of the peak of 122,000 in March 2004

Those were the boom days .....today they are solid average sort of times.

[Xerof]

Without wanting to muddy the waters of your housing debate, since when has the statistic of "asking prices" ever been a regular publication? I'm only interested in actual selling prices.

Sounds like a real estate company trying to give an impression of demand being stronger than it possibly is.

[clip]

Month----# of sales------median sales price
Feb 2012 ----2,075--------468,000
Feb 2013-----2,399--------535,000
Feb 2014-----2,143--------576,329

The median list/asking price has increased also, 4.94% from same month 2012 - 2013, and 10% from same month 2013-2014

[MAC]

With no disrespect intended all this housing market chatter does seem to be unnecessarily cluttering the thread, why not take it off line or over to one of the property stock threads, KIP for instance.

[winner69]

Be a little careful when looking at unadjusted median prices (asking or sales). If you are interested this RBNZ paper talks about the pitfalls of the REINZ sales data:

http://www.rbnz.govt.nz/research_and_publications/discussion_papers/2009/dp09_07.pdf

They have a stratified series now

https://www.reinz.co.nz/shadomx/apps/fms/fmsdownload.cfm?file_uuid=59E35D32-A462-92CF-FC67-ACE55A1CAA9E&siteName=reinz

[MAC]

I'm not sure all conspiracy theories are worth pursuing actually, Roger and others have kindly attempted several times to debate the matter, and you don't have to agree with them, but at some point it just becomes clutter, just saying.

[winner69]

Yes turmeric I agree

Lets say this little old lady in Silverstream (near Trentham). Her home she bought for 20,000 years ago is now worth 550,000 say. If the price drops to say 500,000 she won't be able to buy that nice new villa at the Summerset village at Trentham and have some spending money left over.

She and other Silverstream / Upper Hutt residents will be in the same boat ...won't be able to afford that new villa .....and nobody in their right mind living outside Upper Hutt would want to move to that village in Trentham (wet and cold in winter ...the pits really ...the village is up the 1200m shute at the racecourse and a couple of years ago I got stuck in ankle deep mud up there) ....so at 500,000 villa might remain unsold or special er off to sell

See property market is relevant to Summerset

[Snow Leopard]

...it's only clutter if you unconditionally believe there is no link between the housing sector and SUM and IMHO that would be extremely naive. If there is potentially a link then surely it is worthy of discussing...

So let us not discuss house prices, the calculation thereof and the perturbations thereof here, go away and do that somewhere else.

Let us instead discuss what the supposed link between housing and retirement operator profits is.

Evidence would be more useful than IMHO's

Best Wishes
Paper Tiger

I despair of humans, never quite sure how they made it down from the trees. Probably feel out and landed on their heads.

[Snow Leopard]

Haha, you certainly are a character Mr Tiger. For the record I referenced an RBNZ discussion paper on measuring house prices and an NZ based empirical study on the dynamics between house prices and sales volume.

Based on your comment above I take it you read neither, but giving you the benefit of the doubt that you did in fact read them, and your strong desire to talk about the link between housing and the retirement sector what are your thoughts on both these two papers and how they relate to SUM!

They are irrelevant to the discussion I am suggesting would be a more useful one to pursue, and on which I have commented on this thread previously.

Best Wishes
Paper Tiger

[winner69]

Help

Is the price (what new village occupant will pay) of a retirement unit tied in any way to normal property prices .....or is there a special formula used.

I ask because I don't know and don't want to assume anything.

[skid]

For those of you who dismiss the correlation between the housing market and retirement villages as ''conspiracy theories'',Im not saying it will happen here but it was very real in the States.
http://money.usnews.com/money/blogs/the-best-life/2008/11/10/retirement-communities-respond-to-housing-market-drops

[Beagle]

Haha, you certainly are a character Mr Tiger. For the record I referenced an RBNZ discussion paper on measuring house prices and an NZ based empirical study on the dynamics between house prices and sales volume.

Based on your comment above I take it you read neither, but giving you the benefit of the doubt that you did in fact read them, and your strong desire to talk about the link between housing and the retirement sector what are your thoughts on both these two papers and how they relate to SUM!

You've clearly been doing your homework which is something I totally respect. I chose asking prices because its a lead indicator of where prices may be heading but obviously medium sales price statistics are the accepted yardstick. One if my clients is the N.Z. general manager of one of the largest Australian owned real estate franchise operators here and is also one of Auckland's top auctioneer's. We discussed the effects on the market shortly after the RBNZ's lending restrictions first came into effect and again late in January this year. The feedback I got was there was definitly a strong initial effect on the market, most especially felt at the first home buyer level along with some trickle down effect through the rest of the market. This has tapered off and the effects of the changes are becoming less pronounced over time. That's the feedback from the coal face I've received, although that's a few weeks old now.
From a lifestyle perspective, (which is what is of primary concern to our older folks), my contention is it makes little difference whether their property takes a little longer to sell or sells for a little less than expectations when there's such a wide gap between the average entry cost to a SUM facility and the sale price of their home.

Let's unpack that a bit. As previously posted we're looking at average sale prices in Auckland of circa $650,000 and SUM are looking to invest $500 million into the Auckland market building 1300 retirement units, as per their press release which equates to an average unit price of $384,615. This leaves an average suplus of circa $265,000 to a couple selling their average Auckland home moving into a SUM facility, quite apart from the caring supportive community benifets they would probably feel as part of the shift, the capital released as part of the process would provide a very nice boost to many people's living standards in their latter years.

I can't see how it would matter to Joe and Jill average whether their house took a little longer to sell or they got a little less for it, how does this translate to lower demand for SUM's units, can you please explain your theory on this ? Surely we are just talking about a potential timing difference ?

The other factor is that Joe and Jill's average home is generally not the sort of home a first home buyer would be looking to acquire so this gives them a degree of insulation from the RBNZ's policies in as much as they are targeted at first home buyers.

My further contention is that most people looking at retirement into a quality retirement facility are attracted mainly based on lifestyle, community care and service facilities, not whether they can free up a specific amount of capital. I think if you talk to most people who have moved to a retirement facility they will tell you the capital liberated from the process is the icing on the cake, rather than the cake itself.

[Bjauck]

Let's unpack that a bit. As previously posted we're looking at average sale prices in Auckland of circa $650,000 and SUM are looking to invest $500 million into the Auckland market building 1300 retirement units, as per their press release which equates to an average unit price of $384,615. This leaves an average suplus of circa $265,000 to a couple selling their average Auckland home moving into a SUM facility,
Would SUM operate on a cost plus basis when selling the licences to occupy on these new units? $384,615 would recoup the cost per unit.

[Beagle]

I believe they stated this was the total cost of the facilities they are building, clearly this includes the cost of community facilities and health care beds which as we know are a seperate revenue stream.
Good point though. With SUM working towards achieving a development margin of 17% this then suggests the average sale price for an independent living unit would be circa $450,000, still leaving Joe and Jill average looking at liberating circa $200,000 extra capital which I think your average couple would really enjoy...

[skid]

You've clearly been doing your homework which is something I totally respect. I chose asking prices because its a lead indicator of where prices may be heading but obviously medium sales price statistics are the accepted yardstick. One if my clients is the N.Z. general manager of one of the largest Australian owned real estate franchise operators here and is also one of Auckland's top auctioneer's. We discussed the effects on the market shortly after the RBNZ's lending restrictions first came into effect and again late in January this year. The feedback I got was there was definitly a strong initial effect on the market, most especially felt at the first home buyer level along with some trickle down effect through the rest of the market. This has tapered off and the effects of the changes are becoming less pronounced over time. That's the feedback from the coal face I've received, although that's a few weeks old now.
From a lifestyle perspective, (which is what is of primary concern to our older folks), my contention is it makes little difference whether their property takes a little longer to sell or sells for a little less than expectations when there's such a wide gap between the average entry cost to a SUM facility and the sale price of their home.

Let's unpack that a bit. As previously posted we're looking at average sale prices in Auckland of circa $650,000 and SUM are looking to invest $500 million into the Auckland market building 1300 retirement units, as per their press release which equates to an average unit price of $384,615. This leaves an average suplus of circa $265,000 to a couple selling their average Auckland home moving into a SUM facility, quite apart from the caring supportive community benifets they would probably feel as part of the shift, the capital released as part of the process would provide a very nice boost to many people's living standards in their latter years.

I can't see how it would matter to Joe and Jill average whether their house took a little longer to sell or they got a little less for it, how does this translate to lower demand for SUM's units, can you please explain your theory on this ? Surely we are just talking about a potential timing difference ?

The other factor is that Joe and Jill's average home is generally not the sort of home a first home buyer would be looking to acquire so this gives them a degree of insulation from the RBNZ's policies in as much as they are targeted at first home buyers.

My further contention is that most people looking at retirement into a quality retirement facility are attracted mainly based on lifestyle, community care and service facilities, not whether they can free up a specific amount of capital. I think if you talk to most people who have moved to a retirement facility they will tell you the capital liberated from the process is the icing on the cake, rather than the cake itself.

I think the point most are making about the correlation in house prices is more of a ''significant drop in house prices''issue.
Its a potential to be taken into consideration.
If things stay the same-or change ''just a bit'' then its business as usual.
The problem arises more if those scarey ''house price to income''theories come about(the damage would most likely happen as a result of some other pretty bad economic influences)
There are dangers with any investment.
I think there are pretty good odds with SUM in this respect but to dismiss anything is not good research.
disc-Im mostly in property from way back so this scenario would not be great for me--Ive got no vested interest in promoting it. DYOR

[Harvey Specter]

I agree with the new guy.

You are not going to use your last dime to move into a village. My guess is that if they get $50k less on their house, they will still make the move as the reason they are doing it isn't financial.

[Harvey Specter]

I can't think of any more compelling evidence than that (and neither could the judge in our case!)
YOu cant get much better than a court approved investment ;)

[Harvey Specter]

Fair enough. Just be aware of paralysis by analysis. i.e. While its critical to DYOR, its also important to realize that no money can be earned until investments are actually made! :)From memory, T bought XRO on no analysis when it was cheap so no paralysis back then.

T - are you over complicating things now.

[skid]

Care to explain? The GFC really was the worst economic environment in 80 years, yet RYM managed to post higher underlying profits each year throughout. How can that not be proof enough of the sector's immunity to property "crashes"? What am I missing here??

RYM posted higher profits because in spite of the GFC ,New Zealand house prices did not crash. But the situation was very tense for a while and could have easily gotten out of hand and then there most likely would have been one,even here.
I think alot of people dont realize how close the world economy came to a melt down.
As long as the housing market stays buoyant or has only small dips retirement villages will be sweet.
But they WILL be affected if there is a large correction.
The GFC was the worst economic environment in 80yrs (until another worse one comes along)
Have we really done what is necessary to repair the damage? Or have we just postponed it. That, to me is the big question(that debt bubble scares me)
You have obviously done alot of research under the model of the current housing market and that is valuable information but if the model changes it may be time to rethink.
Im thinking of getting in,but not dismissing the housing markets influence on retirement villages.

[Xerof]

New guy, welcome, out of interest can you post the reference for the high court judgement i.e kramer v kramer. There might be some interesting reading in the judges decision perhaps?

[Beagle]

=NewGuy;467048]Care to explain? The GFC really was the worst economic environment in 80 years, yet RYM managed to post higher underlying profits each year throughout. How can that not be proof enough of the sector's immunity to property "crashes"? What am I missing here??[/Nothing. Welcome to the forum, please stick around, I think we're all enjoying your contributions so far :)

Skid, remember that RYM's underlying earnings growth, (I'm happy to use RYM as a proxy for a
well run company in the sector seeing as SUM wasn't listed then), continued before, during and after the GFC and the effects on the elderly in N.Z. were severely exacerbated by the six billion dollars lost in the myriad of cowboy finance company collapses.

[Joshuatree]

Hey Excellent posting New Guy ; how did MET shape up in your analysis and did you put equal amounts in all three?

