Retirement village operators

[bull....]

National house prices nearing $900,000 after more value declines - QV


https://www.newshub.co.nz/home/money/2023/05/national-house-prices-nearing-900-000-after-more-value-declines-qv.html

must be getting close in some area's to mean RV units are overpriced

The market correction is not over yet, Quotable Value says.

https://www.stuff.co.nz/life-style/homed/real-estate/131976700/property-market-correction-not-over-yet

[Habits]

National house prices nearing $900,000 after more value declines - QV


https://www.newshub.co.nz/home/money/2023/05/national-house-prices-nearing-900-000-after-more-value-declines-qv.html

must be getting close in some area's to mean RV units are overpriced

The market correction is not over yet, Quotable Value says.

https://www.stuff.co.nz/life-style/homed/real-estate/131976700/property-market-correction-not-over-yet


Possibly, but banks ANZ and ASB have recently given a better forecast outlook / smaller drops.

It's too hard selling a property at the mo, no wonder sellers are holding back.

[bull....]

Commerce Commission begins retirement village probe: Is law being broken?
https://www.nzherald.co.nz/business/commerce-commission-begins-retirement-village-probe-is-law-being-broken/COKO6GXK2VEQ7KUYJC5IVTMDYQ/

this on top of the review of the sector by the govt

[Bjauck]

Commerce Commission begins retirement village probe: Is law being broken?


https://www.nzherald.co.nz/business/commerce-commission-begins-retirement-village-probe-is-law-being-broken/COKO6GXK2VEQ7KUYJC5IVTMDYQ/

this on top of the review of the sector by the govt
“The feedback from villagers was simple: change must be retrospective.
‘It will not be fair if 50,000 residents do not get the benefit of the law changes along with any findings by the Commerce Commission,”’

Brian Peat must want the number of rest home beds to dwindle for everyone. After all if you retrospectively undermine the commercial basis upon which investors invest in retirement villages in NZ, that will surely happen, without a fundamental increase in funding for rest home care from taxpayers (government.)

Will the ComCom undermine the investment environment yet again in NZ?


Surely all current residents agreed to enter retirement villages, with their eyes wide open, after the paperwork including the so-called small print was perused by both themselves and their lawyers, as required.

[aquaman]

Surely all current residents agreed to enter retirement villages, with their eyes wide open, after the paperwork including the so-called small print was perused by both themselves and their lawyers, as required.


[/QUOTE]

It appears to me that this has only become an issue when property values took off a couple of years ago, prior to this it was very rare to hear any noise about
the agreed signed contracts. I do wonder how much of this is being provoked by Will beneficiaries or was, at least initially provoked by the beneficiaries. In my circles, which are not huge, present residents are happy and not concerned about this and i do know quite a few people looking to move to retirement villages who are not concerned at all about the contract even with a good understanding of the terms. Is this just another case of the squeaky wheel being oiled and an overall majority of residents are happy with their situation, financially and socially.

[whatsup]

Surely all current residents agreed to enter retirement villages, with their eyes wide open, after the paperwork including the so-called small print was perused by both themselves and their lawyers, as required.




It appears to me that this has only become an issue when property values took off a couple of years ago, prior to this it was very rare to hear any noise about
the agreed signed contracts. I do wonder how much of this is being provoked by Will beneficiaries or was, at least initially provoked by the beneficiaries. In my circles, which are not huge, present residents are happy and not concerned about this and i do know quite a few people looking to move to retirement villages who are not concerned at all about the contract even with a good understanding of the terms. Is this just another case of the squeaky wheel being oiled and an overall majority of residents are happy with their situation, financially and socially.[/QUOTE]

aqu, not so in the mid 1980's when Chase entered that industry at a AGM I remember one Ret Vill resident getting up a lambasting the fish heads about the rort that they were running , nothing has changed neigh on 40 years later.
A synic would say that the RVI was invented for the benefit of S Hers/ operators not the old folks who reside in them.

[nztx]

Commerce Commission begins retirement village probe: Is law being broken?
https://www.nzherald.co.nz/business/commerce-commission-begins-retirement-village-probe-is-law-being-broken/COKO6GXK2VEQ7KUYJC5IVTMDYQ/

this on top of the review of the sector by the govt


Wonder how the RV Mold will fare after all those rough clodhoppers finish clambering all over the
Sector's participants ? ;)

Where's the queue for all those wanting to jump off the RV Sector Tour Bus in a hurry ? :)

[bull....]

