SUM - Summerset Group

[sb9]

I would avoid all property and retirement stocks at the moment. I believe the property market is cooling off and will go down. With today news on herald, couple thousand apartments will be available next couple years and Kiwibuild program.

Second that, better to stay away from these sectors in the short to medium term. However, if you're a long term holder you'll ride out fine.

[JeremyALD]

Second that, better to stay away from these sectors in the short to medium term. However, if you're a long term holder you'll ride out fine.

Personally I'm going to hold on RYM and SUM expecting they may drop some more, however in for the long haul.

I've topped up on Arv. It's got a good dividend yield and seems a very good buy near the rights issue price.

[jg8512]

I don't get the sell-off in retirement stocks. It seems to be due to 2 factors, IIUC. One, fears of a slowing or reduction in house prices; and two, fears of an increase in minimum wage / carer fees, etc. (New govt may also increase rate of house building (presumably state-sponsored/financed since the surging house market would already have encouraged plenty of people to consider building their own, rather than buying existing). But more house building ends up in slower rises, or reductions, in house prices - ie, back to point number one on house prices.)

re: the first point - house prices. IMO, the desire to live in retirement homes is driven fundamentally by retired people not able (or unwilling) to continue to live in their own home, and cashing up the equity in their existing home to do what is right for them when they reach that point in their life. Retirement village living is a slow-burning social change - with numerous benefits to residents - not an opportunity created by the recent high house prices. And with a still increasing ageing population (over 75s remain the fastest growing demographic, IIRC) , and not that much new retirement housing being built (outside the few listed majors), demand for retirement homes will continue to grow (and likely will exceed supply). So more residents to come, and the retirement home gets the DMF from each resident.

Put another way, yes house prices have risen sizeably in some significant markets - not all - and the demand for retirement housing is strong nationwide (arguably globally), independent of the state of the local housing market. Even if the rate of house prices rises slows (or goes negative, and prices fall), does that really affect: 1. demand from elderly citizens for assisted/easy/secure/more care living. 2. the ability of SUM etc to charge their DMF. I get that resale gains may be smaller in future - but that is not new news, IMHO, as House prices can't keep increasing at recent rates in perpetuity. Did analysts (and the market) ever factor in a long-term continuation of the high recent resale gains into DCFs? v. much doubt it!

Second, higher wages / carer fees (and maybe a smaller pool of migrants who can be tapped as potential care-workers). Labour is a significant cost, and likely to increase for every player in the industry. The competitive dynamics are unaffected. So the industry will need to charge more (to cover costs) and consumers/government will need to pay more. There's a no free lunch here.

While these factors may crimp near term profits a little, none of this changes the long-term investment thesis for SUM, RYM et al, does it?
recall too that Govt already has more than enough calls on its budget to fund healthcare for NZers, esp. the growing demands and number of elder NZers, and I can't see that it would want to add to its burden by discouraging the private provision of retirement healthcare. SO I don't think any govt would do anything precipitate to impact the retirement village operators.

[Beagle]

May I extend a very warm welcome to the forum mate. I agree 100% with the views you've so eloquently articulated.
The shares trading on a FY17 underlying PE of ~ 12-13 depending on one's forecast represent a real opportunity for long term forward thinking investors in my opinion.

[dobby41]

You are thinking of a rational market jg8512.
Not everything that happens is rational.

[winner69]

You are thinking of a rational market jg8512.
Not everything that happens is rational.

Maybe punters are thinking that if property valuations fell by say 10% that’s $160m hit to Summerset $1,6 billion property portfolio.

Would upset a few valuation ratios


key though is whether the margins on new builds (will be positive) offset any reduction in margins in resale’s if prices do collapse

[Beagle]

You are thinking of a rational market jg8512.
Not everything that happens is rational.

Correct but what does Warren Buffet say..."Be greedy when others are fearful"

[mondograss]

Maybe punters are thinking that if property valuations fell by say 10% that’s $160m hit to Summerset $1,6 billion property portfolio.

Would upset a few valuation ratios


key though is whether the margins on new builds (will be positive) offset any reduction in margins in resale’s if prices do collapse

But only temporarily, you'd be unlikely to see that effect last more than one or two years unless there's some more fundamental economic collapse. 15% was the average hit on house prices in the GFC, so 10% is probably at the upper end of what's possible due to the change in govt.

[winner69]

But only temporarily, you'd be unlikely to see that effect last more than one or two years unless there's some more fundamental economic collapse. 15% was the average hit on house prices in the GFC, so 10% is probably at the upper end of what's possible due to the change in govt.

Just shows punters worry about today and the future is no further out then next week

Politics and other things are just noise - fundamentals win out in the end.

[jg8512]

You are thinking of a rational market jg8512.
Not everything that happens is rational.

As long as my decisions are (mostly) rational Dobby, the market can do whatever it likes!.