[Joshuatree]

The GFC was the worst economic environment in 80yrs (until another worse one comes along)
Have we really done what is necessary to repair the damage? Or have we just postponed it. That, to me is the big question(that debt bubble scares me)
s[/QUOTE] Agree with you Skid. Check out how much th debt has increasedDebt Exceeds $100 Trillion as Governments Binge (http://www.google.co.nz/url?sa=t&rct=j&q=&esrc=s&source=web&cd=1&ved=0CCoQqQIwAA&url=http%3A%2F%2Fwww.businessweek.com%2Fnews%2F201 4-03-10%2Fdebt-exceeds-100-trillion-as-governments-binge-credit-markets&ei=sNgfU7WGDoG_lQWQvIHgBw&usg=AFQjCNFseJ_JwaByG9PT7yJ4B4PvT9B3cg&bvm=bv.62788935,d.dGI) since the GFC. Just a matter of time imo

[Beagle]

T - I think we all know why the American housing market crashed.

P.S. Extract from RBNZ statement this morning regarding hosue prices

There has been some moderation in the housing market. Restrictions on high loan-to-value ratio mortgage lending are starting to ease pressure, and rising interest rates will have a further moderating influence. However, the increase in net immigration flows will remain an offsetting influence.

[Leica]

*Most retirees own homes near the upper quartile of the price distribution, not the median, but the selling prices of village units is pegged to the median. Hence, even a small downward correction in house prices leaves plenty of breathing space for most prospective entrants to complete the move to a village. As a result, village sales are largely immune to property market dips."

I have marketed six retirement villages, and in one, noted an unusual struggle to get occupancy in the credit crunch period. It was my impression that many people who were moving in for independent reasons didn't have to do it immediately, and could wait until their house values went up. Those who had to move in for health issues had less freedom of choice. As prices increased, the village filled.

[couta1]

Leica may I ask if the one you had the struggle in was a Sum or Rym complex,the reason I ask is I know a few sales reps working in these villages personally and know at times it can be a struggle to sell the smaller serviced apartments but not the standard sized ones or cottages,cheers

[Xerof]

Leica, what I would be interested to know is did the unit pricing decline in response to the buyer indecision?

[Leica]

Leica may I ask if the one you had the struggle in was a Sum or Rym complex,the reason I ask is I know a few sales reps working in these villages personally and know at times it can be a struggle to sell the smaller serviced apartments but not the standard sized ones or cottages,cheers

No it was an independent one. Sometimes operators get the mix of rooms wrong but I have no doubt Ryman have this down pat. The unit pricing didn't decline - it just took longer to fill so it's more a matter of turnover and occupancy. Ryman, being well established, has a network of existing residents who recommend them. I don't believe the Metlife brand is so strong from a personal recommendation point of view. Still Ryman's personal recommendation network is largely NZ based, not Australian. I think Summerset is well poised to deliver on returns with the large development pipeline, though price is a little unenthusiastic of recent weeks. Will take time for this growth to manifest.

[Harvey Specter]

Leica - new sales or re sales. If re sales it doesn't matter as the previous occupant doesn't get their money back till it sells.

[Goldstein]

Interesting that after the OCR rise, the sector is a little flat today. Regardless of whether or not the heat coming out of the housing market will affect the demand for units, it's possible that quite a few investors preceive it will.

[skid]

Leica may I ask if the one you had the struggle in was a Sum or Rym complex,the reason I ask is I know a few sales reps working in these villages personally and know at times it can be a struggle to sell the smaller serviced apartments but not the standard sized ones or cottages,cheers

Still patiently waiting for that research info you promised Couta:)

[macduffy]

Interesting that after the OCR rise, the sector is a little flat today. Regardless of whether or not the heat coming out of the housing market will affect the demand for units, it's possible that quite a few investors preceive it will.

I wouldn't read too much into the OCR move which was widely picked by the market. More likely, the sector is following the NZ market down - which is reacting to the fall on the US markets overnight.

I hold Sum - and RYM - and MET.

[Goldstein]

Wow, yes, quite a bit or red on the world markets. Just caught up with the news around the place. I'm out of the trading game at the moment as too busy with work.

[couta1]

Still patiently waiting for that research info you promised Couta:)
Will pm you sometime during the weekend Skid:cool:

[winner69]

Some if you still discount the risk that one day the posers to be might possibly intervene to cap the 'excessive' profits being ma by 'greedy' retirement village operators

Today's paper
http://www.nzherald.co.nz/nz/news/article.cfm?c_id=1&objectid=11220355

Already our fellow sharetrader craic is up in arms and belg has even made comment. See the If National Wins thread

Maybe, just maybe, a revolution is starting.

A debate that in the current environment nobody can win ...corporates driving excessive profits for greedy shareholders v some sort of moral obligation to the community and society.

[Jasemc]

every now and again the same argument is raised. Fact is you don't have to go into a village live with your family and see how long it takes for them to move you into retirement home for free? If they ever put a cap on then the government had better start building cause the private wont or not as fast. Supply and demand and choice. Sounds like a greens policy :D

[ratkin]

Herald makes the villages sound terrible.
Interesting that its usually the children of the residents that complain. Worried about their inheritence no doubt, if they cared that much the old dears wouldnt need to go into a home in the first place.
Main issue seems to be not so much the fees but the companies hanging on to 20-30% of the unit costs when they die/leave

Govt unlikely to do much about it though , would be a major headache if the state had to provide the services themsellves

[BlackPeter]

Some if you still discount the risk that one day the posers to be might possibly intervene to cap the 'excessive' profits being ma by 'greedy' retirement village operators

Today's paper
http://www.nzherald.co.nz/nz/news/article.cfm?c_id=1&objectid=11220355

Already our fellow sharetrader craic is up in arms and belg has even made comment. See the If National Wins thread

Maybe, just maybe, a revolution is starting.

A debate that in the current environment nobody can win ...corporates driving excessive profits for greedy shareholders v some sort of moral obligation to the community and society.

Looks like an opportunity for us share holders to encourage the management working for us to provide fair conditions to the elderly. Long term it is not normally the most greedy who prevails, but the one who offers win-win deals (i.e. good for the shareholder as well as for the customer).

On the other hand - the article doesn't really describe unfair practises - it looks like the conditions have been clearly set out in the beginning and the apartments have been occupied on a willing (and informed) buyer, willing seller basis. If the occupiers would have wanted outstanding capital returns, than they should have invested their money in retirement village shares instead of in occupancy rights.

Sounds a little bit like the people buying a cheap section next to a state highway (or airport) and than spending their time in complaining about the traffic noise.

There will always be greedy operators as well as greedy occupants (or their greedy heirs) who want to have their cake and eat it too. I am however not sure whether I expect a revolution - more likely is that long term in our free market the operators with the better conditions will prevail. As well - maybe an opportunity for Labour to campaign for state run retirement villages and for Winston to campaign for "Kiwi"village - competition is good for the market, bring it on! Competition will sort the conditions out over time, but what will stay is human greed!

[Bjauck]

Some if you still discount the risk that one day the posers to be might possibly intervene to cap the 'excessive' profits being ma by 'greedy' retirement village operators

Today's paper
http://www.nzherald.co.nz/nz/news/article.cfm?c_id=1&objectid=11220355

Already our fellow sharetrader craic is up in arms and belg has even made comment. See the If National Wins thread

Maybe, just maybe, a revolution is starting.

A debate that in the current environment nobody can win ...corporates driving excessive profits for greedy shareholders v some sort of moral obligation to the community and society.

A major part of the criticism has stemmed from the fact that residents do not benefit from the great appreciation in land values we have had recently. SUM et al. pocket that for taking on the commercial risk in developing the villages (did the article mention that?). SUM is also taking on the risk (increasing daily!) that land values will not always go up. Will there be articles from the same sources suggesting that residents share in the losses? MET has that covered - but not RYM or SUM.

There is protection in place for residents...they need to have a lawyer go through the contract with them. If they cannot understand what they are signing and the explanation, perhaps they could seek to annul the contract by way of the exception for mistake or lacking intention to enter a contractual obligation. Otherwise perhaps another layer of protection should be added to ensure that those signing a licence agreement understand what the terms entail. However the existing villages contracts seem to be popular - judging from the increasing numbers entering the villages.

[Harvey Specter]

Until we get close to an oversupply position (and we are no were close) then the government would be wise to stay well away or it will cost far to much. If it was so profitable, others would enter, driving the price down.

Therefore, expect a Labour/Greens joint announcement on Monday! ;)

No new, cheaper player has turned up. I wonder if we will ever get the jet star model. Much cheap entry cost but overpriced user pays if you want a swim or play bowls on the communal facility

[couta1]

Just a quick reminder ladies and gents that the Government is currently underfunding the industry to the tune of 500 mill plus per annum so I don't think they are in any position to try and interfere with operators profits plus the ever increasing demand issue,so the Herald drags up one example but the fact remains that 99% of the people living in these villages are very happy with their lifestyle and have no regrets about signing the original contract

[ratkin]

Actually the bad publicity should help Somerset , the more choosy the customers become the better. Somerset are the company that wins all the awards, thats where the oldies will go

[percy]

Storm in a teacup IMO. Entering a retirement village is more akin to renting a house than buying one. And, when viewed that way, the DMFs are actually quite reasonable. For instance, the average occupancy is about 8 years. So, if someone paid $400k for a unit and the DMF is 25%, that person will effectively pay $100k for 8 years rent, which works out to $240 per week. Not that expensive really. Also, as previously discussed, these metrics completely overlook the quality of life people enjoy at the village. They've voted with their wallets by going there. Let the market speak.

Great post.Right on the money!!!

[Bjauck]

Storm in a teacup IMO. Entering a retirement village is more akin to renting a house than buying one. And, when viewed that way, the DMFs are actually quite reasonable. For instance, the average occupancy is about 8 years. So, if someone paid $400k for a unit and the DMF is 25%, that person will effectively pay $100k for 8 years rent, which works out to $240 per week. Not that expensive really. Also, as previously discussed, these metrics completely overlook the quality of life people enjoy at the village. They've voted with their wallets by going there. Let the market speak.
Compared with renting, you have to stump up with a much larger payment as bond, if you will, at the beginning of the term. So, you will need to account for tax-paid interest foregone on that mega-prepayment and add that to the DMF of 25%. So with the $400,000 example, conservatively let's say the $400,000 amount could have been placed in a rolling-over 2 year term deposit paying a (low) 4.8% interest rate. Cumulatively over 8 years that works out to be 45.5% interest and if the licensee is on the top rate of tax about 30% post tax. That income foregone equates to about an extra $120,000 at the end of the 8 years. Added to the $100,000 25% DMF, you are now looking at about $500 rent per week. As interest rates rise...interest foregone on the up-front payment increases, increasing the implied rent.

[percy]

Glad you posted that. I was thinking exactly the same thing when I read New Guy's post. The thought process to a certain extent is good (Percy), but it is a post that is certainly not on the money.

Yes you are correct.
The thought process is really governed by security,safety and care,and being in a group their own age.Often it is a husband who has had a medical scare who wants to provide security for himself and his wife.Should he be able to afford it, these concerns OVERRIDE the financial concerns.To some one who has set up their family, it is peace of mind that is the most important issue in their final years.Health and worry I see as a lot more a driver than the property market,or return on capital,or capital growth.

[BlackPeter]

Compared with renting, you have to stump up with a much larger payment as bond, if you will, at the beginning of the term. So, you will need to account for tax-paid interest foregone on that mega-prepayment and add that to the DMF of 25%. So with the $400,000 example, conservatively let's say the $400,000 amount could have been placed in a rolling-over 2 year term deposit paying a (low) 4.8% interest rate. Cumulatively over 8 years that works out to be 45.5% interest and if the licensee is on the top rate of tax about 30% post tax. That income foregone equates to about an extra $120,000 at the end of the 8 years. Added to the $100,000 25% DMF, you are now looking at about $500 rent per week. As interest rates rise...interest foregone on the up-front payment increases, increasing the implied rent.

Bjauk, you are right on the money ... life in a retirement village is expensive. If somebody just wants an apartment than they would be stupid to go into a retirement village. However, if they want care for themselves and their spouse if and as the need arises without the need to move, if they want a pleasant and cared for environment, if they want entertainment (bowling green, swimming pool) and a safe and stimulating environment - why shouldn't they be required to pay for these privileges? If the village would only provide and charge for cheap boxes to live in - who in your view should pay for all the other benefits?

[couta1]

As an aside peoples you may be surprised how many of these supposedly poor unit occupants are shareholders in Sum and Rym shares,I talk to them all the time,it would be interesting to see what percentage of the total share registry they make up for each company,the results I believe would surprise many

[Mista_Trix]

As an aside peoples you may be surprised how many of these supposedly poor unit occupants are shareholders in Sum and Rym shares,I talk to them all the time,it would be interesting to see what percentage of the total share registry they make up for each company,the results I believe would surprise many

Please, please, please be careful about the grey area of 'providing financial advice' - its clear you like to talk specifics about how you think each company will do, just watch out its not 'advice'.

