RYM - Ryman Healthcare

[Harvey Specter]

Agree - my point was they maybe selling at a higher price as they are selling higher priced apartments. The beauty of their model, which you partly allude to is that the resident full funds the property once developed, yet it is the village owner that gets the capital gain. Add to this a perpetual tax loss position (maybe different now that there is no building depreciation), and you have a pretty good model - note their dividends are always unimputed.

[Bjauck]

Surely this is just a function of where the new villages are. They adjust the entry price (and I assume quality/spec/size) to match the surrounding area such that the entry price is lower than the average house price. This is so the oldies can sell their current (hopefully) mortgage free house and not need to raise any more cash..

I think I read that they offer the units at a median price 100k less than the median price in the surrounding catchment zone. The median price in an area can be substantially lower than the average price. You are getting something worth less than the equivalent freehold unit on the outside anyway.

With the property market perhaps near its peak there is a perhaps a 50/50 chance that property prices may be at the same sort of prices in five years time. Those contemplating entering occupational right agreements may become more concerned about clauses which involve being responsible for capital losses on resale when "moving out". Correct me if I am wrong, but the agreements may put the onus for the losses on the resident but allows the company to keep the gains.

Disc. Hold RYM MET and SUM

[stoploss]

[QUOTE=robbo24;443967]The price began to drop on 21 Nov 2013 NZ time - around the same time discussions from the Fed about quantitative easing may begin earlier than first thought.

Most stock markets took a drop, right?

From what I read, if employment rates go up then it is an indication that the US economy is improving which means quantitative easing can commence and interest rates will go up.

Which means stocks are less of a viable investment...

Are you sure it's just MorningDump?[/QUOTE

Think you mean QE might start a taper in your first line ?
And if unemployment goes down / employment up , QE can cease ......😊

[Harvey Specter]

Bjauck- The repayment to the resident is fixed so they do not suffer capital loses (atleast not with RYM, sum,met). Some operators charge the refurb cost to the exiting resident (RYM definitely doesn't though they may reserve the right if the place is trashed)

Edit: by fixed, I mean it is a set % per year with a cap. Each operator is different but for example, one uses 5% with a maximum of 25%. Average residency is about 7 years I think.

[Bjauck]

The real cost is removing the old person smell - it takes hours of labour and thousands of dollars of chemical solvents.

The de-odourisation process also increases the value because it is a factor that the families take into account when deciding where to send their loved one (because the family has to visit).

There was a study done with a group of various ages to see what smell was more offensive. They had dirty t shirts worn by people of varying ages and asked people which ones smelt most offensive. 40-55 yo men and teenagers had the shirts which were considered to have the most offensive smells. I have no link but you try an internet search to find the tests.

[Bjauck]

Bjauck- The repayment to the resident is fixed so they do not suffer capital loses (atleast not with RYM, sum,met). Some operators charge the refurb cost to the exiting resident (RYM definitely doesn't though they may reserve the right if the place is trashed)

Edit: by fixed, I mean it is a set % per year with a cap. Each operator is different but for example, one uses 5% with a maximum of 25%. Average residency is about 7 years I think.

Ok thanks.

Eldernet had an example of a licence to occupy In addition to the amortisation there was some liability on the resident for any drop in the actual resale price achieved for the unit. For example unit bought for $300k...resold for $280k. The "owner" would be liable for the amortisation 25% of 300k=75k plus the loss on resale 300k-280k=20k.

I must get copies of the licence agreements to check the clauses.

[Cricketfan]

There was a study done with a group of various ages to see what smell was more offensive. They had dirty t shirts worn by people of varying ages and asked people which ones smelt most offensive. 40-55 yo men and teenagers had the shirts which were considered to have the most offensive smells. I have no link but you try an internet search to find the tests.

Here's one article: http://www.scientificamerican.com/ar...d-person-smell

[Snow Leopard]

Don't focus exclusively on new village sales. The real money is in the villages which were built around 4-6 years ago, and are now experiencing churn of their residents as they shuffle off their mortal coil, or move from independent care to managed care within the same village.

Unit sold for $310,000 in 2007 is sold back to Ryman for $250. Ryman spend as little as $5k on the unit to refurbish (because its only 4-6 years old and just needs a coat of paint, carpet and curtain steam-clean), and is then sold for $360,000.

Figures are hypothetical, but you get the idea. This is the real reason why RYM and SUM are winners, and if MET gets its act together, will also be a winner.

Hypothetical but actually pretty close to my guestimates (based on FY2013), which I have dug up from the dusty back shelves of my hard drive:

The average re-sale of occupation rights : $358K
The average previous sale or resale of same occupation rights: $309K
Average return of monies associated with previous sale: (above less fees) $256K.

Basically each existing unit is currently worth about $10K per year in net inflow of occupation loans: total $37M

New sales are actually very important as they represent $358K per new unit of cash and represent the bulk of net cash inflow: total $179M.

And of course it is the influx of new 'borrowed' money that creates the virtuous circle:
Build new units (and buy other plant & property) with borrowed money;
Sell new units and get more borrowed money;
repeat and rinse.
This is made all the merrier in the asset ledger by the difference between the cost of building the unit and the market value of that same unit (revaluations).
Ryman are very good at this.

Best Wishes
Paper Tiger

Disc: All figures are approximate and may be totally wrong.

[Harvey Specter]

While a new build brings on more cash, it does cost a lot of capex. A resale requires no capex at all (just a little maintenance) so is very high margin.

[Snow Leopard]

While a new build brings on more cash, it does cost a lot of capex. A resale requires no capex at all (just a little maintenance) so is very high margin.

But you do not want them to stop building.
An EPS of $0.15 with 3% growth does not support a share price of $7.55 for long.

Best Wishes
Paper Tiger