SUM - Summerset Group

[Beagle]

First time poster - long time follower. Really appreciate the remarkable contribution many of you make and the improvement of knowledge for all that comes with such great discussion.

I think the majority of us here can agree that, long term SUM are a growth story that will continue to serve the increasing need for aged care.

Apologies if this has already been discussed, but what are our thoughts on the effect on the SP of a slight correction in the market (flat line growth for 2-3 years, then a period of average house price rises). One would think this risk is being factored in to an extent, but how many loose hands will we have if this levelling off of prices begins to occur?

I back SUM long term, my question is really around the practical effects on profits, growth and the SP in a downturn/flat line of property prices.

I appreciate the business model (to an extent) in the fact that SUM don’t ‘lose’ per se if prices are to drop (in terms of resale of units), they should still have a reasonable development margin / ability to buy more land to meet future demand, and they are purchasing and building units for long term hold which will inevitably catch the next cycle and meet the growing demand. But could some of the better minds here explain what a low/negative price growth environment will mean financially and how the market might react to this?

Appreciate no one has a crystal ball but would be interested to hear views / learn a bit more.

Welcome to the forum. You tend to find in that sort of environment that bare land sites for development have a high beta coefficient and fall much more than average house prices.
Given the lead time between acquiring development sites and completing them the argument I made a little while back which I stand by is that a moderate correction is actually good for SUM as it opens up access to potentially acquiring more development sites at very attractive prices. SUM recently expanded their debt facility to $600m and one of the stated reasons was to provide headroom in the event of a property downturn. I think the market has been concerned for some months about the softening prices in Auckland and that's already fully factored into the current price which is down circa 10% from its peak in Sept 2016. Company is growing it EPS strongly..keeps getting cheaper every year due to strong EPS growth. Its currently at its lowest ever forward PE since listing.
Average forward PE since listing over five years ago, (thanks to Winner 69 for previous analysis is 27), current forward PE is 16.5. Concerns over Auckland real estate prices and construction costs are overdone in my view in the context of Auckland being only 6 sites inclusive of proposed villages of the companies total of 27 including proposed villages.

[Baa_Baa]

snip ..
I back SUM long term, my question is really around the practical effects on profits, growth and the SP in a downturn/flat line of property prices.

I appreciate the business model (to an extent) in the fact that SUM don’t ‘lose’ per se if prices are to drop (in terms of resale of units), they should still have a reasonable development margin / ability to buy more land to meet future demand, and they are purchasing and building units for long term hold which will inevitably catch the next cycle and meet the growing demand. But could some of the better minds here explain what a low/negative price growth environment will mean financially and how the market might react to this?

Appreciate no one has a crystal ball but would be interested to hear views / learn a bit more.

Hey, welcome dela47, post more, share your thoughts. You've attracted some comments with a well considered posting, which you will no doubt take into account.

My view is that while I agree all the upside commentary of the holders in the retirement sector, albeit they quibble about which of the company's is the best investment, frankly you could throw a dart at the dartboard of choices, as it appears they will all do very well in time on the tailwind of an ageing population. Probably one should just buy the whole sector and reflect on it later?

I sense an underlying question though, whether the sector is immune to an overall market downturn. I do think yes they are, but temper that view with a capital sensitive perspective. If one is not capital sensitive they would buy the sector now, at any price, and hold forever.

Some people will buy shares in companies with a view that it is irrelevant what the market prices it at, because the entity makes sustainable profits and those will be distributed to the shareholders. Even if it hurts seeing capital value fluctuate, sometimes even to nosebleed levels.

Others will participate when it suits them to scalp the dividends, and even although they believe in the sector, they're monitoring their upside and are happy to trade in and out on the expectation, but not promise, of a payout on capital invested.

Others however don't give a toss about the company's except that their share price is growing, they will usually be astute and well informed, buy low and sell high, whether or not dividends are paid out, which if they are while holding it is a bonus if it happens but not a prerequisite to buying in the first place.

See, it all depends on ones investment and/or trading perspective and we're all different. Finding ones place in that spectrum is surprisingly challenging, but when you do, it's just a rinse and repeat cycle of applying your investment or trading strategy.

[janner]

Hey, welcome dela47, post more, share your thoughts.