[couta1]

Please, please, please be careful about the grey area of 'providing financial advice' - its clear you like to talk specifics about how you think each company will do, just watch out its not 'advice'.
I can't see how this is financial advice?im just stating facts from on the ground observations and the statistics would be interesting(I mentioned both Sum and Rym not just one company) The other thing I'm trying to highlight here is that many of these residents are not only happy to live in these complexes but are backing this up by investing in the same companies they purchased a license to occupy off.

[karen1]

NewGuy, I am enjoying your well thought out posts.

However, my take on yours #1552 assumes a reasonable $240/week rent equivalent, which indeed sounds inexpensive. And perhaps it is, for a couple beholden to the super for their main income. If in fact we take the at some stage inevitable situation of one partner being left on their own, of course that super drops markedly; from the WINZ site: Single, living alone $410.32 gross, $357.42 net.

Therefore, the $240/week rent figure is suddenly crippling, leaving a sole resident to exist on around $117 a week, out of which has to come various necessities, clothing, fuel/fees for a vehicle perhaps, let alone the basic requirement of food.

Thinking along this line, it is obvious anyone entering a village would need to have an income considerably greater than the govt handout to enjoy life to even a simple extent.

So, food for thought for those who think old age is a million years away: set finances in place now, you're going to need it tomorrow! At the very least, Kiwisaver should be compulsory, and at some point in the future will be, as surely as there will be no, or very little, super.

Of course, my argument would hold for a couple surviving on the super alone outside of the village situation, so again, it comes down to setting up for the future early in life.

[karen1]

Point taken Turmeric, I guess I was aiming more at the fact that entry into a retirement village is going to require careful thought, call it what they will, villages have a weekly fee to cover a multitude of things beyond the normal expenses of owning and living in one's own home.

Although all the villages insist on legal advice pre entry/acceptance, I feel there are still those who do not fully understand all the implications, and it is only when they are in situ they begin to understand.

Craic has pointed out on the If Nat Wins thread, (which is where this post should probably be) 'there has to be a better way'. I don't know what that way is, but in time to come I believe there will be a different model offered.

I look at a good number of older (80 +) folk I know, all still comfortable in their own homes, none of whom have any intention of going into a village, and long may that last for them. In an age group 20 - 30 years below them, there are many who will not be comfortable to take to a village with today's formulations.

So, perhaps in the future we will see different modelling for retirement villages, as possibly the next generation will not settle for the current offering.

[Bjauck]

Remember Karen, New Guy is calculating the "effective" rent based on what you get back after a period of time (8 years in his example) after purchasing the unit up front. Now, putting aside the fact that New Guy severely underestimated that rent due to forgetting about opportunity costs, the point is, these residents arent actually paying this rent week by week (they have effectively paid it up front). Therefore they presumably still have the full compliment of their super to live off.... I think....is my logic right?

You still need to pay for the service charge.
In the comparison to renting, for a more pertinent comparison to renting, we also should include the service charge. So in the example of the Licence costing $400,000 with 25% DMF, if the service charges are $100 per week the imputed rent is $500 + $100 = $600. When you think that we are at the low point of the interest rate cycle, this is looking pricey...but I agree with the you and other posters that the advantages of belonging to a village are not reflected in these dollar costs. Good demand for the villages illustrates that. As these are figures not based on an actual case study DYOR!

Many of my parents' friends have units in retirement villages. They are the ultimate lock-up-and-leave when they go away. They all seem to have a great community atmosphere, being as independent or involved as they feel. It is a pity that the minimum age is so high!

Disc: Own shares in SUM, MET, RYM and I am not an accountant!

[BlackPeter]

Slow death to the property market.
Given recent sales figures indicate that the LVR decesions have had the effect of slowing down residential sale volumes the latest move's by the RBNZ,raising interest rates, are sure to compound this decrease in volumes.
By the end of the year decreased sales volume will leed to decreased sale value's.
This is because wage increase's have not keeped up to the pace of house inflation.
This was all hidden by decreasing interest rates to historic low levels.
As we all know low interest rates have made the cost of servicing a mortgage easier.
Having fixed mortgage rates available will lesson the serverity of this property crisis we are heading towards however the security of taking out a fixed mortgage will come at a cost as the current 2,3 & 5 year rates are 1-2% higher than the floating rate ouch!!!!!!.
IMHO there is little to debate about the fact that the RBNZ is intent on slowing the property market.
If you fall into the trap that the interest rate rise is to hold back inflation will you need to look at the performance of inflation under the last 2-3 years of historical low interest rates.
That will show that inflation has been and continue's to be well under their top range of exceptable levels.
There has been much debate on this thread about the effect that a slowing property market will have on the retirement sector.
Without dribbling on to much with my opinions the simple fact is a slowing property market is not positive for SUM,MET or RYM.
All these companies trade on multiple's that indicate they are growth companies which they currently are however when any growth company show's slowing growth or even if the market believe's they are headed for slower growth the share price's usually get beaten up.
For long term holders of these companies this wont be an issue and it is my opinion if these stocks do come off the boil (which IMHO they will) it will provide a great entry point in a fantastic long term sector.

actually - I very much prefer a managed slow down of the property market now (note - I wrote slow down, not reverse) instead of the risk of a property bubble with subsequent crash in a couple of years. I think RBNZ is choosing at the current a rather sensible course. Discl: hold SUM and MET (and own a house ...);

[percy]

A great number of people want to stay in their own home in their final years.Governments are encouraging this by providing more and more services.Sentinel are providing reserve mortgages so people can release their house equity,and stay in their home.I believe it is in people's best interest for their health and well being to stay in their own home.
Others find the thought of maintaining an old house and large section over powering.
Others find the comfort,security care,company, and safety of a retirement village welcoming.
More and more people are supporting the likes of MET,RYM and SUM.Having strong companies like the three listed companies plus BUPA means the choices are improving.The standards are improving.
The not for profit organizations are leaving the sector.For the sector to grow to meet the growing demand,profits are the driving force.Cut the profits and supply will slow down.The small players are finding compliance and other costs mean their return on capital is not great.The large companies have scale,which is how they can compete.

[Xerof]

NewGuy, you are right on the money. There is a lot of shadow jumping going on here which will only push people into full care or the dementia units earlier than necessary, if they continue to fret over this topic.

[JohnnyTheHorse]

Amount: $400,000
Interest Rate: 3% (after tax)
Compounding: Monthly
Period: 8 years

Interest earned: ~$108,000 over 8 years. This is equal to $260p/w.

More realistic interest rate: 4% (after tax)
Interest earned: ~$150,000 over 8 years. This is equal to $360p/w.

Alas, the opportunity cost is very big. The real cost of rent would be upwards of $500p/w.

[Bjauck]

Interesting discussion in here. Love the pace! In response to comments made on my last post:

1. Yes, it was a simplified example. I didn't include the opportunity cost of funds paid. However, these are pretty minimal after tax when the risk free rate is used, so doesn't alter my conclusion.
2. Yes, there are other fees. However, these cover services that aren't normally included in house rentals, so are irrelevant for comparison to non-village living. I was looking at the pure cost of accommodation, not the bundle of services offered by villages.
:)
I agree with much of what you said. However when comparing to rents re:1 the opportunity cost is not insignificant and will be increasingly relevant as we progress from historically low interest rates.

Re:2 When comparing to rents, the ongoing service or village fee should be included as this cost is unavoidable. When renting, rates, building insurance and maintenance (and sometimes utilities too) are usually the landlord's responsibilty.

Another non-financial point of comparison to rental accommodation is security of tenure - with the retirement village you have good security of tenure, dependent only on the on-going viability of the village.

[Beagle]

Interesting debate recently and although I am an accountant I will resist the temptation to drill down into the opportunity cost debate other than to note that in a stable property market people owning an average priced home at circa $650,000 in Auckland as an example may have a higher oppotunity cost than if they retired in a $400,000 apartment. Then there's the ever increasing rates burden of their home to consider and the substaintial maintenance requirements, especially on older weatherboard homes or those build with monolithic cladding.
There's also the lifestyle benifets that can accrue in terms of investing the surplus capital. In addittion to all the lifestyle benifets that accrue to new residents in a quality retirement village there's also for many a very useful helping of a side order of a world trip, new car and extra income from investments. Free fries and drink with your premium hamburger, if you like, sorry couldn't resist :))

As noted by others, the often quoted phrase of "I can't believe I didn't move in sooner" is heard frequently around the coffee tables at quality retirement villages. If you havn't got a relative or friend in a quality village its difficult to understand how much difference lifesytle retirement living can make to couple and more especially to someone who has lost their lifetime partner.

As an appendix to the recent case study I recounted on here recently I would add that one of my brothers and more especially his wife were very concerned abut the fee that Mum would lose when she died on vacating the unit (AKA as greedy kid wanting maximum inheritance).
When I asked don't you care about Mum's quality of life in her twilight years now we know Dad is terminal, would you rather she was alone and lonely in the back streets of Red Beach with little or no network of friendly neighbours for support ? it was surprising how quickly that shut them up :)

I spoke with Mum yesterday, she's having to slow down as her blood pressure is too high, she's been so busy engaging with so many activity groups and outings in the village she's become stressed. Kind or ironic really. I asked her why she's been keeping so busy that she's run herself ragged and she said she really misses Dad and has been really lonely...pretty sad really, I can only imagine how she would feel if she was alone in her own unit back in Red beach without all the support of the wonderful community in which she now lives.

Hopefully that personal story sheds some light on what good these "greedy corporate" retirement villages provide.

Whichever side of the debate one takes its good to see more volume in the stock and more depth, that's always a good thing and boosts liquidity. Higher liquidity inherently reduces specific risk.

[Bjauck]

Well said Roger. As I have already noted several times, too many people unduly discount the benefits of entering a village, and appear to take a cold, calculated and potentially-misinformed approach to establishing the true value of village operators from the perspective of prospective entrants. And that, my dear forum participants, is a key driver of enterprise value. :)
I agree. I think all should look at both financial and non-financial issues. My contribution was aimed at the finanical aspect as a result of what I considered to be a the posting of a material under-estimate of the opportunity cost buying a licence in a village when comparing to renting accommodation. This opportunity cost also needs to be considered against a background of the start of interest rate increases.

The village fee covers insurance, rates and maintenance as well as village facilities. With some villages the fee is tied to govt. super. rates, which increase over time.

[Goldstein]

It's becoming every generation for themselves. People have better lifestyles today, but they do work harder for it in my opinion. A working family does not have the time to look after elderly dependents. Fair enough. They should not begrudge other agencies that can, and also not bregrudge any elderly relatives spending what is appropriate.

I'm really interested in how your mother is faring Roger. I would like to get my mother into the same facility, but she is adamant she wants to remain in her house. So I'm having to start thinking about other arrangements like home help, renovating the bathroom so she has a walk-in shower, etc. I will probably take out a mortgage on my house to do all of these things.

Her mother was actually the same, and my mother nursed her right up until the end. I guess some people are built that way.

[skid]

http://www.nzherald.co.nz/nz/news/article.cfm?c_id=1&objectid=11220355

[Bjauck]

I would like to get my mother into the same facility, but she is adamant she wants to remain in her house. So I'm having to start thinking about other arrangements like home help, renovating the bathroom so she has a walk-in shower, etc. I will probably take out a mortgage on my house to do all of these things.
.
You/she may have already been down this avenue, but you can seek a needs assessment through then Min. of Health. You can self-refer or go through your gp - http://www.health.govt.nz/your-health/services-and-support/disability-services/getting-support-disability/needs-assessment-and-services-coordination-services . They may provide certain aids such as shower seats / handles. In some situations even someone to help with showering and other activities is provided, depending on need. The government's aim is to keep people as independent as possible. Much of the assistance is not means tested.

[Bjauck]

But, if we are talking the top 10% of the elderly, how many people is that actually, what is the current capacity of the retirement village sector now? how many more years of growth have we got before my concern is a reality? It might be so far off it's not a major worry now, it might be not a worry at all... Just thoughts, and an interesting discussion point I would have thought! Hope that all made some sense :)
Is it just the wealthiest 10%? Some of the residents I know, I dont think would be in the top 10%....maybe wealthiest top 25% of people of retirement age. In my opinion, I think there could be some scope to extend the market to the wealthiest 33-50%. I am not sure how though! I think about 77% of OAPs live in their own mortgage-free homes, although this percent is probably dropping. Maybe someone can provide the stats. DYOR.

