SUM - Summerset Group

[Goldstein]

Find attached two plots of death rates and re-sales.

The first allows for a fluctuation in the death rate, the second assumes the expected number will pass on each year.

The conversion lag of a vacated unit to a tenanted one is assumed normally distributed with mean of 2 months and std dev of 1 month.

I had to scale up the 2014 re-sales figure to 12 months. Unfortunately I can't get any of the re-sale figures going further back. I also had to use yearly values as the quarterly results have only been going for a couple of years.

The null hypothesis (average 7 year tenure rate, and the conversion time stated above) is rejected if the red dot (re-sales figure) is outside the bands given at the 80% level. I.e., something would have altered. We'll see how the next quarte plays out, but I'm reasonably sure it's not as bad as some think and is most likely an aberration of the death rate.


Attachment 6311Attachment 6312

[Xirr]

Sorry, my use of language may have been a bit lose, but I'm pretty sure the sentiment remains. Happy to be proven otherwise, though.

The point is that realised gains on resale embody all previous fair value movements, hence my comment about double counting. Underlying earnings is designed to overcome this problem and, IMHO, is the only useful measure of real profitability for this sector.

What's your view, PT?

Hi new guy - I think you're wrong. I think that realised gains represent the actual profit realised from selling a unit above book value during the period. Book value being the previously revalued value at the end of the previous accounting period.

Realised profit also includes the profit from selling new units above cost.

There is no double counting that I am aware of.

[Xirr]

I'm also of the view that profit of any type is also pretty meaningless for Rv operators given it represents only what has happened over the year and includes a mix of new sale gains, resale gains, unrealised gains and an amortisation of the dmf.

I think to really know what's going on - you have to have a good grasp of the underlying cash flows which are reported in such a way that it is almost impossible to.

Just my personal opinion

[winner69]

I'm also of the view that profit of any type is also pretty meaningless for Rv operators given it represents only what has happened over the year and includes a mix of new sale gains, resale gains, unrealised gains and an amortisation of the dmf.

I think to really know what's going on - you have to have a good grasp of the underlying cash flows which are reported in such a way that it is almost impossible to.

Just my personal opinion

Great post there xirr

We do need to have faith that the assumptions around how much of the dmf is amortised are robust dont we

Also agree about thw cash flow statements. Reminds me to update some work on sums cash flow. Now a few more halves since listing something might fall out.

Hope we hear more from you over time

[Gunny]

New Guy

Current entry age is 78. Given the minimum is 65, doesn't seem to have any impact.


My first thought as well,

This would seem to suggest the average age of interest in going into Summerset is also 78, way above the minimim requirement unless Summerset are giving favour to older folk on the waiting list.

This could be interrupted in a number of ways. For example:

1) If the average age of interest holds around 78 then the baby boomer bubble would tend to flood into the market later. Must do some work on this to see the impacts if I get time.

2) The band between 65 - 78 could be seen as a risk point for change i.e. could Summerset tend towards Summercamp if more of the younger set want to apply. SUM is going to be a target over RYM with a 70 mimimum. Good for sales but bad for resales with increased length of stay i.e. exposure.

A mitigation strategy could be to do what RYM have already done, clever chaps, cherry picking an under supplied market to ensure good resales. If it becomes a problem they can always reduce it again later, just makes business sense.

Or maybe they could introduce "age based pricing". (Would this break any discrimination laws? Can't see how this differs from mimimum age of entry though.) Maximize market size and manage returns on resales rates.

So I suggest there is possible impact /risk and possible opportunity.

Gunny

[Goldstein]

NewGuy, You asserted in an email to SUM:

"I have modelled the expected resales for your portfolio of villages (using models that I built as evidence before the high court) and reach an estimate of about 46 per quarter for 2014. 31 is significantly lower than this, and the only rational explanation is that tenure is increasing"

My position is that re-sales of 31 for Q3 does not indicate an average death (I should say tenure) rate change. This is more likley due to the tenure-rate moving about its average, and the lag rate between tenants (your reply from SUM alluded to this).

The onus is on you not just to show graphs of re-sale numbers compared with stock availability and average tenure rate, but to show that there has been a statistically significant change.

All you have done is throw stones at my arguments, methodologies and even background.

Investing is not my day job and I don't have the time to spend arguing this with you.

[winner69]

Hi Xirr.

Sorry, I don't seem to be explaining myself very well, partly because I'm being lazy with terminology.

My point is this: Resales earn two types of profit/income. DMF and capital gains on resale. Since the latter largely reflects past "Fair value movements in investment property" those fair value movements are removed when calculating underlying earnings each period. To put it slightly differently, if we count both fair value movements each year AND the capital gains on resale, we are double counting capital gains. To avoid this, fair value movements are ignored when calculating underlying earnings (the most reliable measure of actual profitability).

Here's what it says in the Summerset accounts:

Underlying profit differs from NZ IF RS net profit after tax. The directors have provided an underlying profit measure to assist readers in determining the realised and non-realised components of fair value movement of investment property and tax expense in the Group’s income statement. The measure is used internally in conjunction with other measures to monitor performance and make investment decisions. Underlying profit is an industry-wide measure which the Group uses consistently across reporting periods.

I hope that makes sense now. Again, happy to be proven wrong. However, any attempt to do so must clearly explain why fair value movements are stripped out when calculating underlying earnings. This is the crux of the matter, IMHO.

Cheers!

NG, do you agree with xirr when he says: realised gains represent the actual profit realised from selling a unit above book value during the period. Book value being the previously revalued value at the end of the previous accounting period.

[Beagle]

Underlying earnings will by my analysis decrease this year, that's all that is relevant at this stage. But we can expect an all new emphasis on their record build rate in 2014 and whatever other positive spin to generate positive graphs they can produce such as a possible increase in IFRS earnings.

[Snow Leopard]

1/. Never get emotionally involved, neither love nor hate, with a stock.
2/. Take care and time when reading the company accounts and ensure that you understand the derivation of the numbers.
3/. The price has been going down [for at least] 5 months now, is going down today and the future is not certain.

Best Wishes
Paper Tiger

PS If you are on Orchard Road later today and you see a Tiger - it may be me.

[Snow Leopard]

I don't know to be honest. As I said, my terminology is a bit loose. Also, be to frank, I don't really care. I'm just interested in debating the adjustment for fair value movements when calculating underlying earnings and the implication of that wrt double counting of capital gains.

1/. Loose terminology costs confusion.
2/. Fair value movements are completely excluded when calculating Underlying Earnings.
3/. There is no double counting.

Best Wishes
Paper Tiger