Wonder how the RV Mold will fare after all those rough clodhoppers finish clambering all over the
Sector's participants ? ;)

Where's the queue for all those wanting to jump off the RV Sector Tour Bus in a hurry ? :)

might get consolidation in the sector when there all on there knee's , maybe when property prices have dropped another 20% ? and stock prices are down another 50% ?

[SailorRob]

Possibly, but banks ANZ and ASB have recently given a better forecast outlook / smaller drops.

It's too hard selling a property at the mo, no wonder sellers are holding back.


What has ANZ and ASB's track record of forecasting future house price moves been like?

[SailorRob]

“The feedback from villagers was simple: change must be retrospective.
‘It will not be fair if 50,000 residents do not get the benefit of the law changes along with any findings by the Commerce Commission,”’

Brian Peat must want the number of rest home beds to dwindle for everyone. After all if you retrospectively undermine the commercial basis upon which investors invest in retirement villages in NZ, that will surely happen, without a fundamental increase in funding for rest home care from taxpayers (government.)

Will the ComCom undermine the investment environment yet again in NZ?


Surely all current residents agreed to enter retirement villages, with their eyes wide open, after the paperwork including the so-called small print was perused by both themselves and their lawyers, as required.





Excellent post. Absolute madness, you will also have a huge affect on how the world views the NZ capital markets.

[Balance]

Boom and bust in progress in the residential property sector - total house sales in April down 43% from April 2021 when the housing market was booming.

Impossible to see the RV players being unaffected by the bust as there's an abundance of RV units coming on stream (from plans made 2 to 3 years ago) at a time when demand has collapsed.

https://www.stuff.co.nz/life-style/homed/real-estate/132008638/number-of-april-house-sales-near-lowest-level-since-records-began

House sales nationwide fell to near record lows for an April last month, as market activity slowed in response to the challenging economic climate, the Real Estate Institute says.

Excluding the lockdown-affected April in 2020, it was the lowest sales count for an April since the institute’s records began in the early 1990s. Sales also fell nationwide by 28.8% from March.

There were just 4262 sales nationwide last month, down 15.3% on the 4860 sales in the same month last year, the institute’s latest figures showed.

The Real Estate Institute of New Zealand has reported residential property sales across New Zealand decreased annually by 35.2% from 7,497 in April 2021 to 4,860 in April 2022.

[Balance]

Brokers’ views on what are weighing on the market’s view of the RV sector:

https://www.nzherald.co.nz/business/stock-takes-will-a-turnaround-in-the-property-market-boost-the-retirement-village-sector/FQDQFKYEVRCGVNK35MDREAT7PM/

Paywalled

“Forbarr’s Aaron Ibbotson and Matthew Leach say that when it comes to real estate investment trusts and aged-care companies, they expect the focus to be on debt levels and interest expenses, as well as demand.”

“Jarden analysts Arie Dekker and Vishal Bhula say retirement village operators are continuing to navigate a challenging operating environment, with tail-end impacts from Covid and the sector’s largest stock Ryman Healthcare still consumed by its capital raise.”

“In our view, the most relevant valuation question continues to revolve around the sector’s prospects for generating the level of free cash flow required to support this in the long term, noting long time frames and what could be a rising cost of capital for the sector.

“The sector still has to prove up the sustainable cash margins it can generate in a competitive sector from a business model largely financed by interest-bearing debt through the development phase (to now) and resident debt through the operating phase.”

[bull....]

Brokers’ views on what are weighing on the market’s view of the RV sector:

https://www.nzherald.co.nz/business/stock-takes-will-a-turnaround-in-the-property-market-boost-the-retirement-village-sector/FQDQFKYEVRCGVNK35MDREAT7PM/

Paywalled

“Forbarr’s Aaron Ibbotson and Matthew Leach say that when it comes to real estate investment trusts and aged-care companies, they expect the focus to be on debt levels and interest expenses, as well as demand.”

“Jarden analysts Arie Dekker and Vishal Bhula say retirement village operators are continuing to navigate a challenging operating environment, with tail-end impacts from Covid and the sector’s largest stock Ryman Healthcare still consumed by its capital raise.”

“In our view, the most relevant valuation question continues to revolve around the sector’s prospects for generating the level of free cash flow required to support this in the long term, noting long time frames and what could be a rising cost of capital for the sector.

“The sector still has to prove up the sustainable cash margins it can generate in a competitive sector from a business model largely financed by interest-bearing debt through the development phase (to now) and resident debt through the operating phase.”

what i have been saying all along about a cash crunch coming ie they need to prove otherwise

[Habits]

The bank’s forecast, which was based on CoreLogic’s index, was for prices to fall 17% from their late 2021 peak, instead of the 21%, and before that 25%, it had previously expected.