[Goldstein]

You/she may have already been down this avenue, but you can seek a needs assessment through then Min. of Health. You can self-refer or go through your gp - http://www.health.govt.nz/your-health/services-and-support/disability-services/getting-support-disability/needs-assessment-and-services-coordination-services . They may provide certain aids such as shower seats / handles. In some situations even someone to help with showering and other activities is provided, depending on need. The government's aim is to keep people as independent as possible. Much of the assistance is not means tested.

Thanks BJ. It is time consuming this stuff. My post was probably a bit off topic, but there seems to be a media beat-up going on at the moment regarding the residential care industry in NZ.

[winner69]

Is it just the wealthiest 10%? Some of the residents I know, I dont think would be in the top 10%....maybe wealthiest top 25% of people of retirement age. In my opinion, I think there could be some scope to extend the market to the wealthiest 33-50%. I am not sure how though! I think about 77% of OAPs live in their own mortgage-free homes, although this percent is probably dropping. Maybe someone can provide the stats. DYOR.

Yes more older people live in the hosue they own compared to the young

Turmeric is thinking about the sustainability of the sector

No question the number of over 70 ln 10 to 20 yearswill be a bigger number than today. However one thing I have tried to model is what will be the home ownership rate of 70+ in 10 to 20 years. Conclusion not the 75% to 80% range it is today.

The chart below from Stats NZ released today is interesting.

Look at the declining rates in the 40-49 age group - the other 70s some time in the future - and think of the ramifications. Picture looks even more for the cohort that follows .... how many of these 30-39 year olds will be prospective customers of Summerset in 30 years or so

Interesting subject

[Bjauck]

Thanks BJ. It is time consuming this stuff. My post was probably a bit off topic, but there seems to be a media beat-up going on at the moment regarding the residential care industry in NZ.
From my experience with my own family, I think much of the effort in organising help is in overcoming psychological hurdles. It is not too off-topic. Even were your Mum to become a resident in a residential village unit she would still be eligible for a needs assessment (and whatever help they would deem suitable) and should be able to get other services such as meals on wheels. Of course, you would need to do your own research on that.

In my opinion, even in places that most people think are excellent, you will likely find unfortunate and unhappy experiences.

[Goldstein]

Yes more older people live in the hosue they own compared to the young



To take a different point of view - so what? Just because a smaller proportion of the population will own their own home in 20-30 years, they will (hopefully) have invested for their retirement. A house does not have to be the only vehicle to retirement. It may be that Kiwisaver bcomes the means, etc.

[Goldstein]

From my experience with my own family, I think much of the effort in organising help is in overcoming psychological hurdles. It is not too off-topic. Even were your Mum to become a resident in a residential village unit she would still be eligible for a needs assessment (and whatever help they would deem suitable) and should be able to get other services such as meals on wheels. Of course, you would need to do your own research on that.

In my opinion, even in places that most people think are excellent, you will likely find unfortunate and unhappy experiences.

Yes, there are hurdles. I've moved up from Wellington as she is on her own. I've seen what some of her friends have gone through and it seems those who are on their own can make poor decisions. I think we start making decsiions based on emotion and intuition later in life (maybe we should all stop trading/investing when the hairiest parts of our body are no longer our head). Some of her friends moved into the Nautilus apartment complex which ended up being a leaky building and a lot of the apartments rented out to Housing NZ tennants. I think it destroyed a few OAPs. They thought a nice small apartment will keep me independent, etc.

You're right too about some bad experiences. If a company like RYM or SUM employs thousands of staff, there are always a small proportion who have a poor work ethic, etc. It's just a numbers game.

[Xerof]

Some themes to ponder

- demographically, where do we sit on the bow wave of baby boomers moving into retirement villages? 1946 to 1964 is the accepted definition

- demographically, how have ethnic shifts in the makeup of the population changed those house ownership %? I.e. Grandparents living with the family, and/or multiple families in one house

- what impact is natural population growth and/or shifts in immigration/repatriation having on both retirement care facilities/the housing pool

finally, should all this be in a new thread, as it relates to ALL village complexes, not simply the best one:D

[couta1]

Interesting to compare Rymans 690mill to Sums 500 mill spend in Auckland,when you compare the size of the companies and market caps this would still put Sum well ahead on an exposure percentage in the Auckland market

[Harvey Specter]

In order to pay the $400k up front I suspect the majority of people going into retirement homes are affording this by selling their existing home. If you don't have a home to sell and therefore the ability to free up that much capital then moving into a home may not be an option. .

In 20 years, people could cash out their Kiwisaver to buy in.

Re target markets, I think they target the wealthiest 30%, while ignoring the wealthiest 5% who have enough cash to do their own thing (probably to the detriment of their social lives)

[Jay]

Kiwisaver can be taken out in a lump sum if you wish, as long as you have been in it 5 years and are over 65.
Or you can take out some now some later, or leave all there

[Harvey Specter]

Good point. I;m not clear on the Kiwisaver rules come retirement. Can you take it out as a lump sum as soon as you hit 65?Yip - you can pay for that world cruise the day you hit 65 provided you have been in 5 years. You can stay in but you dont benefit from the govt top up from memory.

[winner69]

There is some Treasury / public policy thinking that some time in the future Kiwisaver should be converted into annuities on retirement

[Harvey Specter]

There is some Treasury / public policy thinking that some time in the future Kiwisaver should be converted into annuities on retirementI actually typed a paragraphon annunities then deleted it. There are currently no (significant) providers in NZ, though this may change as people get access to large lump sums at the correct stage of life.

However, I would be highly disappointed if they changed the rules to require compulsion for annuities. That is the reason I put the minimum amount in.

Back on topic - yes T, lump sum kiwisaver payouts would provide another great way to enter a village. Villages may even change the model to 'prepay' the weekly component such that there is no ongong cost (effectively an annuity as they would be taking on the actuarial risk).

[winner69]

Take the profit before tax (NPBT) deduct the fair value movement of investment property (revaluation gains) and:

FY2013 SUM made a NPBT of $2M0

FY2012 SUM made a NPBT of -$0M7 (loss)

So currently SUM is a de facto non-profit provider of retirement living accommodation and services.
The perceived profit is just the normal increase in the value of property and land.

MET is much the same.

Now RYM is a different beast entirely they made $31M3 NPBT of real money for FY2013 and another $16M4 NPBT for the first half of this year. But that is not particularly a great return on 1.8 billion dollars of property or even 780 million dollars of equity.

So not a lot of profit to cut anywhere.

Best Wishes
Paper Tiger

Disclaimers:
1 - Own MET, SUM & RYM (specified in strictly alphabetical order)

2 - Nothing in this post should be construed as criticism of, or preference for the retirement sector in general or specifically; nor as criticism of, or preference for any particular retirement village operator, listed or unlisted, for-profit or not for profit.

So true PT ....been like that for a while now

SUM profit is essentially realised revaluation gains, on the 'investment propeties"

Good? or bad?

Interesting the revaluations over the last 2 or 3 years have only been about 3% of the value of investment properties. RYM is about 8%

Crude measure but makes me think maybe SUM jacked the price of their properties pre IPO - pure speculation of course.

On the hand if property valuations weaken no profit for SUM

[Bjauck]

finally, should all this be in a new thread, as it relates to ALL village complexes, not simply the best one:D
I am not in a position to say, as I have holdings in the three listed retirement companies, but do shareholders of one of the companies check the threads of the others?

[Bjauck]

In 20 years, people could cash out their Kiwisaver to buy in
There is not much incentive for people to pay into Kiwisaver more than the the $1000 odd each year in order to get the $500 government credit. Even this becomes less of an enticement as your balance builds up. As balances build up I think more people will take contribution holidays especially after they have already contributed the $1000 odd in a year. Many schemes overseas give tax breaks to their super schemes...i.e. no capital gains or income tax payable on the whole amount invested in the scheme...this is an incentive to build up sizable amounts invested.

For example someone with $400,000 in a retirement scheme with tax relief earning 5% income each year...would get the equivalent of about $6,000 credit from the government (tax foregone). Whereas in NZ kiwisaver you would only get the $500 credit provided you made the minimum annual contribution. We still need action from government in making Kiwisaver a meaningful alternative to the traditional kiwi superannuation of buying a rental property, in my opinion.

I am doubtful whether many in the current kiwisaver scheme (especially those not already in the wealthiest 10-15%) will amass a sufficient investment to use it in order to purchase a retirement village unit in the same way that people currently use their freehold homes.

[artemis]

There is not much incentive for people to pay into Kiwisaver more than the the $1000 odd each year in order to get the $500 government credit. Even this becomes less of an enticement as your balance builds up. As balances build up I think more people will take contribution holidays especially after they have already contributed the $1000 odd in a year. Many schemes overseas give tax breaks to their super schemes...i.e. no capital gains or income tax payable on the whole amount invested in the scheme...this is an incentive to build up sizable amounts invested.

For example someone with $400,000 in a retirement scheme with tax relief earning 5% income each year...would get the equivalent of about $6,000 credit from the government (tax foregone). Whereas in NZ kiwisaver you would only get the $500 credit provided you made the minimum annual contribution. We still need action from government in making Kiwisaver a meaningful alternative to the traditional kiwi superannuation of buying a rental property, in my opinion.

I am doubtful whether many in the current kiwisaver scheme (especially those not already in the wealthiest 10-15%) will amass a sufficient investment to use it in order to purchase a retirement village unit in the same way that people currently use their freehold homes.

What you say applies to the self employed, or not employed. But for the employed, if in the scheme, they get employer contributions as well. And these are likely to rise over time as has happened here to a small extent, and in Australia to a lager extent. Two accounts (for two partners) could end up being very significant. Of course in the future there may be changes to National Superannuation which could offset Kiwisaver balances.

[Bjauck]

What you say applies to the self employed, or not employed. But for the employed, if in the scheme, they get employer contributions as well. And these are likely to rise over time as has happened here to a small extent, and in Australia to a lager extent. Two accounts (for two partners) could end up being very significant. Of course in the future there may be changes to National Superannuation which could offset Kiwisaver balances.
That is a good point - especially if an employee who opts out of the scheme actually gets a salary cut insofar as the the employer does not pay the employee the equivalent of what would have been paid into kiwisaver.

Under kiwisaver as it is currently formulated, I think those people who amass a kiwisaver amount that would enable them to buy into a retirement complex would not be in the segment of society that is currently being priced out of freehold home ownership, which they could sell to buy a retirement unit anyway.

[winner69]

I think we need one of turmerics CGE of DSGE models here to see what different outcomes could be

[skid]

The only comment Ive heard about the herald article is that the retirement sector is getting beat up by the press.
If my granny was about to sell her villa and buy a unit in a retirement village,I would want to know if when she passed would she receive no capital gain if the market went up (like she received in spades with her villa she sold) and if not ,would she have to pay the difference in value if the market went down+ refurbishment cost and fees while this was being done?
I dont know if SUM or RYM engage in this ,but if so,whats the point in buying rather than finding a well run place and just rent or pay a weekly fee to stay.
For shareholders and bottom liners its a sweet deal but Id think twice if it was my grannys dosh at stake.
If its the case then for shareholders the real question is ''will there be a backlash''?--(i would also find it hard to believe it contributed to such a small part of the profits)
Capital gain is a major point IMO--I say this because I very early bought a rental (and a few more over time )mostly because I could fix them up and make them better.
In the meantime I became what has been called an ''accidental millionaire''(at least on paper, because of capital gain) Its a major, and deserves some thought before buying what is in effect a leasehold property over renting.
Whether this is a ''pro or con'' in terms of owning shares is up for debate.

[Bjauck]

- demographically, how have ethnic shifts in the makeup of the population changed those house ownership %? I.e. Grandparents living with the family, and/or multiple families in one house


I am not sure if that is an ethnicity characteristic. NZ/British/European society used to have multigenerational households and multi-family situations too. Then came industrialisation, increased income levels and increased welfare and the nuclear family was born. Granny also had the means and/or government subsidy to have her own space away from the kids.

[skid]

This is patently incorrect. SUM made an underlying profit (which excludes revaluation impacts) of $22.1m for FY13. How did you deduce that they only make money from revaluations?

