SUM - Summerset Group

[Bjauck]

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Finally as I am sure you recall but its well worth highlighting for newer investors, the last time we did have a significant decline in housing prices towards the latter part of the GFC RYM's share price got absolutely smashed, (despite underlying profit continuing to grow each year), evidence that fundamentals are almost useless in terms of being a SP driver if housing sentiment is extremely bearish....

Agreed. Sentiment toward housing and the stock exchange in general definitely affects the SP.

[Lewylewylewy]

Agree with all of the above, but I think it's naive to say that house price doesn't effect retirement homes.

[winner69]

Quote Roger - House prices have already declined in both November and December 2016 according to REINZ data

Actually November was an up month while December was a down month

Interesting in 2016 there were 6 down months and 6 up months but during that time the national median house price rose from $465,000 to $516,000. The up months were 'stronger' than the 'weaker' down months. Source: https://www.reinz.co.nz/Media/Defaul...ber%202016.pdf

Some would say that there is some randomness in the monthly numbers - underlying trend remains positive ....and I reckon will remain positive in 2017

[Beagle]

A question.
Has any poster, who has organised a parent,relation or friend, going into a retirement village ,or care, had to take the price of selling that person's house into the equation.?

Yes I have first hand experience of this. My parents wanted to buy a north facing independent living townhouse at the RYM facility in Orewa but were short by an estimated $40,000 from the estimated net sale proceeds of their modest home in Red Beach Whangaparaoa. In effect they had to compromise their choice because they simply could not afford what they really wanted. Likewise I would imagine with some of the premium waterfront units at SUM's Hobsonville point development going for ~ $1.2m many would have had to chose a lesser unit or another village.

[Vaygor1]

Good post but there's these factors to consider.
1. House prices have already declined in both November and December 2016 according to REINZ data..... A major change in immigration policy could easily of itself have a dramatic effect on the demand side of the equation.

2. Its clear that interest rates have hit the bottom and we are now heading up...

3. There is major new housing supply coming to the market in Auckland over the next two years...

4. All the above will at the very least probably have a material effect on the premium pricing the retirement sector developers have been able to achieve in a booming market as the margin between what people can sell their home for and what they pay for a new unit contracts. .... Less ability to sell at premium pricing obviously crimps their development margin and we know that's where these retirement companies really make their money.

I maintain the tailwind of rising house prices has been a material factor in the past but may not be in the future....

Finally [there is] evidence that fundamentals are almost useless in terms of being a SP driver if housing sentiment is extremely bearish.
...

All good points Roger and all factors that will have some level of impact on the share price.

Only 1 in 9 of the over-75 NZ population moves into a retirement village (according to the Oct 2014 article below), and their popularity is increasing.

I think this increasing-popularity factor along with NZ's ageing demographics would likely counteract the factors you highlight (should they occur ie. a substantial change in Immigration policy and interest rates).

In my view, if there is any single factor that should have suppressed development margins and resales figures it is the tsunami of new retirement developments in recent years, but the record profits have kept rolling in.

Excerpt from The Listener (October 2014). Source http://www.noted.co.nz/currently/soc.../the-new-wave/

The retirement village population is still only a small proportion of the over-75 age group, at about 10.5% nationwide – although in the Bay of Plenty the so-called “penetration rate” is more than 16%. But a combination of gradually rising penetration rates and New Zealand’s ageing demographic profile has pushed the total number of retirement village residents to around 30,000 – similar to the population of Timaru.

And there’s much more to come, with the number of people aged over 75 projected to double in the next two decades to more than 500,000. Based on conservative estimates, valuation company Jones Lang LaSalle says the number of over-75s living in retirement villages will reach at least 64,000 by 2036, with 170 new villages needing to be built. But if the sector continues to increase in popularity – that is, if penetration rates rise to around 13% of over-75s – the number choosing to live in retirement villages will hit 83,000 by the mid-2030s.


Sentiment will always be a driver for all shares on all stock exchanges, with the capability to drive any Share Price wildly up and down. Your, Bjauck's, and LewyLewyLewy's viewpoint on sentiment regarding this matter re NZ retirement Sector are certainly valid. And it is this perceived worth (or lack of worth) that causes the highs and lows that patient and well-informed investors/traders capitalise on.

Disc: Hold RYM and SUM (Substantially more RYM than SUM). Not overly interested in the Share Price for these two companies any more unless the Share price presents a bargain buy. Only really interested in dividends and have no intention to sell out of this sector in the foreseeable future.

[Beagle]

Thanks for the info on penetration rates Vaygor1, very interesting.

I think you're absolutely spot on that penetration rates will rise over time. From a financial viewpoint they're a poor investment but the lifestyle and support residents enjoy from a well run facility makes them a highly attractive option in my view and one who's popularity will in all likelihood grow over time.

My Mum has been at this one for many years now and finds the lifestyle and facilities extremely good and I see she is not alone in her opinion. https://www.agedadvisor.nz/search/re...y-Whangaparaoa

You've obviously worked yourself into a very comfortable position and congrats again on that and I'm sure you're dividends as a rate of return on your average cost price represent a rewarding income but to those looking at SUM, RYM and MET now the stocks don't make a compelling dividend yield story and any dividends I've received have been an extremely modest yield and unimputed to boot.

Short story for me, long term yes, risks this year appear to outweigh the possibility of a meaningful rerating...but as always predicting the future is fraught with risk !

[winner69]

Agree with all of the above, but I think it's naive to say that house price doesn't effect retirement homes.

I won't argue with this -

"The level of house price appreciation is a key determinant of the level of retirement village profitability," Macquarie said in a note.

That's why some of us talk about it

[percy]

I won't argue with this -

"The level of house price appreciation is a key determinant of the level of retirement village profitability," Macquarie said in a note.

That's why some of us talk about it

And that's one of the reasons I doubt it.
Better to listen to RYM's CEO Simon Challis,who has "skin in the game."

[Lewylewylewy]

Property value makes up part of the NTA, which effects the share price. IMO it's important for the business and the SP from a markets perspective.

[stevevai1983]

Property value makes up part of the NTA, which effects the share price. IMO it's important for the business and the SP from a markets perspective.

it's important. but it's not that important unless we have a major big crash in household price and don't recover for many years. Their assumptions in unrealised profit is very conservative. The most important measurement is occupancy rate. If they can maintain 90%+ then they will be fine and survive in the bad years. Of course SP will drop and create very good entry point. In the end, it's a very good business model.