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  1. #21
    CEO Butch Analytics Ltd winner69's Avatar
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    Shoeshine in the NBR gave his thoughts about this the other day ..... very interesting

    You can get the independent advisors report when AMP took over Summerset in 2006 off the Companies Office website .... and even though a year or so old Shoeshine says probably hasn't changed much ..... and says that report is a precursor as to what the new IPO might look like.

    One quote from that report was 'a potential list price (in an IPO) for Summerset shares would, in our opinion, inevitably trade at a discount to the PE multiplies currently being achieved by Ryman and Metlifecare' .... and so an IPO wasn't considered a good idea then etc

    So what is AMPs $125M now worth?
    Last edited by winner69; 06-08-2007 at 08:31 PM.

  2. #22
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    From today's herald:

    "On the local scene, AMP Capital pulled its proposed float of rest home operator Summerset in response to the market turmoil. In what would have been only the second IPO of the year, the float was expected to raise around $350 million."
    Disclaimer: Do not take my posts seriously. They are only opinions.

    AMR has sold all shares and is pursuing property.

  3. #23
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    AMP pulls Summerset float
    AMP Capital Investors has cancelled plans to float retirement village business Summerset on the sharemarket, blaming turbulence in global financial markets.

    AMP had planned to sell 80 per cent of Summerset and hoped to raise up to $304 million. However, market testing of an indicative price range of $1.70 to $1.90 a share

    failed to win enough support from share brokers.

    AMP managing director Murray Gribben said this morning the float had been deferred after the NZX50 index fell 1.5 per cent yesterday and the Australian S&P200 dropped 3 per cent, mirroring recent international falls.

    "Summerset is a quality business which AMP Capital Investors is very pleased to own," Mr Gribben said. "We believe that its inherent value exceeds what the market would be prepared to pay in the current volatile conditions. We are not willing to accept a lower price for the asset and are under no pressure to sell."

    Existing shareholders would retain ownership and fund Summerset's development plans. Mr Gribben said AMP could reconsider floating Summerset in the future.

    Yesterday the lead brokers of Summerset's float, First NZ Capital and ABN Amro Rothschild, delayed the book build by 24 hours. They said they were reassessing the pricing of the shares in light of "recent uncertainties in global financial markets." The delay would also allow more time to assess Summerset's ability to elect into the Government's new portfolio investment entities (PIE) tax regime, which comes into effect on October 1.

    AMP bought Summerset for about $125 million in November 2005.

    The promoters of a rival initial public offering by ING and Symphony Investments, of two Auckland retirement villages, are due to start talks with brokers on indicative interest over the next few days. Being managed by Forsyth Barr, the ING and Symphony float is looking to raise about $100 million.
    \"The overweening conceit which the greater part of men have of their own abilities [and] their absurd presumption in their own good fortune.\" - <b>Adam Smith</b> - <i>The Wealth of Nations</i>

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  4. #24
    Reincarnated Panthera Snow Leopard's Avatar
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    Smile Seems like only yesterday

    Well it would appear to be back on again and with the current owners keeping a majority stake (insert your take on that here ).

    I am going a wandering for a while so it can happen without me, but you may (or may not) want to [invest/ignore/make some comment] on this.

    regards
    Paper Tiger
    "I was born under a wandering star"
    om mani peme hum

  5. #25
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    Quote Originally Posted by Paper Tiger View Post
    Well it would appear to be back on again and with the current owners keeping a majority stake (insert your take on that here ).

    I am going a wandering for a while so it can happen without me, but you may (or may not) want to [invest/ignore/make some comment] on this.
    is any once getting in on this. NO public pool from the looks of things and haven't seen it come through from ASB (haven't been looking though).

    http://www.sharechat.co.nz/article/d...t-at-1-40.html
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  6. #26
    percy
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    I have asked my broker for a prospectus.This sector has been very kind to me.I hold RYM in NZ and ILF in Aussie.I did hold AVE in Aussie,and did well with MET [NZ]a good while ago. Reirement villages and medical supply businesses will keep doing well with the ageing population.l

  7. #27
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    RYM are the rolls royce of this sector, Somerset's model is somewhat inferior. (I can't give you full details, but I was at an institutional presentation for the first attempted float a few years ago, and interest was only luke warm then, and consequently deferred) With the price being set at the lower end of the spectrum this time around, don't expect to stag it, but they will probably get this away OK

    I'd be really interested to hear SAUCE's opinion on this one, as he knows the sector well by all accounts
    Last edited by Xerof; 07-10-2011 at 12:32 PM.

  8. #28
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    my concern is that a PE fund is retaining a 50% stake. PE funds aren't long term holders so that is a huge overhang on the market.

    they are probably maintaining 50% to ensure continuity of ownership required to carry forward tax losses - losses are of large value.
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  9. #29
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    Any consensus on this float now ? Anyone interested, for some reason it doesn't inspire me to buy into it.

