SUM - Summerset Group

[trader_jackson]

The only advantage of having care centres for the likes of SUM is that it offers the attraction of the continuum of care model. By and large care centres are loss making, or at best break even ventures, especially with the recent pay equity settlement, which contrary to popular belief on this forum is only adding to sector woes for the majority of players. PS-A recent survey on the pay equity settlement, asking the question, Does funding cover the extra wages? Thirty providers responded, 10% said yes(One with the proviso of 100% occupancy) 90% said NO.

Interesting you say this... Arvida, who has a large care operation, must have been part of the 10% that said yes... as was Oceania who I believe repeated a similar thing in their prospectus. As you also know, Arvida and Oceania account for thousands of care beds.

It is not so much a popular belief, but rather a fact: Page 9 of the recently released Arvida annual report:
"The recently announced settlement of equal pay negotiations for caregivers was welcomed. This is a tangible recognition of the important contribution caregivers make to the wellbeing of residents. We expect the increase in pay will improve recruitment and retention of caregivers as well as enhance continuity of care. This settlement agreement is expected to be ratified in June, with an effective commencement date of 1 July 2017. Our expectation is that the increased wage cost will be offset by an increase in funding from government and private sources."

Benefits of retention (which itself has a cost attached - ie the cost of finding new people, training etc) aside, I suppose, it depends on how the beds are funded, if they are like Oceania and Arvida, and increasing moving towards an ORA being placed over the bed, then its no wonder shareholders in those companies are likely not fazed by rising wages (also interesting how they said government first - as if they will provide most of the required 'top up').

As you'll also see in Arvida's annual report, although I admit it is a bit hard to tell which elements of income and expenses are care, and which elements aren't, Arvida's care offering side of the business, which makes up 74% of the portfolio (page 16, annual report) seems to be doing pretty ok (not as good as the property development side ['turbo charged side'] of the business of course, but still quite ok - ie likely profitable).

Its no wonder why Arvida's share price is near all time highs!

It would be great if you could provide a source document of some kind for the recent survey you have mentioned

Sorry for turning this into an Arvida thread, just thought I'd try put some facts out there, and here's another one: having a care centre is not widely regarded as a risk, rather the complete opposite due to stability of government funding, among other reasons (well at least forsyth barr say this)

[couta1]

The big players will be okay tj but remember there are hundreds of smaller fish providing high quality care to thousands of elderly residents.These are the ones that make up the 90% that said no, many of whom will be lucky to survive. I could fill several pages trying to explain all the details of the behind the scenes workings of the funding model and the ageing in place model, but I'd have to do it all again next week as more posters ask the same questions. I think the conclusion sentence of the above survey SUM's it up nicely for me "Government claim of fully funding the settlement is propaganda"

[trader_jackson]

The big players will be okay tj but remember there are hundreds of smaller fish providing high quality care to thousands of elderly residents.These are the ones that make up the 90% that said no, many of whom will be lucky to survive. I could fill several pages trying to explain all the details of the behind the scenes workings of the funding model and the ageing in place model, but I'd have to do it all again next week as more posters ask the same questions. I think the conclusion sentence of the above survey SUM's it up nicely for me "Government claim of fully funding the settlement is propaganda"

Yes, understand is is likely complicated behind the scenes... anything related to the government is!
And yes, that claim that the government fully funding the settlement is propaganda... Arvida has reiterated this by mentioned "... and private sources"

I thought there was some not for profit village (who you'd think would be hit hardest) saying this wage rise was great and would only help them?

(I do find this whole bringing up the wages thing funny because we have definitely discussed this already, a month or so ago, I am sure of it!... at least now Arvida's annual report has been released and provides a bit more insight)
I think someone shared a link on this very form, but I could be wrong.

Hmm... got me thinking.... Arvida could have a busy few months/years cherry picking quality EPS accretive villages, and bring their expertise, scale, models, and [potentially] brownfield developments!

[Ggcc]

Just spoke to a friend who works as a nurse for Ryman. The nurses find it fair that caregivers get paid more, but they find it unfair about how close their wages are to a nurses. Some caregivers will over time receive $27 per hour....... this is very very close to wages nurses receive approximately $30 per hour..... we will see what happens in the future. She did mention that caregivers were paid more than the market average prior to the announcement.

[couta1]

The thing is tj is the impact of the pay equity settlement has not yet started, and must be combined with the ageing in place policy to fully understand the forthcoming impact on the smaller fish and the not for profits. A stricter assessment criteria being applied in some regions combined with extra money needed to pay for increasing the wages for Nurses/Activities staff/Cleaners/ Cooks to maintain relative parity with caregivers means a lower occupancy level, yet an increased wage bill. Looks like a perfect storm forming for many providers. PS-As an example, a friend of mine who owns and manages a rest home with a capacity of around 55, currently running at around 35 residents, said he would be gone if he had any remaining mortgage on his facility once the wage increase kicks in.

[trader_jackson]

The thing is tj is the impact of the pay equity settlement has not yet started, and must be combined with the ageing in place policy to fully understand the forthcoming impact on the smaller fish and the not for profits. A stricter assessment criteria being applied in some regions combined with extra money needed to pay for increasing the wages for Nurses/Activities staff/Cleaners/ Cooks to maintain relative parity with caregivers means a lower occupancy level, yet an increased wage bill. Looks like a perfect storm forming for many providers. PS-As an example, a friend of mine who owns and manages a rest home with a capacity of around 55, currently running at around 35 residents, said he would be gone if he had any remaining mortgage on his facility once the wage increase kicks in.

Hmm this rest home does sound very concerning... I am surprised, given it is not much above half full, even without a wage rise, it is still operating. I wish your friend all the best and hope he is able to get through this.

Rest homes with appropriate scale, models, management and occupancy will survive this, and potentially even come out the other end better off. The impacts of high staff turnover (and cost associated with this) will, unfortunately, not be immediately realizable, but over the long term, will benefit those who can work with it, and through it, such as (in my view) Arvida and Oceania

[Joshuatree]

Is there also an additional risk factor in that the care centre part of the business is more exposed to future govt policy/funding decisions?

Yep this is what happened in Aus with Estia EHE as pointed out by Bull and experienced by me . S/P crashed.

[Oliver Mander]

Thanks for all the comments...I guess I started out thinking that the care part equated to less risk, partly because of systemic underlying growth and partly due to part-govt funding.

From memory, RYM and ARV are more heavily weighted towards care (can't remember the figures tho).

Yet sector share prices have gone nowhere - regardless of weighting to property, and in spite of property increases - for 2 years.

I saw a commentor reflect on the GFC and downward impact on PE's of the companies...as a reflection of their property exposure. That comment made a lot of sense - I guess this is the potential counter-argument.

[BlackPeter]

... and follow the red dotted line ....

Attachment 8900

Obviously - the trend is your friend until the bend at the end, but so far it looks like it is bouncing nicely at the lower boundary. Looks like an unbroken uptrend to me.

[winner69]

... and follow the red dotted line ....

Attachment 8900

Obviously - the trend is your friend until the bend at the end, but so far it looks like it is bouncing nicely at the lower boundary. Looks like an unbroken uptrend to me.

Good trend eh

Be 6 bucks one day (soon) eh