The housing market downturn 'won’t be as bad as expected' | Stuff.co.nz
https://i.stuff.co.nz/life-style/homed/real-estate/132019923/the-housing-market-downturn-wont-be-as-bad-as-expected

[SailorRob]

The bank’s forecast, which was based on CoreLogic’s index, was for prices to fall 17% from their late 2021 peak, instead of the 21%, and before that 25%, it had previously expected.

The housing market downturn 'won’t be as bad as expected' | Stuff.co.nz
https://i.stuff.co.nz/life-style/homed/real-estate/132019923/the-housing-market-downturn-wont-be-as-bad-as-expected


Their historical forecasts have been so on the money.

An uncanny predictive ability.

[bull....]

RV's stocks as a sector are showing short term positive signals from multiple oscillators weather this is short term in nature it is undecided at this stage but maybe people buying in anticipation of bottom in market soon / time will tell on all

[snigmac]

With the recent rate hikes across NZ, I don't think it would be hard for the companies to paint a well positioned picture (even with increased rate hikes over the foreseeable future). The elderly will just be paying more for retirement.

[Bjauck]

With the recent rate hikes across NZ, I don't think it would be hard for the companies to paint a well positioned picture (even with increased rate hikes over the foreseeable future). The elderly will just be paying more for retirement. Everyone is paying more just to survive! Super increased faster than inflation! Remember, those oldies who have been homeowners and property owners over the course of many decades enjoyed healthy untaxed capital gains...

[bull....]

all pretty much opened up again today ... something in the budget ?

[alokdhir]

all pretty much opened up again today ... something in the budget ?

U will find out soon mate ...Only thing Govt can influence is their part or financing of care costs ...so if its that then it will benefit OCA the most which is its Achilles heel compared to others ...OCA > ARV> RYM >SUM ...what else they can influence ??

[bull....]

U will find out soon mate ...Only thing Govt can influence is their part or financing of care costs ...so if its that then it will benefit OCA the most which is its Achilles heel compared to others ...OCA > ARV> RYM >SUM ...what else they can influence ??

yep be round an increase in funding if anything ( they been bitch.ing to govt about it for ages , see if robbo listened ) and your right in your order of thinking who benefits most

[alokdhir]

yep be round an increase in funding if anything ( they been bitch.ing to govt about it for ages , see if robbo listened ) and your right in your order of thinking who benefits most

Its very possible ...which we will find out soon ...that its got nothing to do with Govt action but maybe the belief in the market that property has already bottomed ...in that case it shud benefit other way round as mentioned before

[bull....]

Its very possible ...which we will find out soon ...that its got nothing to do with Govt action but maybe the belief in the market that property has already bottomed ...in that case it shud benefit other way round as mentioned before

trying to guess property bottom is pretty hard , so if your buying on that basis then your taking a punt as for order i would go for who's most leveraged to the cycle

remember we had a false buying opp a short time ago , i prefer buying large holdings when cycle change is confirmrd

[alokdhir]

trying to guess property bottom is pretty hard , so if your buying on that basis then your taking a punt as for order i would go for who's most leveraged to the cycle

remember we had a false buying opp a short time ago , i prefer buying large holdings when cycle change is confirmrd

I am not the one buying ...market maybe buying based on that assumption ...also the fact that first 20% off from bottom is very quick money if u get it right ...U want the middle part of the trend which is more sure part ...me will let market do its work ...not a trader at all ...prefer longer term plans as they are more easy then even swing trades ...

[justakiwi]

Given that the government have made it very clear this is going to be a "no frills" budget, focused "cyclone recovery and helping Kiwis through the cost of living crisis"- I think this jump in SP across the sector, is just wishful thinking. I have seen zero indication from them, that aged care is anywhere near the top of their "Priority" list.

I would be very happy to be proven wrong though.

[allfromacell]

Given that the government have made it very clear this is going to be a "no frills" budget, focused "cyclone recovery and helping Kiwis through the cost of living crisis"- I think this jump in SP across the sector, is just wishful thinking. I have seen zero indication from them, that aged care is anywhere near the top of their "Priority" list.

I would be very happy to be proven wrong though.

Agreed, although the volume of buyers is promising that there is genuine interest and it's not just speculation.

More likely some funds are taking a confident view that property is at or near the bottom and buying at these levels is a lot less risky with potentially massive gains to be had over the medium term.

[justakiwi]

As I suspected - zero mention of the aged care sector OR care subsidies.

The best we can hope for is possibly some financial assistance to the sector for pay increases for nursing staff (as per announcement below).

A budget that offers sweet Fanny Adams for most of us.

