Retirement village operators

[thegreatestben]

Winton could be spreading themselves a little thin. Did anyone see the artice yesterday about Ebert construction, they failed due to moving into the residential space from commercial and bled the company almost straight away.

[Greekwatchdog]

Latest from For Bar on the sector 13/10.

Montgomerie–Ibbotson Aged Care Pricing
Index


Re-pricing of aged care units has continued unabated over the last few months. Our Montgomerie-Ibbotson (MI) index is
now up +9% this year, implying an annualised increase of ~12%, substantially above historical trends. We estimate that the
aged care operators built up a pricing "buffer" of close to 20% in 2020 as House Price Inflation (HPI) of over +18% did not
immediately translate to higher unit prices. Additionally, the strong pricing trends seen in our MI index in 2021 has not
depleted this buffer as HPI has continued up, outpacing the +9% increase. The strongest pricing trends have been seen
from Summerset (SUM), particularly for its Independent Living Units (ILUs) driven by its villa focussed offering.
Buffer expands addressable market short-term and should drive growth over the medium-term
The rapid increase in HPI and the resulting buffer between current unit pricing and local house prices implies two tailwinds. Firstly, it
expands the addressable market. The aged care operators are traditionally guided by the median house price in the area of the village.
Ryman (RYM), for instance, targets unit prices of ~70% of the median house price with the idea that the owners of a median house
should release some equity if they sell their house and buy a unit. The implicit target market is thus owners of median or higher priced
houses. Pricing units lower relative to the local market increases the group of house owners that can afford to buy a unit. Secondly,
over the next few years the aged care operators can tap into this "HPI buffer" as and when prices start to flatline or decline. This
provides a high degree of visibility into medium term growth.
Embedded value already represents 30% of market cap and is likely to increase further
The aged care companies report total Embedded Value (EV) in their units. EV represents the build up of future re-sale gains and
deferred management fees and is primarily based off recent transactions, i.e. not factoring in the increase in HPI that has not
translated to higher unit pricing (yet). We estimate that current EV represents c. 30% of market cap for the aged care operators,
maybe more telling; the EV of re-sale gains represents >5 years of annuity EBITDA and ~10 years of re-sale gains.
We like the aged care sector overall and prefer the smaller cap names
Overall we remain positively biased towards the aged care sector. It benefits from a combination of; (1) high visibility growth over the
near term driven by historical HPI increases; (2) long term favourable trends, particularly with regards to the need for more care beds;
and (3) in comparison to other growth names, valuations that are not too detached from history. We prefer the smaller cap names
Oceania (OCA) and Arvida (ARV) due to similar growth, only modestly higher risk (in our view) but substantially lower valuations. We
prefer SUM over RYM as SUM is growing faster, has higher EV, and is valued below RYM.


Figure 1. Summary of sector ratings and valuation

Company Ticker Current price (NZ$) Target price (NZ$) 24m fwd PE 24m fwd EV/Annuity EBITDA Rating
Oceania Healthcare OCA 1.44 1.90 12.0 17.2 OUTPERFORM
Arvida ARV 2.10 2.50 12.9 20.6 OUTPERFORM
Summerset SUM 15.05 13.85 17.4 34.0 NEUTRAL
Ryman Healthcare RYM 14.70 12.60 22.5 40.7 UNDERPERFORM

[winner69]

Thanks greekwatchdog

[Joshuatree]

Yes thanks from me too. Not holding any atpit.

[Bjauck]

Latest from For Bar on the sector 13/10.

...Pricing units lower relative to the local market increases the group of house owners that can afford to buy a unit. Secondly,
over the next few years the aged care operators can tap into this "HPI buffer" as and when prices start to flatline or decline. This
provides a high degree of visibility into medium term growth....

...Sort of an insurance for medium term growth stability. Some, perhaps from a short term perspective, had bemoaned the fact that ORA price increases had been below house price increases.

An ORA is more of a lease as opposed to holding the freehold. So perhaps it would not be justified to increase the price of an ORA in line with freehold price increases anyway. It should be more in tune with the Long-term rental market prices?

Disc: Hold ARV, OCA, SUM

[DonkeyKong]

I’m a beginner and trying to get my head around retirement village business models.

I’m assuming the price of realestate and the price charged for village units are tightly coupled.

For examples sake. Let’s say:
- A OCA purchases (or builds) a village unit for $1m
- They sell the right to this unit for $1m
- Will keep 30% of this price when resold
- A tenure of 3 years per resident

When prices remain the same?
When prices remain the same. OCA would need to sell the unit five times before they make money? I.e. 1m / (1m * 0.3) + 1 = 4.333

When prices are decreasing?
Assuming prices decrease at 5% per year. OCA would need to sell six times before they made money? I.e. 300k + 300*0.95^3 + 300*0.95^6 + 300*0.95^9 + 300*0.95^12

When prices are increasing?
Assuming prices increase at 5% per year. OCA would need to sell the unit four times before they make money? I.e. 300 + 300*1.05^3 + 300*1.05^6

Or have I oversimplified this and there are other factors relevant to them making money from their village units?