I didnt say they only made money from revaluations- I said I find it hard to believe that revaluations contributed to such a small(percentage) part of the profits.
Im questioning whether it is sound judgement to take grannies money and BUY into a retirement rather than rent(and maybe keep her house and rent it out ,getting an income AND future capital gain.(while she still gets care in the place she rents)

[winner69]

I was using Paper Tigers methodology and it was his earlier post I was replying to

Quote PT -Take the profit before tax (NPBT) deduct the fair value movement of investment property (revaluation gains) and:

FY2013 SUM made a NPBT of $2M0

FY2012 SUM made a NPBT of -$0M7 (loss)



Probably PT explained what this means better than myself when he said "So currently SUM is a de facto non-profit provider of retirement living accommodation and services. The perceived profit is just the normal increase in the value of property and land."

The provider v property developer argument ....what are they?

Sorry PT for bringing you back into the discussion

[Beagle]

This is patently incorrect. SUM made an underlying profit (which excludes revaluation impacts) of $22.1m for FY13. How did you deduce that they only make money from revaluations?

I too would call for a proper explanation of Winner 69's and Paper Tiger's claim that SUM essentially only made a $2.0m profit when clearly the accounts show a $22m underlying profit before revaluations. Keep in mind IFRS profit was in the low $30M range aafter greenfield revaluation of Auckland land bank. Surely you are not excluding the realised development margin on new accomodation built and sold which is a key recurring component of their ongoing and growing development operation, please explain your calculations in detail.

[Snow Leopard]

Oh winner69!

What have you done?

The balance of cosmic harmony has been perturbed!

In order to restore the serenity of the thread and return everyones blood pressure to a safe range I am saying nothing further except I would like to know what other people think the 'Underlying Profit' is made up of.

Best Wishes
Paper Tiger

[winner69]

I too would call for a proper explanation of Winner 69's and Paper Tiger's claim that SUM essentially only made a $2.0m profit when clearly the accounts show a $22m underlying profit before revaluations. Keep in mind IFRS profit was in the low $30M range aafter greenfield revaluation of Auckland land bank. Surely you are not excluding the realised development margin on new accomodation built and sold which is a key recurring component of their ongoing and growing development operation, please explain your calculations in detail.

We didn't say their underlying profit was only $2m - we said that they only made $2m from running villages and the rest of their profit came from property development activities

I may be stupid but can read financial statements including The Notes.

YES - SUM did make $34.2 after tax in 2013. The Income statement says so.

YES - if you take out the unrealised fair value adjustments of $9.6m and the tax credit underlying profit was $22.1m. They said so and I agree

If you split out the Income Statement (I'll use the pre tax profit of $31.7m)) into say 1) running villages and 2) property development activities you get a split of where profit comes from. They don't do this analysis for shareholders so you need to trust me here.

1) Running villages - care fees and village services + deferred management fees + interest gives $45.2m income. Reported operating expenses and depreciation and interest total $43.2m. This says profit from running villages is $2.0m before tax. (I included interest in these numbers as interest on property development appears to be capitalised according to the notes)

2) Property development activities - Gain on sales realised of $9.7m + realised development margin of $10.5m gives $20.1m profit which is classed as underlying profit and the unrealised fair value movement gain of $9.6m takes profit before tax to $29.7m. Isn't the $20.1m and the $29.7m a fair chunk of the whichever profit you use.

YES - also agree that SUM is both a village operator and a property developer. They go hand in hand. But maybe the village operator bit is being used as a loss leader - the reason for building things in the first place.

A lot of discussion on this thread is what could happen if property values decline and this flows through to the value of retirement village units. For SUM it could be painful as increases in values to a large extent drives their profitability.

As Paper Tiger also pointed out MET is in the same boat but RYM appear to make a decent profit out of running villages and care facilities - a good boost to their overall profitability.

I look at this way - about 30% of RYM profit comes from operating villages (rest from property) while stuff all (lets be fair and say 10%) comes from operating villages at SUM. It is that additional robustness in RYM operating model which I believe is the reason why their shares appear more expensive than SUMs

Just using the numbers in the Financial Statements and this is what I get

Probably a load of **** to many but I think important to have some idea where profits are made.

At least both SUM and RYM make heaps at the moment - that's good and hopefully good for the share price. Both linear regression trend lines on the chart are still looking healthy - long may it continue

Sorry PT - couldn't wait any longer to a response to your challenge from others

[Xerof]

Hey winner, just when I thought we were going to get into some meaty debate......you know that nice Dept of Stats chart you posted on declining home ownership... well Bill the Treasurer has put a spoke in our wheels over that assertion. He reckons the figures EXCLUDE every home owned by Trusts, and bejeezus, we know what that trend has been like in the past generation.

At the end of the day, he agrees it's in decline, but only marginally, not anything like the stats published

back to the drawing board?

btw, nice post 1632

[winner69]

Hey winner, just when I thought we were going to get into some meaty debate......you know that nice Dept of Stats chart you posted on declining home ownership... well Bill the Treasurer has put a spoke in our wheels over that assertion. He reckons the figures EXCLUDE every home owned by Trusts, and bejeezus, we know what that trend has been like in the past generation.

At the end of the day, he agrees it's in decline, but only marginally, not anything like the stats published

back to the drawing board?

btw, nice post 1632


Cant argue with Bill the Treasurer but the chart I posted last night seems to have come from the data tables Stats NZ supplied with yesterdays publication.

The data has a footnote: 2. In 2006 and 2013, included people whose home was in a family trust.

Most analysts make the assumption that 2001 and prior it is very likely that most who had a family trust would have answered yes we own the home (other choice is rented)

The raw numbers are in the table below. They seem to marry up with the chart.

No doubt Bill telling the truth but may have been talking about something else

[Xerof]

LOL

Seems you can argue with Bill then......


Finance Minister Bill English said the figures excluded homes owned by trusts which he said took home ownership to as high as 65 per cent, meaning the slump in ownership was not that pronounced.



James Weir Business Day Stuff

[winner69]

LOL

Seems you can argue with Bill then......



James Weir Business Day Stuff

The numbers on that chart etc are individual responses.

The numbers by household (ie for households in occupied private dwellings, wholly or partly owned or held in a family trust) the rates have been -

1991 73.8%
1996. 70.7%
2001. 67.8%
2006. 66.9%
2013. 64.8%


These are the more commonly used home ownership rates (households seem more relevant than individuals)

So Bill was right

All depends on what you want to use but rates are declining

[Mista_Trix]

Winner, do you use Parabolic SAR on this stock or just your trend with std dev lines? Do you hop in and out based on these signals??
Thanks :)

[Beagle]

Winner69 - Thanks for your detailed analysis of the profit breakdown.
I think SUM need to work towards making more profit from the everyday operation of each village. They are not constrained like Rym are with RYM's fixed weekly opex fee for life operating model so this begs the open question as to why SUM can't do better with their operating profit ? Something to discuss with management after the forthcoming AGM. Anyone on here planning on attending ?

[forest]

Winner69 - Thanks for your detailed analysis of the profit breakdown.
I think SUM need to work towards making more profit from the everyday operation of each village. They are not constrained like Rym are with RYM's fixed weekly opex fee for life operating model so this begs the open question as to why SUM can't do better with their operating profit ? Something to discuss with management after the forthcoming AGM. Anyone on here planning on attending ?

Roger I am planning to attend, pm me if you like to travel together.

[Beagle]

Thanks Forest. I'll be in touch a bit closer to the AGM date, (not sure if I can get time off work at this stage).

[winner69]

Winner, do you use Parabolic SAR on this stock or just your trend with std dev lines? Do you hop in and out based on these signals??
Thanks :)

Just a long term trader / investor (even investors are just traders of price) who generally monitors the primary trend. With those regression lines as long as the price is contained in the rising channel I happy - esp with the likes of SUM and RYM that can be years.

The Parabolic SAR on the RYM long term chart looks impressive. Have you been trading the short term trends then ...as you put it hopping in and out



/

[Beagle]

Well, if you had 100,000 RYM shares you'd want to be on the booze tonight, that's for sure.
SUM days you're really glad to be a SUM shareholder and today's one of them. Talk about dodging a bullet.

[SimonHouse]

Relax Roger, it's not a zero sum game. Ryman shareholders don't get rich at the expense of Summerset shareholders. Besides, anyone who owned Ryman for two years would hardly care a whit about a 5% drop in one day.

Disc, love and hold both Ryman and Summerset

[skid]

The more youve got-the more youve got to lose---human nature

[skid]

My guess is that unless RYM bounces on Monday it will rub off on SUM

[couta1]

My guess is that unless RYM bounces on Monday it will rub off on SUM
Maybe but of late Ryman has been the more volatile of the two stocks all because of the international index boys pumping and dumping IMO and Sum has its Q1 results due out by April 10th,could give the price a boost.Have an amusing story to tell,yesterday morning I calculated if I was better off if I held Sum or Rym shares by dividing my total purchase price by the entry price of both Ryman and Sum at the time off my buying(I recorded both) well yesterday morning I would have been better off with Ryman shares to the tune of 8k over Sum,I then headed off to work at a Ryman facility and when I come home shock horror seeing the Rym price,I then recalculated the above exercise on the Rym closing price and was 32k better off holding Sum,what a difference a day can make aye:cool:

[skid]

Maybe but of late Ryman has been the more volatile of the two stocks all because of the international index boys pumping and dumping IMO and Sum has its Q1 results due out by April 10th,could give the price a boost.Have an amusing story to tell,yesterday morning I calculated if I was better off if I held Sum or Rym shares by dividing my total purchase price by the entry price of both Ryman and Sum at the time off my buying(I recorded both) well yesterday morning I would have been better off with Ryman shares to the tune of 8k over Sum,I then headed off to work at a Ryman facility and when I come home shock horror seeing the Rym price,I then recalculated the above exercise on the Rym closing price and was 32k better off holding Sum,what a difference a day can make aye:cool:

Isnt it great that you did not have a chance to act on your calculations:) You must be moving some rather large amounts of dosh around.
I find it is helpful sometimes to go back and read the whole thread on each(takes a bit of time but you can skim)
I have just done that with DIL and what a learning experience!

[skid]

Winner69 - Thanks for your detailed analysis of the profit breakdown.
I think SUM need to work towards making more profit from the everyday operation of each village. They are not constrained like Rym are with RYM's fixed weekly opex fee for life operating model so this begs the open question as to why SUM can't do better with their operating profit ? Something to discuss with management after the forthcoming AGM. Anyone on here planning on attending ?

Im still trying to figure out why there was such a backlash to throwing property values into the equation:confused:

[couta1]

Hi Skid,Was not going to act on my calculation(at this point)but it is one I will be doing periodically to see which stock is performing best and to gather proof that Sum is as I believe on a steeper growth curve than Rym over the next few years,talking about it is one thing but proving with your own calculations is reality,Sum makes up 50% of portfolio total at present so makes amounts large,as I've said before I treat it like a rental property with better return and no tenant hassles

[Beagle]

Skid I wouldn't call it a backlash at all, a good healthy debate yes.
In my view and others, people move into a retirement village for a range of reasons other than investment, (nobody would invest in a licence to occupy a unit with no capital gain and a guaranteed 20-30% loss on exit for reasons of it being a good investment).

In effect Reitrement villages in my opinion, are service providers, they provide the service of a good, safe, secure and supportive lifestyle. My view is some decline in the value of homes will have minimal impact on the tidal wave of baby boomers looking for a care free supportive lifestyle in the decades ahead.

Whilst no investment is risk free and its accepted that in a GFC Mk2, (assumming you accept we're out of the first one), a major decline in real estate prices would have some effect, I believe SUM provides the most compelling growth story on the NZX from a risk / reward perspective.

If others have a different view to mine, that's fine as far as I am concerned :)

If there's a major reaction to RYM's SP drop this coming week in terms of its flow on effect to SUM I have plenty of powder dry and the courage of my own convinction to significantly add to my SUM position, in fact I would be thrilled to have the opportunity to buy again at around 5% lower than Friday's closing price. To me that would be a free lunch :)

[skid]

Looks like its held up well today-
But why buy when you can rent-like some retirement villages?
If one can find a good retirement village that doesnt require a large capital outlay,then they can have their free lunch:)..and eat it too.

If it proves to not be an issue (or no one wakes up to this) then you will do well with your holding.
But if it becomes an issue,and people realize they can stay in a well run village without the large capital outlay...well then you wont.
And if the capital gain(that seems to be a large part of their profits stops or goes down,well...you get the picture.