Health and disability

$2.6b over two years for cost pressures in the health system and reforms
More than $1b to increase pay rates and boost staff numbers

[bull....]

As I suspected - zero mention of the aged care sector OR care subsidies.

The best we can hope for is possibly some financial assistance to the sector for pay increases for nursing staff (as per announcement below).

A budget that offers sweet Fanny Adams for most of us.

Health and disability

$2.6b over two years for cost pressures in the health system and reforms
More than $1b to increase pay rates and boost staff numbers



no moola for RV providers ... maybe easier for them to get nurses though ? anyway the rise in RV stocks isnt because of budget ( they havnt plummeted on the news ) but i see treasury forecasting another 4% house decline in budget ( i dont know how good there forecasting is on this matter but i guess like most people they are guessing )

[Habits]

Strong week, who would've thought. I won't get too excited, but its good to see

[alex f]

Why such a strong week?, SUM went from about 8.20 to 9.20. Positivity over comments that interest rates have almost peaked and the house prices are close to the bottom? OCR is next week that will be interesting. Seasonally Sep to Dec are strong for the property market, it is some time away.

[alokdhir]

As thought before ...this RV move is more based on property bottoming out than any Govt action ...today's results of RYM boosted that thought ...both RYM and SUM did much better then OCA / ARV !

IMO this move will only strengthen ahead .

[winner69]

As thought before ...this RV move is more based on property bottoming out than any Govt action ...today's results of RYM boosted that thought ...both RYM and SUM did much better then OCA / ARV !

IMO this move will only strengthen ahead .

The pecking order still strong mate

[Valuegrowth]

Don’t you think this sector have taken too much debt? Do they have any plan to get away from heavy debt burden? Now debt cost are high. Property prices are falling. This sector could have some long term opportunity provided they take some steps to reduce debt while generating free cash flow.

[Baa_Baa]

Don’t you think this sector have taken too much debt? Do they have any plan to get away from heavy debt burden? Now debt cost are high. Property prices are falling. This sector could have some long term opportunity provided they take some steps to reduce debt while generating free cash flow.

Keep up Valuegrowth, some have already moved to reduce debt, others are not stressed and some are clever enough to have taken on debt at very low interest.

When push comes to shove, in 5 -10 years time, we'll all look back and realise this was the once in a generational opportunity to take a long term holding in a sector that is not only profitable, but has an enduring customer demand demographic, for decades.

Imo, it doesn't matter too much which listed RV you choose, or whether you have some of all of them, the sector will reward investors for many many years to come. And, now is a rare low price to get some.

[X-men]

Migration is high...the property value will hold up. All migrants will buy the house....rental in shortage

[Lease]

Don’t you think this sector have taken too much debt? Do they have any plan to get away from heavy debt burden? Now debt cost are high. Property prices are falling. This sector could have some long term opportunity provided they take some steps to reduce debt while generating free cash flow.

It shouldn't be a concern. I have used debt/equity ratio to work out their level of debt. Here the debt I mean interest-bearing loans. RYM used to have very high debt/equity at 75%, but after capital raising, the ratio is now at 50%. SUM is at 48%, OCA is at 40%. All are quite safe debt level.

[SailorRob]

It shouldn't be a concern. I have used debt/equity ratio to work out their level of debt. Here the debt I mean interest-bearing loans. RYM used to have very high debt/equity at 75%, but after capital raising, the ratio is now at 50%. SUM is at 48%, OCA is at 40%. All are quite safe debt level.


The safety of debt levels doesn't have a lot to do with debt to equity ratios, that's just some kook ratio that without context means nothing.

What matters is debt to sustainable cash earnings.

Plenty of world class companies have no equity at all and neither should they, many more don't need and equity and have infinite ratios, others such as MFB the equity is all smoke and mirrors where any debt is very real.

Illiquid equity isn't going to help much with debt management.

With these companies I would focus on cash flow and think how interest bearing debt can be managed with the tidal wave of interest free 'debt' that floods in through the front door plus real earnings.

[Snoopy]

It shouldn't be a concern. I have used debt/equity ratio to work out their level of debt. Here the debt I mean interest-bearing loans. RYM used to have very high debt/equity at 75%, but after capital raising, the ratio is now at 50%. SUM is at 48%, OCA is at 40%. All are quite safe debt level.