  10. #30
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    Quote Originally Posted by CJ View Post
    my concern is that a PE fund is retaining a 50% stake. PE funds aren't long term holders so that is a huge overhang on the market.

    they are probably maintaining 50% to ensure continuity of ownership required to carry forward tax losses - losses are of large value.
    This was one of the reasons I decided not to take up any.I will hold all my Ryman.

  11. #31
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    Quote Originally Posted by percy View Post
    This was one of the reasons I decided not to take up any.I will hold all my Ryman.
    Not necessarily. Freightways is a good case in point of PE progressively selling out and investors have done well. Agree that's the exception though rather than the rule!

    F

  12. #32
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    Quote Originally Posted by Balance View Post
    Not necessarily. Freightways is a good case in point of PE progressively selling out and investors have done well. Agree that's the exception though rather than the rule!

    F
    Always exceptions.
    The major reasons for not taking up Summerset,were;I believe RYM's model of doing ever thing in house is best.I believe RYM's reputation is the best.I believe RYM having more than half their units under 5 years old means there are huge earnings to come from resales.I have met CEO and CFO [and the directors at last AGM] and think a lot of them,and the way they run the business for the residents.They have grown the business without coming back to shareholders.Lastly I
    found looking at Summerset made me realise RYM are superior.
    thought RYM shareholders would be more stable in the next year or two.I suspose

  13. #33
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    I thought the Summerset prospectus was one of the best I have read for quite some time. Hats off to the investment bankers in my opinion. All the relevant information was there, it was clear and easy to understand, and I thought they did a very good job of explaining the revenue model, which is not all that straight forward, the potential competitive advantages (I say potential because the company is not delivering anything close to excess returns at this point in time so technically is not operating within a true quantifiable competitive advantage) and the right amount of detail and historical financial data is supplied to answer most questions. I thought the description of the business and its cashflows was actually much better than that I have seen provided my Ryman.

    On the other hand the quality of the investment opportunity itself is more questionable....

    Summerset are (quite understandably) attempting to recreate the Ryman model in almost every aspect of their business, but there are a some key differences, both quantitative and qualitative, between the two businesses.

    Qualitatively, with the focus on "internalisation of development and project management" you could be forgiven for assuming they are already vertically integrating their business in the manner that RYM are. But this is not the case. As Percy has already pointed out, RYM do every step of the construction process in house including the construction. Summerset are trying to "internalise" the design and project management - and it appears from the prospecus that even these steps will not be fully integrated for another two years. The actual construction is still contracted out.

    However they are definitely going down the right path trying to emulate Rymans 'cookie cutter' system, with the full continuum of care, and and trying to bring as much of the process in house as possible. My understanding is that while it sounds easy, and Ryman certainly make it look easy, the reality is that doing this kind of development in house is actually very very difficult.

    Quantitatively, you can immediately see the differences between the two businesses showing up in the development margins which are currently about 7% for MET (forecasted to be 12% this year) vs RYMs consistent development margins of around 20 - 25%.

    Without analysing average unit prices of each business, it's seems pretty obvious that this massive difference will almost certainly be due in part to the truly integrated in house construction model RYM employ, the lower relative financing costs RYM have due to much lower gearing, the larger scale of RYMs villages, and finally RYMs superior bargaining power with suppliers.

    Most importantly, it is critical to realise that from an investor’s perspective Summerset is simply not yet profitable. It's easy to get carried away from what’s really important to investors by focusing on the re-valuations of investment property which ends up on the income statement. This is the wrong way to look at these retirement village businesses. It is not cash income and does not reflect current available cashflow that investors can take out of the business.

    It is also wrong to look at the operating cashflow, which simply reflects the cash taken in from the sale of ORAs, most of which cash is refundable. Therefore, while the operating cashflow is useful (free use of the funds) it does not reflect shareholders profit.

    The only figure that is really meaningful to investors in the float is the "Underlying Profit". This is basically the "owner earnings" or the profit portion of all their cash flows that could, in theory, be paid out to shareholders.

    Looking at summerset on this basis it they have made an economic loss every year. Of course it appears that they are on the brink of a true economic profit FY12 if the pro-forma results are to believed. And it should grow from here as their villages mature and they increase the build rate, and scale of new villages. But there is simply no comparison to the extreme profitability achieved by RYM which can ultimately be purchased at a much cheaper price currently at 2.70 - unless you believe that Summersets cashflows are going to surge dramatically in the next few years, it’s a no-brainer in my opinion.

    THe reality is that there is plenty of room for a few quality players to achieve sufficient scale, without destroying anyone’s profitability, for the foreseeable future. Summerset appear to be on the right path - in my very laymans opinion they will need to focus on further integrating the construction process, and building larger and better located villages to achieve this. They might get there in the end, but right now, I believe the business is not worth the asking price based on the current level of true profitability to shareholders, and there is simply a much better and instantly more profitable option in RYMAN to bother with the risks involved investing in the Summerset IPO. The only argument I can see for buying the profitless imitator rather than the incumbent, is that it is coming off a lower base, but, I don't see a ceiling to growth for RYM yet so I believe its an invalid argument.