Sorry --should have said good healthy debate (but alot seemed genuinely surprised it was even brought up):)

[Beagle]

Perhaps you'd like to list these quality rental retirement villages and then we can have a little chat about their weekly fees and who can afford them :) No free lunch today...what did the dog in the Toyota add say... bugger.

[Bjauck]

But why buy when you can rent-like some retirement villages?
If one can find a good retirement village that doesnt require a large capital outlay,then they can have their free lunch:)..and eat it too.

"Rental" Villages:

Drawbacks from retired tenants point of view would mainly be centred around security of tenure.

Drawbacks from a developer's point of view: (1) Increased capital, by way of share capital or debt, needed for a very much longer period. (2) Pay back periods much extended and not as certain. (3) Extra administration for tanancies (4) More credit control needed with greater uncertainty concerning ability of pensioner tenants to maintain payment of rents rather than the smaller village fees.

There would be more points, but I think these alone may explain why "rental" villages don't already exist.

Edit: In a way, actually some rental villages do exist - they are the council run pensioner flats, normally located close to a town centre.

[Harvey Specter]

Drawbacks from a developer's point of view: Your clients keep going 'to that farm in the sky'.

The only difference with SUM style retirement villages is SUM requires, capital upfront and 6 months notice. I wonder if someone could make it work by only taking the deferred management fee component (ie. the ~25% withheld at the end), even if they bumped it up a tad.

[Bjauck]

Your clients keep going 'to that farm in the sky'.

The only difference with SUM style retirement villages is SUM requires, capital upfront and 6 months notice. I wonder if someone could make it work by only taking the deferred management fee component (ie. the ~25% withheld at the end), even if they bumped it up a tad.

So basically that would be as the current situation but with a higher village fee and lower licence to occupy cost. That sounds like a riskier venture for the developer/ shareholders.

[Harvey Specter]

So basically that would be as the current situation but with a higher village fee and lower licence to occupy cost. That sounds like a riskier venture for the developer/ shareholders.Who knows if it would work but I would think the village fee would be the same but rather than paying $400k Licence to Occupy and getting $300k back at the end, you would only pay $100k (or maybe $120k to compensate) but get nothing back unless you move out early (normally it is ~5% per year for the first 5 years). Not riskier as they will get the exact same amount they get now, even more. Its just they dont get the use of the full license to occupy in the mean time which they currently use to fund the development.

[Beagle]

Rental villages will eventually come, of that I have no doubt. They'll come in another generation to meet the needs of current Gen Y's who according to the latest census for those undr 40, the home ownership rate is very low. I assume with high Auckland prices many of these Gen Y's will never own a home so they'd better get really serious with their Kiwisaver accounts because they'll probably need to be paying rent and care fees right through their retirement years. Annual report makes for a good and encouraging read.

[Bjauck]

Who knows if it would work but I would think the village fee would be the same but rather than paying $400k Licence to Occupy and getting $300k back at the end, you would only pay $100k (or maybe $120k to compensate) but get nothing back unless you move out early (normally it is ~5% per year for the first 5 years). Not riskier as they will get the exact same amount they get now, even more. Its just they dont get the use of the full license to occupy in the mean time which they currently use to fund the development. If the developer gets the same village fee and the same termination amount but does not have the same upfront licence payment, it sounds as though it would be very much less profitable, requiring substantially more borrowings and/or equity invested with greater associated risk. I think either village fees or the non-returnable upfront payment would have to be substantially greater than 25% of the current costs of licences to retain profitability.

Having said that, the potential market size is expanding and maybe there will be room for a greater variety of developments from no frills developments to full amenities luxury (in big cities). Maybe there will be mixed ownership villages too, where the residents have an equity/freehold stake as well. I like the idea of residents moving into a village actually buying a shareholding in the developing company - however that would mean residents taking on more risk (especially with smaller companies) at a time of life when risk-taking normally declines.

[skid]

I have a friend who has just put his Mum in Selwyn Village.
I was under the impression they just paid a rental fee but on closer inspection it appears it is also a ''buy a unit ''(leasehold) so i stand corrected.
Seems like a pretty sweet deal for operators so unless the housing market falls they should continue to do well.

[Harvey Specter]

Well a developer has already planned a 'over 60's' apartment complex in Auckland CBD. It is not a 'retirement village' so it is arguable if it is legal (age discrimination) but I do expect other types of facilities to become more popular.

[Beagle]

I had a reasonably thorough read of the Annual report now available on the SUM website and noted comments about strong demand across the country for SUM facilities. I also read between the lines regarding initial demand comments at the new Auckland sites of Karaka and Honsonville and made my own assessment of the interpretation of what's written in the annual report. I interpret what is said there as effectivly saying there has been very strong initial demand for units at these new sites.

I also note last year's PCP (first quarter sales) wern't especially strong so I expect the first quarter's sales this year to show a significant improvement over last year. With this announcement due on or before 10 April and after carefully assessing what's written in the Annual report I added further to my position in SUM today.

[Bjauck]

Rental villages will eventually come, of that I have no doubt. They'll come in another generation to meet the needs of current Gen Y's who according to the latest census for those undr 40, the home ownership rate is very low. I assume with high Auckland prices many of these Gen Y's will never own a home so they'd better get really serious with their Kiwisaver accounts because they'll probably need to be paying rent and care fees right through their retirement years. Annual report makes for a good and encouraging read.

Gen Y's parents have high real estate ownership rates. As there are no death duties and a high use of the family trusts liberal regime, Gen Y will inherit and is starting to inherit all their parents' assets. In addition as the large cohorts of baby boomers move into SUM villages :) maybe there will develop a buyers market causing house prices to become more affordable. This will also depend on immigration rates and the rate at which absentee/overseas landlords buy into NZ real estate.

As NZ is increasingly an unequal society, I think the challenge will be to stop the poorest quintile(s) of retirees dropping into poverty. Councils are increasingly withdrawing from Pensioner flats but will there be sufficient profit in cheap rentals (with safe and secure tenure for pensioner occupants) to encourage the private sector to take over?

[Beagle]

Gen Y's parents have high real estate ownership rates. As there are no death duties and a high use of the family trusts liberal regime, Gen Y will inherit and is starting to inherit all their parents' assets. In addition as the large cohorts of baby boomers move into SUM villages :) maybe there will develop a buyers market causing house prices to become more affordable. This will also depend on immigration rates and the rate at which absentee/overseas landlords buy into NZ real estate.

As NZ is increasingly an unequal society, I think the challenge will be to stop the poorest quintile(s) of retirees dropping into poverty. Councils are increasingly withdrawing from Pensioner flats but will there be sufficient profit in cheap rentals (with safe and secure tenure for pensioner occupants) to encourage the private sector to take over?

Good post and good question. I think its inevitable that at some stage the Government, probably a left leaning Govt, will re-introduce some form of death duties, probably under another name, something like transitional inheritance commission, or some such other more PC. term. As you say many people have their homes in a family trust already and I certainly encourage my clients to do so for a number of compelling commerically prudent reasons including the possibility of a change to the current zero rate of death duties. I agree that many Gen Y's will stand to inherit real estate, (the jury is out with my two kids on whether they deserve it LOL).

I think its a sad and inevitable reality that we will see apartment facilities spring up to replace pensioner flats, probably all of which will have standards and facilities vastly inferior to SUM's retirement units. Poeple living in a cramped, crowded and poorly serviced apartments without any meaningful community facilities clinging on too some illusion of independence aided by the on call facility that a ST John medical alarm provides. What a sad way to "enjoy" one's twilight years.

[Bjauck]

Good post and good question. I think its inevitable that at some stage the Government, probably a left leaning Govt, will re-introduce some form of death duties, probably under another name, something like transitional inheritance commission, or some such other more PC. term. As you say many people have their homes in a family trust already and I certainly encourage my clients to do so for a number of compelling commerically prudent reasons including the possibility of a change to the current zero rate of death duties. I agree that many Gen Y's will stand to inherit real estate, (the jury is out with my two kids on whether they deserve it LOL).

I think its a sad and inevitable reality that we will see apartment facilities spring up to replace pensioner flats, probably all of which will have standards and facilities vastly inferior to SUM's retirement units. Poeple living in a cramped, crowded and poorly serviced apartments without any meaningful community facilities clinging on too some illusion of independence aided by the on call facility that a ST John medical alarm provides. What a sad way to "enjoy" one's twilight years.

As (perhaps)the majority of wealthy NZers have assets in family trusts, it may be pointless bringing in death duties. Because of their proliferation, the bastion of a trust is already being breached by means assessment agencies and perhaps other inroads into family trusts will occur. They are a victim of their own popularity! Certainly if Australia remains death duty-free, many NZ retirees may decide to set up abode on the Gold Coast to avoid any NZ duties. However, even the UK (with its fiscal issues) is talking about boosting the duty-free estate allowance from 325k to 1m pounds (single person) before death duty (Inheritance Tax or IHT) kicks in at 40%.

Yes, it will be a challenge to have quality rental accommodation for those who cannot currently afford quality such as a SUM units.

[Harvey Specter]

A CGT is more likely before a death duty - those houses have to be sold as some point. Except Labour is going to exempt the family home.

[couta1]

Looks like a few others have read the report plus the anticipation of the Q1 results just hit $3.60,I'm expecting it to test $3.75 after Q1 results out

[macduffy]

totally. More importantly,the fundamentals look very strong for at least the next 10 to 20 years

I hold SUM but hearing talk like that makes me nervous! I'd like to hear a few negatives before we all run the risk of falling in love with this stock.

:mellow:

[macduffy]

IMHO, the only real risk to this and other retirement stocks is the possibility of a CGT. Ignoring that, it all looks pretty amazing to me. Happy?

Phew! I feel better already!

I probably shouldn't have read this Jeremy Grantham article.

http://www.smh.com.au/business/markets/very-painful-world-heading-for-bust-unlike-any-other-says-jeremy-grantham-20140325-35f34.html

[Bjauck]

IMHO, the only real risk to this and other retirement stocks is the possibility of a CGT. Ignoring that, it all looks pretty amazing to me. Happy? Even Labour and Greens have said that the family home would be exempt, in other words, the lions share of the market. As there will be no such exemption for those who have invested their capital in businesses or share investments, sometimes instead of investing in the family home, the real estate market will actually be at a comparative advantage under a future Labour govt implementing a cgt! The threat to Sum would only be such as that facing all investments on the stock market. In my opinion.

[Snow Leopard]

ummm, what about the fact that retirement villages make truck loads of cash from capital gains which aren't currently taxed? Surely that would change under CGT??

1/. They do not make 'truck loads of cash' from capital gains.
2/. CGT would probably be payable on the sale of a property
3/. The do not sell their properties generally
4/. The accounts would have a deferred CGT liability on gains that would not need to be paid unless a sale occurred
5/. So everybody would ignore it in their valuations.

6/. Best Wishes
7/. Paper Tiger

[Harvey Specter]

ummm, what about the fact that retirement villages make truck loads of cash from capital gains which aren't currently taxed? Surely that would change under CGT??They dont sell the properties so no CGT there. They do 'pay' tax on part of the occupation licence that they retain (spread over the term they derive it).

[Toasty]

Phew! I feel better already!

I probably shouldn't have read this Jeremy Grantham article.

http://www.smh.com.au/business/markets/very-painful-world-heading-for-bust-unlike-any-other-says-jeremy-grantham-20140325-35f34.html

Its ok. Warren says to calm down.

http://www.stuff.co.nz/business/world/9870820/Buffett-says-no-meltdown-on-the-cards

[Beagle]

Annual Report talks of a land bank of 2116 retirement village units, (more than 7 years supply at projected 2015 build rate), and 595 care beds.
Appears to signal an approach towards more comprehensive facilities going foward...higher recurring earnings from future facilities perhaps ? Thoughts anyone ?

[couta1]

Annual Report talks of a land bank of 2116 retirement village units, (more than 7 years supply at projected 2015 build rate), and 595 care beds.
Appears to signal an approach towards more comprehensive facilities going foward...higher recurring earnings from future facilities perhaps ? Thoughts anyone ?
Looks like that's the plan Roger,up until now Sums care centers have been small compared to Rymans comparing similar sized villages and lacking Dementia units

[percy]

Pleased to see Norah Barlow will be joining the board of Aussie retirement village group INA Ingenia.