Debt to Equity Ratio = Debt / Equity

Gearing = Debt / (Debt+Equity)

So a debt equity ratio of 75% represents a gearing ratio of 3/ (3+4) = 43%
So a debt equity ratio of 50% represents a gearing ratio of 1/ (1+2) = 33%
So a debt equity ratio of 48% represents a gearing ratio of 48/ (48+100) = 32.4%%
So a debt equity ratio of 40% represents a gearing ratio of 40/ (40+100) = 28.6%



Ryman 2023 Result
• Free cash outflow of $389.0 million, reflecting a period of significant investment
• Completion of $902.4 million equity raise in March 2023
• Net interest-bearing debt of $2.30 billion, down from $3.00 billion at September 2022
• Gearing of 33.1%, down from 45.3% at September 2022 and in line with medium-term target of 30-35%


I guess 'quite a safe debt level' has a different meaning to different people. If you are a dividend hound and Ryman has just cancelled their second ever dividend in their long history (now twice in a row) you might conclude that the debt to equity ratio is far from safe, because your dividend income is gone. When will Cashflow turn positive? That is the key question. Negative cashflow means a precarious debt position could get worse. Keep going with negative cashflow and it will get worse!

I would not deny the demographic tailwinds the retirement sector has. But saying that 'NZ is short of retirement village facilities' and saying that 'the current listed Retirement Villages are the entities that will hold and manged these facilities into the indefinite future' are quite different things. It is entirely conceivable that a major retirement village operator in NZ files for bankruptcy. In such a situation the assets they have built up will remain, the people in those villages will remain, the wonderful careers who work in the village will remain and the whole shebang would be sold to a third party operator 'on the cheap'. But the original shareholders of the village that went into receivership? They would be left with nothing.

Perhaps a pertinent reminder that 'tailwinds' can still blow your investment ship onto the rocks?

SNOOPY

[X-men]

Ryman current debts gearing after CR

Gearing of 33.1%, down from 45.3% at September 2022 and in line with medium-term target of 30-35%

[Snoopy]

Ryman current debts gearing after CR

Gearing of 33.1%, down from 45.3% at September 2022 and in line with medium-term target of 30-35%


Exactly. Only a couple of percentage points away from blowing out their debt target ratios, cashflow negative and no dividend. Sounds like the definition of 'precarious' to me. OTOH I am not saying they are in trouble right now. I am not predicting doom. Just saying that if a couple of things don't go their way in the future, another capital raising is not out of the question.

SNOOPY

[X-men]

To me... gearing around 30-35%... comfortable

Many property fundies are around that rate. Above 40% is a bit concerning especially with the current high interest rates environment

Lease...where do u get OCA debts at 40% gearing?

According to business desk dated Nov 2022...OCA gearing is at 34.5%

[Lease]

To me... gearing around 30-35%... comfortable

Many property fundies are around that rate. Above 40% is a bit concerning especially with the current high interest rates environment

Lease...where do u get OCA debts at 40% gearing?

According to business desk dated Nov 2022...OCA gearing is at 34.5%

I said OCA debt/equity ratio was 40% by using its 2022 financial statements, not gearing.

[Lease]

Debt to Equity Ratio = Debt / Equity

Gearing = Debt / (Debt+Equity)

So a debt equity ratio of 75% represents a gearing ratio of 3/ (3+4) = 43%
So a debt equity ratio of 50% represents a gearing ratio of 1/ (1+2) = 33%
So a debt equity ratio of 48% represents a gearing ratio of 48/ (48+100) = 32.4%%
So a debt equity ratio of 40% represents a gearing ratio of 40/ (40+100) = 28.6%



I guess 'quite a safe debt level' has a different meaning to different people. If you are a dividend hound and Ryman has just cancelled their second ever dividend in their long history (now twice in a row) you might conclude that the debt to equity ratio is far from safe, because your dividend income is gone. When will Cashflow turn positive? That is the key question. Negative cashflow means a precarious debt position could get worse. Keep going with negative cashflow and it will get worse!

I would not deny the demographic tailwinds the retirement sector has. But saying that 'NZ is short of retirement village facilities' and saying that 'the current listed Retirement Villages are the entities that will hold and manged these facilities into the indefinite future' are quite different things. It is entirely conceivable that a major retirement village operator in NZ files for bankruptcy. In such a situation the assets they have built up will remain, the people in those villages will remain, the wonderful careers who work in the village will remain and the whole shebang would be sold to a third party operator 'on the cheap'. But the original shareholders of the village that went into receivership? They would be left with nothing.

Perhaps a pertinent reminder that 'tailwinds' can still blow your investment ship onto the rocks?

SNOOPY

Take the first home buyer as an example. Normally he puts 40% deposit and loan 60%, thus the FHB debt/equity ratio is 150% and gearing 60%, much more risky than the RV operators so I'm comfortable for their debt level.