I sense an underlying question though, whether the sector is immune to an overall market downturn. I do think yes they are, but temper that view with a capital sensitive perspective. If one is not capital sensitive they would buy the sector now, at any price, and hold forever.

Some people will buy shares in companies with a view that it is irrelevant what the market prices it at, because the entity makes sustainable profits and those will be distributed to the shareholders. Even if it hurts seeing capital value fluctuate, sometimes even to nosebleed levels.

Others will participate when it suits them to scalp the dividends, and even although they believe in the sector, they're monitoring their upside and are happy to trade in and out on the expectation, but not promise, of a payout on capital invested.

Others however don't give a toss about the company's except that their share price is growing, they will usually be astute and well informed, buy low and sell high, whether or not dividends are paid out, which if they are while holding it is a bonus if it happens but not a prerequisite to buying in the first place.

See, it all depends on ones investment and/or trading perspective and we're all different. Finding ones place in that spectrum is surprisingly challenging, but when you do, it's just a rinse and repeat cycle of applying your investment or trading strategy.

You have said it all Baa_Baa. There is no certainty .. You do the research... You decide.. You send the Buy/Sells..

In reading this very good site... It is still up to your interpretation.

Welcome dela47. Live long and prosper.. ( and of course, share )... :-)))

[trader_jackson]

Welcome dela47

All the things said above are very informative so I won't bother reiterating it.

sharetrader is a great place to discover info, and see opinions... however I would use it, along with multiple other sources and research to form your own view, and not rely solely on what one or some may be saying (it would also be nice of course if you were to share your view!)

At the end of the day, there is really only one thing that is certain: shares will either go up, stay the same... or go down.

[Gunny]

Just received funds from sale of parents summerset apartment. Purchased 2005 for 235K, received 177K. Informed was resold for 450K last month.

Gunny

[Beagle]

Just received funds from sale of parents summerset apartment. Purchased 2005 for 235K, received 177K. Informed was resold for 450K last month.

Gunny

I trust your parents really enjoyed twelve wonderful years of living in a supportive caring Summerset community. If you feel a little disenfranchised by the size of your inheritance I have a suggestion for you. Invest the $177K in SUM shares, (currently trading at their lowest PE ever since listing). Even if they only grow their earnings at the same long term rate as RYM is at 15% compound per annum your $177,000 will be worth $947,000 in twelve years time plus dividends along the way, (assuming no expansion in the current record low PE). It has been said that compound growth is the eighth wonder of the world and now that you have the cash in hand you can take advantage by using this system to your advantage

My Mum is six years into living in a supportive retirement village in the Hibiscus coast just north of Auckland. The experience has been really good for her because she has a supportive caring network around her rather than being a lonely old widow on her own in suburbia. We knew when she moved in that Dad would die soon afterwards as he had dementia. He died about 4 years ago and the support from within the community was wonderful and really eased the life change for her. Not for one minute do I begrudge her the happiest existence possible notwithstanding its not in my best financial interests, its her money !

[winner69]

Just received funds from sale of parents summerset apartment. Purchased 2005 for 235K, received 177K. Informed was resold for 450K last month.

Gunny

Thanks for sharing gunny. No doubt your folks were well looked after and enjoyed their time in the village.

Numbers you provided just show why the likes of Summerset are great long term investments.

Like McDonalds Corporation the money is in the buildings - not the hamburgers

[kiwico]

Like McDonalds Corporation the money is in the buildings - not the hamburgers

As anyone who's watched The Founder movie will know. It's a very interesting take on the rise of Ray Kroc and his move to franchise MacDonald's - he only started making money when he moved into the real estate business instead of trying to survive on a share of the costs of selling burgers. Highly recommended.

[Beagle]

If I can get Julian Cook to understand the pricing power of "fixed priced burgers for life" they'll make something rather than nothing from the operation of their villages and boost development margins too !

[Gunny]

Roger,Very happy with what they did and have no complaints on the gain to summerset. I am sure it put 5 years or more on their life's by moving in to Aotea, they had a great time. the 177K to 450K just interesting data is all. We were told they currently have a waiting list of about 50 potential buyers.Have summerset shares already. Been in and out for the last 5 years or so. mum is now in rest home care at enliven after dads passing at 91, unfortunately we had to relocate her to get the level of care now required. She is doing well, staff there great as well. Keeping track of her assets now to manage when subsidies kick in etc.Gunny