[SimonHouse]

Thanks for that Percy.

Interesting from a number of perspectives.

1. Norah serves on the SUM board post her CEO role finishing up. So interesting because it's clearly NOT a conflict with her being involved in SUM, otherwise she wouldn't do it, or at least, remain on the SUM board.

2. This would suggest SUM has little interest in expanding into Australia, if there is no conflict of interest, even though SUM is listed in Australia now.

3. It would also suggest INA is not interested in expanding into NZ, otherwise why would Norah remain on the SUM board if she was headhunted?

4. There may be useful synergies that come from a director being on the board of SUM and INA.AX. The Australians are reputedly far behind the NZ listed companies in terms of a deferred management fee model.

5. Dare we suggest the kind of synergies they might realise? Merger.... cough....

[SimonHouse]

See that multiple letter writers in the Dom Post are calling for SUM to raise wages. Anyone know what the base pay range is there for caregivers? I say a raise is needed; if Director's are good enough for it, the staff manning it should have a win as well...

Sounds like a Green Party campaign. They do this from time to time on caregiver wages.

[Food4Thought]

Thanks for that Percy.

Interesting from a number of perspectives.

1. Norah serves on the SUM board post her CEO role finishing up. So interesting because it's clearly NOT a conflict with her being involved in SUM, otherwise she wouldn't do it, or at least, remain on the SUM board.

2. This would suggest SUM has little interest in expanding into Australia, if there is no conflict of interest, even though SUM is listed in Australia now.

3. It would also suggest INA is not interested in expanding into NZ, otherwise why would Norah remain on the SUM board if she was headhunted?

4. There may be useful synergies that come from a director being on the board of SUM and INA.AX. The Australians are reputedly far behind the NZ listed companies in terms of a deferred management fee model.

5. Dare we suggest the kind of synergies they might realise? Merger.... cough....


Agree with point 5. I have a feeling that there will be a merger, or buy-out offer in this sector of some of the profitable NZ operated aged care providers. Big operators, looking at owning more businesses/operators, highly likely, foreign Investment firms.

[percy]

Simon Owen who is the CEO of INA was the very successful CEO of Aveum,before joining INA.Being in the sector for a long time he would be very aware of Norah Barlow's excellent track record. I think she will bring a lot to INA. INA has mainly been "lifestyle" rather than NZ's "total care." What is interesting is that over 30% of INA is held by New Zealanders.I think the list includes Sir Ron Brierley,Fisher Funds, and Pie Funds.

[iceman]

Shane Jones stated at a meeting in Auckland yesterday that "within 100 days of being elected Labour would raise the minimum wage and address the "dreadful conditions" of staff and residents at rest homes."
Has anyone seen any detailed policy from Labour on this ? I've searched and did not find anything.

[troyvdh]

dear iceman...shouldn't that post have been yesterday....come on..."detailed policy from labour"...do not such (even if indeed they exist) "policies"...vary from day to day..!!!!.

Having said that Shanes comments continue to appear as populist loud generalised ravings as is his way.

Am I wrong.Cheers

[Deej5]

Shane Jones stated at a meeting in Auckland yesterday that "within 100 days of being elected Labour would raise the minimum wage and address the "dreadful conditions" of staff and residents at rest homes."
Has anyone seen any detailed policy from Labour on this ? I've searched and did not find anything.

Detailed policy from Labour?????

[Xerof]

Ice, shouldn't your query be on the Ryman thread? We don't have "dreadful conditions" at Summerset......:D

and did he state which election he hoped to be elected at?

[troyvdh]

Xerof that's a bit of a low call...are you a mate of shane's perhaps

[Beagle]

Does anyone really care what that loud mouth says ?

[Harvey Specter]

Shane Jones stated at a meeting in Auckland yesterday that "within 100 days of being elected Labour would raise the minimum wage and address the "dreadful conditions" of staff and residents at rest homes."
Has anyone seen any detailed policy from Labour on this ? I've searched and did not find anything.The okes have already been made so I will move on.

Within the first 100 days they will increase it to $15ph. They will then do a further increase in 2015.

- Nat's have just increased to $14.25 so this is not a significant increase
- The assumption is the second raise would be on 1 April 2015 as that is the normal increase date.
- They haven't committed to the 'living wage' other than for government employees.
- They wont be committing to any amount for the second raise. A nice empty promise by Labour.

[Mista_Trix]

Does anyone really care what that loud mouth says ?

... he might be leader come election time given the state of Labour :-S

[troyvdh]

Dear HS....are you seriously thinking that "they" will cross the line first this year ...like really....really....should "they" do so perhaps in 3 years then surely your figures are meaningless....YES NO

[Harvey Specter]

Dear HS....are you seriously thinking that "they" will cross the line first this year ...like really....really....should "they" do so perhaps in 3 years then surely your figures are meaningless....YES NOAs a significant portion of my wealth is in power company's, no I do not believe they will be in government later this year.

I was just stating the full extent of their policy, that is that it misses the most important detail, since the increase within the first 100 is only minimal. I also point out the double standards as they are setting a different minimum wage for government vs non government employees.

But to answer your question, I like Winston Peters reply:

NO

[iceman]

dear iceman...shouldn't that post have been yesterday....come on...

Am I wrong.Cheers

Dear troyvdh
Why yesterday ? I was in Buenos Aires yesterday
and didnt see anything about this over there.
Hence my question today to see if I'd missed
some announcement about this while I've
been away !!!

[Xerof]

I know you are having a bit of a laugh, but if anyone thinks this is not a sector wide issue then they are in dream land. Quality of care is coming into the spot light more and more in the health sector and when it seriously hits the retirement sector the obvious questions will be asked; are there enough staff and are they qualified enough. At the end of the day this all simply comes down to $!!

DISC: I might be a little biased in this area as I've done quite a bit of research on quality of care, but my understanding is that the retirement sector has gotten off relatively lightly, but some time in the next few years there will be a clamp down (to some extent).

you're right on both counts - a bit of a laugh, but also agree with your 'shake-up' scenario. I'd be very interested in knowing how widespread, or generalised, you see the sector problem as being. Can you elaborate or rank by Company? My perception is that there are many many small private ones that are disgusting, but only hear sporadic episodes about the listed entities

[troyvdh]

Dear Iceman..how is BA..ive been there a few times...who did you fly with ...Qantas I assume....

Don't be a plonker...It was the 1st of April yesterday.......cheers

[Beagle]

^^You can start your investigation by having a bloody good look at the qulaity of "care" in Ryman's dementia facilities. Don't worry about the patients needs, whether they're adequatly hrdrated, whether they need to see a doctor or whatever other needs they have, just drug them up to the eyeballs so they don't know what planet they're on because there's less work for the staff to do right ? Don't worry about keeping proper files on the patient, the next shift of Phillipino workers, most of whom struggle to speak english, will somwhow magically know what each patients needs are when they start their shift, right ? Still, what would I know, i recently watched my father die a slow cruel death in one of their facilties with his needs not well met by any stretch of the imagination. I am sure this is an extremly isolated case and I know absolutly nothing, (sarcasm intended). I havn't got the stomach to own Ryman's shares after seeing what i saw first hand.
No need to tare the whole sector with the same brush in my opinion.

[couta1]

^^You can start yomore,nvestigation by having a bloody good look at the qulaity of "care" in Ryman's dementia facilities. Don't worry about the patients needs, whether they're adequatly hrdrated, whether they need to see a doctor or whatever other needs they have, just drug them up to the eyeballs so they don't know what planet they're on because there's less work for the staff to do right ? Don't worry about keeping proper files on the patient, the next shift of Phillipino workers, most of whom struggle to speak english, will somwhow magically know what each patients needs are when they start their shift, right ? Still, what would I know, i recently watched my father die a slow cruel death in one of their facilties with his needs not well met by any stretch of the imagination. I am sure this is an extremly isolated case and I know absolutly nothing, (sarcasm intended). I havn't got the stomach to own Ryman's shares after seeing what i saw first hand.
No need to tare the whole sector with the same brush in my opinion.
Not so isolated Roger but I can't say more,are you going to the upcoming Sum meeting?

[Joshuatree]

That is horrible to hear Roger, commiserations.

Whilist we are fairly happy with our mothers care; staff are great and facilities fairly new with every room facing the sun and garden;(none of the big 3 btw) we still take her out 4 days a week for activities and family time as there just isn't enough activities there for her. Having 3 siblings in one city helps.

[Beagle]

Thanks for your kind posts Gents, sorry that I get a bit wound-up by the issue of elderly folks care but it means a heck of a lot to me that I'm investing in a company that wins best care awards year after year, (for the personal reason I shared earlier today), the fact that it's also the fastest growing is equally important too.

Yeap Couta1 I'm going mate, (thanks to Forest for the suggestion and invite), we're jetting down and making a day of it, I'm sure there's certain to be a few beers involved.
All welcome to join us. PM me if you'd like more info on our flights schedule.

[Goldstein]

Already the retirement sector seems to be the journalist's go-to story on slow news days. It's a bit like the credit card spending by public servants a few years back.

[macduffy]

Already the retirement sector seems to be the journalist's go-to story on slow news days. It's a bit like the credit card spending by public servants a few years back.

Yes, it certainly seems that way. And as the demographic grows I guess we'll be seeing the stories - favourable or not - even more frequently in future.

[Bjauck]

Already the retirement sector seems to be the journalist's go-to story on slow news days. It's a bit like the credit card spending by public servants a few years back.

I guess aged care has it all...It affects all families and, potentially, everyone. It is "human interest" and involves health, government, finances, and equity.

In relation to the resthome/hospital sector, from my experience as a family member of a resident, an increase in (well trained) staffing ratios would benefit patients/residents. That involves considerable extra expense in staffing and training. Who would bear that expense? Taxpayers or the residents themselves? Either way would be unpopular. After years of reducing the tax burden on higher income earners, would voters now support an increase to support those in need? Should the government look into the widespread use of family trusts and make them ineffective when applying for subsides/rebates so that trustees pay for trust beneficiaries' care costs?

Or, should shareholders/owners bear the expense? Which begs the question, how much profit would be needed to maintain the investment needed in the sector?

[Beagle]

If I get a chance i'll ask the hard question but i would speculate at this stage it has a lot too do with Ryman having more existing facilities with the full continuium of care, rest home / hospital / dementia wards.

SUM's development plans appear to be moving in that direction.

[macduffy]

More on - and from - Norah Barlow.

http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=11232597

[percy]

If I get a chance i'll ask the hard question but i would speculate at this stage it has a lot too do with Ryman having more existing facilities with the full continuium of care, rest home / hospital / dementia wards.

SUM's development plans appear to be moving in that direction.

Posted in good faith.
I think it took awhile for SUM to follow RYM's model of doing everything in house; buying the land,getting consents,drawing up the plans,building the village, then selling it.Nothing out sourced.All margins retained.

[forest]

Posted in good faith.
I think it took awhile for SUM to follow RYM's model of doing everything in house; buying the land,getting consents,drawing up the plans,building the village, then selling it.Nothing out sourced.All margins retained.

Percy I think you right also by my calculations the average RYM village has 265 units + care beds while SUM has less then 120 on average.
The bigger villages can more easily support care centres and other facilities think swimming pool, library etc.

I think even if SUM copies everything RYM does, including building larger villages, they still are left with a number of smaller less profitable villages in their portfolio.
Even MET averages over 180 units and care beds per village.

[couta1]

Percy I think you right also by my calculations the average RYM village has 265 units + care beds while SUM has less then 120 on average.
The bigger villages can more easily support care centres and other facilities think swimming pool, library etc.

I think even if SUM copies everything RYM does, including building larger villages, they still are left with a number of smaller less profitable villages in their portfolio.
Even MET averages over 180 units and care beds per village.
Having the biggest care centers isn't always best,maybe bigger than current when it comes to Sum but very large care centers come with all sorts of logistical problems and profit draining potential plus heaps more potential for a larger number of complaints and media attention,met has an inferior continuum of care model to Sum at this point in time,Sum have the potential to add onto some of their smaller villages such as they are doing at the Trentham site

[Beagle]

Posted in good faith.
I think it took awhile for SUM to follow RYM's model of doing everything in house; buying the land,getting consents,drawing up the plans,building the village, then selling it.Nothing out sourced.All margins retained.