In regards to negative cashflow, RYM is not alone, all listed RV operators are the same as this sector is far from mature. Constantly investments are essential for business development. Once they cease investing and generate plenty of free cash flow, then they are no longer growing companies and are only suitable for those seeking dividend.

[Valuegrowth]

Something to think about seriously.

https://www.british-business-bank.co.uk/finance-hub/what-level-of-debt-is-healthy-for-business/


Debt to Equity Ratio = Debt / Equity

I guess 'quite a safe debt level' has a different meaning to different people. If you are a dividend hound and Ryman has just cancelled their second ever dividend in their long history (now twice in a row) you might conclude that the debt to equity ratio is far from safe, because your dividend income is gone. When will Cashflow turn positive? That is the key question. Negative cashflow means a precarious debt position could get worse. Keep going with negative cashflow and it will get worse!

I would not deny the demographic tailwinds the retirement sector has. But saying that 'NZ is short of retirement village facilities' and saying that 'the current listed Retirement Villages are the entities that will hold and manged these facilities into the indefinite future' are quite different things. It is entirely conceivable that a major retirement village operator in NZ files for bankruptcy. In such a situation the assets they have built up will remain, the people in those villages will remain, the wonderful careers who work in the village will remain and the whole shebang would be sold to a third party operator 'on the cheap'. But the original shareholders of the village that went into receivership? They would be left with nothing.

Perhaps a pertinent reminder that 'tailwinds' can still blow your investment ship onto the rocks?

SNOOPY

[Valuegrowth]

I am doing some home work to find out whether there is any turnaround situation in this sector. I love turnaround stories. Still It's too early to get some idea.

https://www.rnz.co.nz/news/business/486807/debt-holding-back-retirement-village-sector-report

[X-men]

Outdated....that article was 2 months ago...

Ryman share was at $5 now $5.95
Oceania was at $.68c now 79c
Arvida was 93c now $1.15

U missed the boat

[snigmac]

The guidance by the RBA, confirming that we are at the end of the ocr rise cycle will indirectly benefit the wider property sector including retirement village operators. Could be a double lucky year for the sector in 2024 if property prices shift upwards.

[troyvdh]

Thankyou snig...In addition how much would it cost to build most of these of these retirement entites/villages now.
Some of which have been around for 3 decades.
ARV for example NTA is 1.90....

[Greekwatchdog]

House Prices have bottomed according to ANZ. https://www.stuff.co.nz/life-style/homed/real-estate/132184484/house-prices-have-found-their-floor-anz

[Valuegrowth]

Cash flow is king. Which one is your pick in this sector? Which one will have growth in cash flow and strong balance sheet in the future? Which one will have a turnaround first. Highly appreciate your comparative analysis (comparable company analysis) on companies in this sector. Thank you.

[X-men]

Would pick arvida..30% gearing

Better gearing than other property stocks

[Greekwatchdog]

More positive signs perhaps. Happy if the prices stay at this level and sales go up from here.https://www.nzherald.co.nz/business/aucklands-biggest-real-estate-agency-reports-big-may-sales-jump/73KMB4NCCJB3JIMMQEP5DZS7OE/

[thegreatestben]

We're in the market to buy our next personal home, put an offer in on a place and we've always been close but not quite for the last few months. Well this latest one I was wayyyy off - we put in 975 and it went for 1.3 cash unconditional. Was a pretty unique offering but still was very surprised given market sentiment so far this year.

[allfromacell]

More positive signs perhaps. Happy if the prices stay at this level and sales go up from here.https://www.nzherald.co.nz/business/aucklands-biggest-real-estate-agency-reports-big-may-sales-jump/73KMB4NCCJB3JIMMQEP5DZS7OE/

4.1% monthly fall in median prices, ouch.

[bull....]

oh no ASB raising mortgage rates :scared: might slow down house sales even more

In something of a surprise move, ASB has broken ranks and raised home loan rates for fixed terms of less than two years.

https://www.interest.co.nz/personal-finance/121783/asb-pushes-some-key-fixed-home-loan-rates-well-above-its-main-rivals-both

[Valuegrowth]

Hong Kong. Hong Kong, China. Median multiple of 18.8.
Sydney. Sydney, NSW. Median multipe of 13.3. ...
Vancouver. Vancouver, Canada. Median multiple of 12.0. ...
Hawaii. Honolulu, Hawaii, US. ...
San Jose. San Jose, US. ...
Los Angeles. Los Angeles, US. ...
Auckland. Auckland, New Zealand. ...
San Francisco. San Francisco, US. ...