[Onion]

I’m a beginner and trying to get my head around retirement village business models.

I’m assuming the price of realestate and the price charged for village units are tightly coupled.

For examples sake. Let’s say:
- A OCA purchases (or builds) a village unit for $1m
- They sell the right to this unit for $1m
- Will keep 30% of this price when resold
- A tenure of 3 years per resident

When prices remain the same?
When prices remain the same. OCA would need to sell the unit five times before they make money? I.e. 1m / (1m * 0.3) + 1 = 4.333

When prices are decreasing?
Assuming prices decrease at 5% per year. OCA would need to sell six times before they made money? I.e. 300k + 300*0.95^3 + 300*0.95^6 + 300*0.95^9 + 300*0.95^12

When prices are increasing?
Assuming prices increase at 5% per year. OCA would need to sell the unit four times before they make money? I.e. 300 + 300*1.05^3 + 300*1.05^6

Or have I oversimplified this and there are other factors relevant to them making money from their village units?

You haven’t accounted for margin over the cost to build. If they build a unit for 1m then I’d expect them to sell for well north of that.

Historically margins (sale price over build cost) have been quite high but from memory have been narrowing over time.

Also, when resold, they sell for whatever the market can support so also accrue the capital appreciation. Your 1m unit from a few years ago isn’t valued at 1m forever. The cost of renovating for resale is relatively small.

[artemis]

Promisia has released its 6 months interim results today. New to the retirement market but quietly positioning for growth and the provinces. New CEO and Financial Accountant recently added.

''Revenue for the six months was $8.8m and is expected to grow as occupancy
levels (particularly at Aldwins House) and ORA sales increase. The company
reported a net loss from continuing operations of $111,000, with a total loss
from continuing and discontinuing operations of $92,000. As at 30 September
2021, total assets were $57.0m, net debt was $17.5m and the company had cash
and cash equivalents of $1.2m.''

[Beagle]

Latest from For Bar on the sector 13/10.

Montgomerie–Ibbotson Aged Care Pricing
Index


Re-pricing of aged care units has continued unabated over the last few months. Our Montgomerie-Ibbotson (MI) index is
now up +9% this year, implying an annualised increase of ~12%, substantially above historical trends. We estimate that the
aged care operators built up a pricing "buffer" of close to 20% in 2020 as House Price Inflation (HPI) of over +18% did not
immediately translate to higher unit prices. Additionally, the strong pricing trends seen in our MI index in 2021 has not
depleted this buffer as HPI has continued up, outpacing the +9% increase. The strongest pricing trends have been seen
from Summerset (SUM), particularly for its Independent Living Units (ILUs) driven by its villa focussed offering.
Buffer expands addressable market short-term and should drive growth over the medium-term
The rapid increase in HPI and the resulting buffer between current unit pricing and local house prices implies two tailwinds. Firstly, it
expands the addressable market. The aged care operators are traditionally guided by the median house price in the area of the village.
Ryman (RYM), for instance, targets unit prices of ~70% of the median house price with the idea that the owners of a median house
should release some equity if they sell their house and buy a unit. The implicit target market is thus owners of median or higher priced
houses. Pricing units lower relative to the local market increases the group of house owners that can afford to buy a unit. Secondly,
over the next few years the aged care operators can tap into this "HPI buffer" as and when prices start to flatline or decline. This
provides a high degree of visibility into medium term growth.
Embedded value already represents 30% of market cap and is likely to increase further
The aged care companies report total Embedded Value (EV) in their units. EV represents the build up of future re-sale gains and
deferred management fees and is primarily based off recent transactions, i.e. not factoring in the increase in HPI that has not
translated to higher unit pricing (yet). We estimate that current EV represents c. 30% of market cap for the aged care operators,
maybe more telling; the EV of re-sale gains represents >5 years of annuity EBITDA and ~10 years of re-sale gains.
We like the aged care sector overall and prefer the smaller cap names
Overall we remain positively biased towards the aged care sector. It benefits from a combination of; (1) high visibility growth over the
near term driven by historical HPI increases; (2) long term favourable trends, particularly with regards to the need for more care beds;
and (3) in comparison to other growth names, valuations that are not too detached from history. We prefer the smaller cap names
Oceania (OCA) and Arvida (ARV) due to similar growth, only modestly higher risk (in our view) but substantially lower valuations. We
prefer SUM over RYM as SUM is growing faster, has higher EV, and is valued below RYM.


Figure 1. Summary of sector ratings and valuation

Company Ticker Current price (NZ$) Target price (NZ$) 24m fwd PE 24m fwd EV/Annuity EBITDA Rating
Oceania Healthcare OCA [B]1.44[/B] 1.90 12.0 17.2 OUTPERFORM
Arvida ARV 2.10 2.50 12.9 20.6 OUTPERFORM
Summerset SUM 15.05 13.85 17.4 34.0 NEUTRAL
Ryman Healthcare RYM 14.70 12.60 22.5 40.7 UNDERPERFORM

Tough couple of months, they've all taken a beating.

[Greekwatchdog]

FBU now officially into retirement villages https://www.nzherald.co.nz/business/...PLPMB7B4ZBTUE/