    I also think Summerset is a superior business to METlifecare and a welcome addition to the NZX.

    My thoughts for what its worth.

    With regards,

    Sauce
    Last edited by Sauce; 29-10-2011 at 07:20 PM.

  14. #34
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    I also note the following from the Summerset prospectus:

    Firstly, there appears to be no mention of Villa or Apartment Occupancy rates - this would have been fascinating info - although they mention historical care bed occupancy of about 95% in the notes on pro-forma forecast assumptions. For all practical purposes RYM have 100% occupancy across all villages (something retarded like like 0.02pc vacancy at the full year). I think a comparison of vacancy rates would be quite insightful - it's a shame they didn't include this information.

    Secondly, it's not totally clear but possibly an important insight comes from the following statement "pre-sales typically commence approximately six months prior to the first villa being completed, with typically over 25% of the units pre-sold by the time the Stage 1 units are ready to be occupied"

    RYMs villages are generally 100% sold off the plans. Although the above statement is not totally clear, I suspect Summerset do not enjoy this level of demand, and it's most likely due to poorer location choice and not enjoying the same reputation that persists for RYM villages.

    I have heard from within the industry that Summerset mostly does not enjoy prime locations. Anecdotally, I would have thought the Aotea location in Wellington is an average location indeed.

    A bit of an 'educated guess' on my part with these points but if I was serious about analysing Summerset as a potential investment these are thoughts I would start exploring.

    Cheers

    Sauce
    Last edited by Sauce; 29-10-2011 at 07:30 PM.

  15. #35
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    Quote Originally Posted by Sauce View Post
    Anecdotally, I would have thought the Aotea location in Wellington is an average location indeed.
    Although surely with about 90% more sunshine than the next major village - Ryman's Malvina Major.... great view - when the cloud clears....

  16. #36
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    Quote Originally Posted by percy View Post
    I believe RYM having more than half their units under 5 years old means there are huge earnings to come from resales
    I looked at Summerset. Appeared they value their units on a similar basis to RYM, so, given Pr/NTA, Summerset looks cheap by comparison. However, cashflow wise, RYM have this big "bank" of capital gains on the books that will flow through to cash and allow them to keep building new villages out of op cashflow, even if we get flat property prices for another 2-5 years. On balance, I would rather own RYM than Summerset or MET at this point. (Although I'm not a huge fan of either at current prices)

  17. #37
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    Thanks SAUCE for your insightful comments. I hope they are of benefit to ST readers who look to invest in this industry. Not my cup of tea, but you support my hunch that Rymans is the better horse in the race

    Cheers

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    Quote Originally Posted by Lizard View Post
    Although surely with about 90% more sunshine than the next major village - Ryman's Malvina Major.... great view - when the cloud clears....
    That's true Lizard. I never liked the look of the Malvina Major village. It looks a lot like a giant east-facing disaster just waiting to leak like a sieve.
    Last edited by Sauce; 29-10-2011 at 11:32 PM.

  19. #39
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    Quote Originally Posted by Xerof View Post
    Thanks SAUCE for your insightful comments. I hope they are of benefit to ST readers who look to invest in this industry. Not my cup of tea, but you support my hunch that Rymans is the better horse in the race

    Cheers
    Thanks Xerof. I think your intuition about RYM is spot on.

    Regards.

    Sauce

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    Quote Originally Posted by Lizard View Post
    I looked at Summerset. Appeared they value their units on a similar basis to RYM, so, given Pr/NTA, Summerset looks cheap by comparison. However, cashflow wise, RYM have this big "bank" of capital gains on the books that will flow through to cash and allow them to keep building new villages out of op cashflow, even if we get flat property prices for another 2-5 years. On balance, I would rather own RYM than Summerset or MET at this point. (Although I'm not a huge fan of either at current prices)
    RYMs embedded gains makes up only a small portion of future cashflows. Indeed, Summerset will also benefit from a similar maturity from deferred development margin (they sell off the plans cheaper than they sell the finished product as do RYM) and from more general past unit inflation also - they have been in business since 1994. In fact they claim to have 119m of embedded gains from both management fees and unit inflation. So their cashflows will mature and grow as well as RYMs.

    RYMs ability to build new villages from operating cashflow has more to do with the capital efficiency of the revenue model than the latent ("bank" of) capital gain. When each occupation license represents an interest free 5 - 7 year loan to the developer who can use that to build more units elsewhere, and the original occupant is paid out by the next incoming resident - that's the silver bullet.

    Pr/NTA is a not a rational way to value the business/shares in the retirement village industry.

    Regards,

    Sauce
    Last edited by Sauce; 29-10-2011 at 11:38 PM.

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