https://www.9news.com.au/national/housing-affordability-sydney-second-least-affordable-property-market-worldwide/ef0afb9f-2d4c-4f3d-b0da-ae2829d3c61e

World's top 10 most expensive property markets: Sydney's unenviable title

https://nomadcapitalist.com/finance/investing/worlds-overvalued-real-estate-markets/

So just what are the world’s five most overvalued real estate markets?
1. New Zealand
2. Canada
3. Belgium
4. Australia
5. United Kingdom

[Valuegrowth]

https://www.bosshunting.com.au/lifestyle/real-estate/most-expensive-housing-markets/ (https://www.bosshunting.com.au/lifestyle/real-estate/most-expensive-housing-markets/)The Most Expensive Housing Markets Globally By “Median Multiple” (2022)1. Hong Kong, China – 23.2
2. Sydney, Australia – 15.3
3. Vancouver, Canada – 13.3
4. San Jose, United States – 12.6
5. Melbourne, Australia – 12.1
6. Honolulu, United States – 12
7. San Francisco, United States – 11.8
8. Auckland, New Zealand – 11.2
9. Los Angeles, United States – 10.7
10. Toronto, Canada – 10.5
11. San Diego, United States – 10.1
12. Miami, United States – 8.1
13. London, Uniked Kingdom – 8
14. Adelaide, Australia – 8
15. Seattle, United States – 7.5
16. Riverside – San Bernardino, United States – 7.4
17. Brisbane, Australia – 7.4
18. Denver, United States – 7.2
19. New York (NY-NJ-PA), United States – 7.1
20. Perth, Australia – 7.1

[Baa_Baa]

Latest REINZ data https://www.reinz.co.nz/Web/Web/News/News-Articles/Market-updates/reinz_may_data_2023.aspx?name=reinz_may_data_2023

[Bjauck]

https://www.bosshunting.com.au/lifestyle/real-estate/most-expensive-housing-markets/

The Most Expensive Housing Markets Globally By “Median Multiple” (2022)

1. Hong Kong, China – 23.2
2. Sydney, Australia – 15.3
3. Vancouver, Canada – 13.3
4. San Jose, United States – 12.6
5. Melbourne, Australia – 12.1
6. Honolulu, United States – 12
7. San Francisco, United States – 11.8
8. Auckland, New Zealand – 11.2
9. Los Angeles, United States – 10.7
10. Toronto, Canada – 10.5
11. San Diego, United States – 10.1
12. Miami, United States – 8.1
13. London, Uniked Kingdom – 8
14. Adelaide, Australia – 8
15. Seattle, United States – 7.5
16. Riverside – San Bernardino, United States – 7.4
17. Brisbane, Australia – 7.4
18. Denver, United States – 7.2
19. New York (NY-NJ-PA), United States – 7.1
20. Perth, Australia – 7.1 All Anglophone markets except HK, which is an ex-British colony, and Belgium. An English speaker’s overpriced house is his castle?

[Onemootpoint]

https://www.stuff.co.nz/business/132338789/advertised-salaries-up-47-but-finding-a-job-might-be-getting-harder-seek-says

“As in April, healthcare and medical had the largest increase in ads, up 1% month-on-month, driven by demand for aged care nurses…..”

[iceman]

https://www.bosshunting.com.au/lifestyle/real-estate/most-expensive-housing-markets/ (https://www.bosshunting.com.au/lifestyle/real-estate/most-expensive-housing-markets/)The Most Expensive Housing Markets Globally By “Median Multiple” (2022)1. Hong Kong, China – 23.2
2. Sydney, Australia – 15.3
3. Vancouver, Canada – 13.3
4. San Jose, United States – 12.6
5. Melbourne, Australia – 12.1
6. Honolulu, United States – 12
7. San Francisco, United States – 11.8
8. Auckland, New Zealand – 11.2
9. Los Angeles, United States – 10.7
10. Toronto, Canada – 10.5
11. San Diego, United States – 10.1
12. Miami, United States – 8.1
13. London, Uniked Kingdom – 8
14. Adelaide, Australia – 8
15. Seattle, United States – 7.5
16. Riverside – San Bernardino, United States – 7.4
17. Brisbane, Australia – 7.4
18. Denver, United States – 7.2
19. New York (NY-NJ-PA), United States – 7.1
20. Perth, Australia – 7.1

I question this. Seems very slanted towards English speaking countries

[Valuegrowth]

You are so right. Not only property prices but also other asset prices in many developing countries especially in Asian countries have rocketed.