Agreed Percy and its only this year that they're bringing all development in house and aiming for a development margin of 17% compared to an average development margin of about 12% historically, (from memory). This change, along with the 25% growth rate in the number of units being built and the change in emphasis towards more comprehensive facilities has fantastic potential for profit growth going forward that I still believe is not being properly perceived by the market...that and the fact that they have a very strong established pipeline of developments in the high value Auckland market. I believe we will see real adjusted profit, (before property revaluations), of circa $50m per annum within 3 years for SUM, based on my expectation of at least 35% compounding growth pr annum in operating profit for the next 3 years, ($22m x 1.35 x 1.35 x 1.35). Considering their build rate is growing at 25% per annum and building margins are targetted to substaintially improve I think this should be realisitcally achievable and potentially could be a conservative target.

They are also on record at looking at procurement efficiencies going forward. I believe that this company has only very recently hit critical mass and there's obvious additional economies of scale going forward as the company continues to grow.

[percy]

I think what you said about "reaching critical mass" sums it up.
What a fabulous business to be looking forward to such a fantastic 3 year [plus] 35% compound growth.We are well positioned!!
Yes, the Auckland market is NZ's biggest and SUM will enjoy great rewards there.Yet there is huge demand in such places as Ashburton.The best operators will have trouble keeping up with the sector demand.

[Beagle]

Hi Percy, I hope you are well mate.

Yes, there were hints in the annual report that initial demand for their new developments at Hobsonville and Karaka has been very strong and i'm looking forward to their first quarter sales results this week and the AGM on the 30 April. We are extremly well positioned :)

[winner69]

You got a number of sales for 1Q14 in mind Roger?

Anything less than 130/135 in total would be disappointing and a bit of slowdown in sales momentum

[Beagle]

^^ I'm thinking along the same lines as you mate.

[Trigger]

FY13 SALES OF OCCUPATION RIGHTS




1Q13
Actual


New sales
64


Resales
25


Total
89



Edit: Ref post #239 by Banksie

[Banksie]

^^ I'm thinking along the same lines as you mate.

That would be nice but surely anything north of 122 would still be a good result (being a 10% increase on 4Q13).

https://www.nzx.com/files/attachments/187858.pdf

[winner69]

But the last 3 quarters have shown increases of 23%, 19% and 50% over pcp

Momentum my friends .... 10% would be slowing down and a disappointment, esp as touting growth growth growth and so on

And don't forget that 1Q13 was a bummer, being less than 1Q12

[Beagle]

I'm with winner69 on this for the reason mentioned above. PCP sales are a soft comparison in my opinion. Karaka and Hobsonville are open for sales and there's a strong hint in the 2013 annual report written in late February 2014 of very positive demand in the Auckland area which is known to suffer from an acute housing shortage. I'd be disappointed with anything less than 125 and expect more. Very strong numbers were reported by Barfoot and Thompson late last week for March housing sales, (I didn't post a link last week as i don't see any point in opening up that debate again as its allready had a very fullsome discussion in my opinion), but its an indicator of very strong demand in the greater Auckland area. 140-150 wouldn't surprise me.

[SimonHouse]

Sales numbers aren't the only thing to bear in mind. SUM are improving margins as they build more with in house teams. So sales might be good not brilliant, but earnings look better than good.

[Beagle]

ok, well I'll be very pleased if you're right!

I put money on it by adding more stock to my portfolio very recently :)

[Deej5]

same Roger. I am very heavily in this stock (6 figure number of shares)

Me too, six figures if you count the ¢ with the $

[Goldstein]

Reasonably large off-market trade at 4:31pm for $3.45. Anybody know what's up? Maybe ACC cashing in to buy GEN?

[Food4Thought]

Reasonably large off-market trade at 4:31pm for $3.45. Anybody know what's up? Maybe ACC cashing in to buy GEN?

I think what your thinking Goldstein. I have this funny feeling that it will have a big spike in price (GEN), then settle again once the GEN hype is over... good in the short term (for GEN)... I'd rather be in the retirement industry, then the electricity sector... especially as currently (free to change my mind) I don't much like natural disasters/acts of mother nature... (I think a retirement village would be better insured for this type of possibility). I have consulted my tarot cards and consulted with The Moon Man for my DYOR.

I hope it all goes well for the speculators with GEN, in the long run, it will go well for Summerset. Be a good time to top up... good for those with cash... maybe those selling out from XERO (ouch).

[SimonHouse]

92 sales. A bit disappointing really

[Banksie]

92 sales. A bit disappointing really

Yeah - Q1 sales have been pretty flat for the last 3 years - 90, 89, now 92.

[psychic]

New sales will obviously be limited by available stock, do we know how many units they are holding unsold?

[psychic]

Im reading that in 2013 they built 209 yet sold 228.
So perhaps with hobby etc now being built we will see sales of new units later in the year.
On a positive note, if Qtrs are to be compares, sales of existing units are up from 25 to 44.............

[couta1]

Q1 sales can be slow for a variety of reasons,it is normally a slower period for resales post festive season talking to the sales reps,though a bit dissapointing nothing to worry about in the grand scheme of things,expect a better Q2 result IMHO

[couta1]

Growth ain't slowing,this steam trains fireboxes are being loaded up for a long profitable train ride:cool:

[Goldstein]

New sales will obviously be limited by available stock, do we know how many units they are holding unsold?

Hang on, the new sales are up from 25 to 44 comparing 2013 Q1 with 2014 Q1. It's the resales that have dropped from 64 to 48. This could easily be an anomaly (not so many deaths etc). An interesting trend would be if younger residents started buying thses units pushing the time between resales up.

[psychic]

Hang on, the new sales are up from 25 to 44 comparing 2013 Q1 with 2014 Q1. It's the resales that have dropped from 64 to 48. This could easily be an anomaly (not so many deaths etc). An interesting trend would be if younger residents started buying thses units pushing the time between resales up.

Huh? No, you have it around the wrong way Goldie.

[Mista_Trix]

... ... An interesting trend would be if younger residents started buying thses units pushing the time between resales up.

That would make more sense given thats the demographic they're now targeting - ie. woodwork rooms, hair salons (social hubs for younger residents) etc.
They want that longer dollar, not the quicker one.

[couta1]

Just to be clear, I;m not saying growth is slowing, but any prudent investor would now want to keep a very very close eye on the next couple of Qs to make sure growth isn't slowing.
Demand drives growth and demand is huge in this sector,end of story or should I say begining of

[couta1]

One to many verys?? ;) Semantics I guess mate. I would say investors in any stock need to keep a very close eye on reports etc. My position on growth stocks is that if growth is in question, even a tiny tiny bit, then one should keep a very close eye on things...

By the way, market seems to be OK with the numbers if match open is anything to go by, so maybe a few punters just missed when analyzing the growth possibilities??
Think the market was expecting more T,if the 135 number or round about had been hit the price would be heading toward $3.60 pretty quickly,down to $3.40 but no concern if your long

[Goldstein]

you might wanna double check your numbers

Thanks, read it too quick.
Q1 2014 48new + 44resales = 92 sales
Q1 2013 64New + 25resales = 89 sales

OK, so resales increased, but new sales declined. Point taken about stock availability.

[Beagle]

I'm disappointed but have to invest in something for my retirement and despite this hiccup this remains the most compelling long term growth stock on the NZX on a projected risk / reward basis in my opinion.

[Goldstein]

I wouldn't be too dissappointed. The resales have bearly doubled and there are reasons we can only guess at for the new sales drop.

[couta1]

I wouldn't be too dissappointed. The resales have bearly doubled and there are reasons we can only guess at for the new sales drop.
Think lag phase in terms of new sales,relate it to microbes,remember it takes 3 days from when the virus enters your body until you notice you are developing a cold apply this concept to Sums current new sales and you'll have your answer:cool:

[Xerof]

What is the size of the 'pool' that is actually available for sale?
when is a sale able to be recognised as a sale? Is it when the contract is unconditional, or at settlement?

I had a quick look through the notes to FS's but nothing provided the answer

[couta1]

What is the size of the 'pool' that is actually available for sale?
when is a sale able to be recognised as a sale? Is it when the contract is unconditional, or at settlement?

I had a quick look through the notes to FS's but nothing provided the answer
Unconditional would be correct,the size of the pool can be quite large as don't forget they sell off the plans not just upon completed construction plus the resale units

[percy]

I'm disappointed but have to invest in something for my retirement and despite this hiccup this remains the most compelling long term growth stock on the NZX on a projected risk / reward basis in my opinion.

Don't be disappointed, the story is still great, and SUM will provide excellent returns for your retirement .
I have ours in our 'wet and forget' portfolio [with our HNZ],while the RYM are in the 'spray and walk away" portfolio.

[Goldstein]

What is the size of the 'pool' that is actually available for sale?
when is a sale able to be recognised as a sale? Is it when the contract is unconditional, or at settlement?

I had a quick look through the notes to FS's but nothing provided the answer

I had a look too and couldn't see anything either. If you compare new units delivered with new sales for 2012 and 2013
2012 2013
delivered : 160 209
sold: 167 228

So at a guess I would say they can sell them as fast as they can complete them. Unless something has fundamentally changed in the market, it's most likely a supply problem affecting the new sales. As I said previously, resales have gone up well in Q1.

[Beagle]

Don't be disappointed, the story is still great, and SUM will provide excellent returns for your retirement .
I have ours in our 'wet and forget' portfolio [with our HNZ],while the RYM are in the 'spray and walk away" portfolio.

Thanks for the encouragement mate.

[winner69]

I'm disappointed but have to invest in something for my retirement and despite this hiccup this remains the most compelling long term growth stock on the NZX on a projected risk / reward basis in my opinion.

We both disappointed then Roger

Annual sales number increased from 402 to 405 .....wow that some growth.

Couta nearly had me convinced that things were booming, obviously not

Jan and Q1 might br crappy for real estate - just this time it seems crappier than normal

Just like XRO obviously have to believe the dream ....and hope

[JayRiggs]

ACC are happy to pick up some more.
Their stake now over 6%.
https://www.nzx.com/companies/SUM/announcements/249302

[winner69]

Ha ha ......good old Business Desk puts a different slant on a disappointing sales number

. Summerset Group, the retirement village operator asking shareholders to boost directors' fees 50 percent, lifted occupation rights in the first quarter from a year earlier.


http://www.sharechat.co.nz/article/b3afca90/summerset-first-quarter-occupation-rights-rise-3-4-percent.html?utm_medium=email&utm_campaign=Summerset+first-quarter+occupation+rights+rise+34+percent&utm_content=Summerset+first-quarter+occupation+rights+rise+34+percent+CID_a6ae 865356a7af41f5eb658b2a4b6ee2&utm_source=Email%20marketing%20software&utm_term=httpwwwsharechatconzarticleb3afca90summer set-first-quarter-occupation-rights-rise-3-4-percenthtml

Lets hope the directors earn the $200,000 by stirring up the building and selling departments to get the sales rate up ...pretty crappy at the moment

[Beagle]

We both disappointed then Roger

Annual sales number increased from 402 to 405 .....wow that some growth.

Couta nearly had me convinced that things were booming, obviously not

Jan and Q1 might br crappy for real estate - just this time it seems crappier than normal

Just like XRO obviously have to believe the dream ....and hope

Yeah mate, definitly licking my wounds today after recently adding at $3.58.
Still looking forward to attending the AGM and advancing my understanding of the stock.
Pretty clear I read too much into the implied comment in the annual report that intial sales at the new developments at Karaka and Hobsonville have been strong. Seems clear now that there's timing issues around when the contract is signed and reported as a sale and I suspect as mentioned above by someone else it needs to be unconditional before being reported as a sale.

I think we can agree that SUM and XRO are quite different kettles of fish. One has a good track record of growing earnings, the other has a good track record of growing sales and losses with the future prospect of earnings. One gets quantifiable results, the other is a "story" that may or may not work.

Let's not forget that SUM management are targeting a 17% development margin this year by bringing in all development activities in house, which will be a substaintial increase on previous years and a build rate of 250 units this year up ~ 20% on 2013 and 300 next year which will be another ~20% build increase on 2014, if achieved.

The question is, is all this currently reflected in the SP which is currently trading at 33 times underlying, (not IFRS) 2013 earnings. Classic "HOLD" if you ask me.

[Goldstein]

ACC are happy to pick up some more.
Their stake now over 6%.
https://www.nzx.com/companies/SUM/announcements/249302

They bought the shares on the 7th - before today's Q1 figures. Makes you wonder who the sellers were.