https://www.numbeo.com/cost-of-living/city_price_rankings?itemId=100
Price Rankings by City of Price per Square Meter to Buy Apartment in City Centre (Buy Apartment Price)

https://www.visualcapitalist.com/cp/mapped-global-housing-prices-since-2010/
Mapped: How Global Housing Prices Have Changed Since 2010

(https://www.numbeo.com/property-investment/region_rankings_current.jsp?region=142)https://www.numbeo.com/property-investment/region_rankings_current.jsp?region=142

Asia: Current Property Prices Index by City



I question this. Seems very slanted towards English speaking countries

[X-men]

https://www.newshub.co.nz/home/new-zealand/2023/06/corelogic-report-reveals-first-annual-increase-in-home-sales-since-2021.html

The button touched

[dubya]

A good read:

https://i.stuff.co.nz/business/opinion-analysis/300909614/how-do-operators-make-money-on-retirement-villages

[Habits]

A good read:

https://i.stuff.co.nz/business/opinion-analysis/300909614/how-do-operators-make-money-on-retirement-villages

I would say that:
Int free loan $ are overstated. What about Capital losses and holding costs of unsold stock.

There are accrued benefits to occupiers, massive rent savings, positive mental health rewards and peace of mind for relatives.

[ValueNZ]

RESEARCH REPORT – ANALYSIS OF RETIREMENT VILLAGE COSTS
https://static1.squarespace.com/static/5f555ba23c9a4e1e22c9155f/t/6492488732b36f4ab474628e/1687308426837/Analysis+of+Retirement+Village+Costs+-+June+2023+MoneyTips.pdf (https://static1.squarespace.com/static/5f555ba23c9a4e1e22c9155f/t/6492488732b36f4ab474628e/1687308426837/Analysis+of+Retirement+Village+Costs+-+June+2023+MoneyTips.pdf)

"Recommendations:
With a model that is economically unfair to residents due to a pricing power imbalance, future
generations need legislation to change the way operators price their contracts.


Important issues which need correcting via legislation are:
1. Pay capital gains to residents or a market rate of interest: This returns fair economic
norms to the pricing. This will be unattractive to operators, and the purpose would be to
put a clear economic value on residents losing gains when a license fee has been paid which
reflects the full value of a property. It is unlikely to result in operators choosing to pay
interest, but instead acts as a deterrent to taking all the gains.


2. Clean charging, annual fee model: Encourage operators towards a clean charging model
where costs and profits are extracted via an annual fee with a deferral option.
3. Allow for shared capital gains via charging the DMF percentage on sale price:
The Deferred Management Fee could be charged on the purchase price or alternatively the
sale price of the license to occupy, giving operators a slice of gains.


4. All capital losses covered by operators: If the operator benefits from capital gains in
any form, they take all capital losses since these do not have a 1:1 probability.


5. Deferred Management Fees should be quoted annually: rather than a one-size-fits-all,
the DMF should accrue annually for the length of time the resident occupies the unit.
Operators should apply either a fixed annual percentage of the purchase price as a fee, or a
fixed dollar charge, to make the value of village services financially clear. It is inconceivable
that residents living in village, who have paid the price of the unit upfront, should not be
fully aware of the annual cost of using village services and be charged for the length of their
use. Families who suffer the early death of a resident should not be penalised and funding
other residents. Charges should not be opaquely hidden within capital gains, lost interest, a
one-size-fits-all DMF, or the fast accrual of the DMF.


6. Option to pay or defer charges with transparent interest rate: Currently a one-sizefits-all fee is charged on death. Regulation should require operators to offer the option to
pay for village services annually. Some residents will have savings and it’s more efficient to
pay now, than rollup and pay the time-value-of-money of deferral until death. There should
be a transparent rate of interest declared for deferrals (in the same way those using a
reverse equity mortgage are told the cost of deferring repayment). Those with less
resources who wish to enjoy-now-pay-later can also do so and be fully informed of the cost
of doing this. The deferred interest rate should apply on a user pays basis for the tenure of
the occupancy.


7. Buybacks – allow families to choose a faster buy-back option for the unit with a 5% fee (to
cover the operators bridging costs) and unit price based on the average of the last 6–12-
month sales of similar sized units"

It's worth noting the regulatory risk within the retirement village sector, seems increasingly popular to point out "super" profits made by retirement villages. Personally I do think the business model is fairly profitable even without capital gain, what I like about the sector is how heavily discounted the stock prices of companies are at the moment. I am not a fan of regulation into free markets (particularly markets with plenty of competition), these individuals willingly enter contracts with these companies, and these retirement villages do have to price their contracts to remain competitive within the market.

[ValueNZ]

I would say that:
Int free loan $ are overstated. What about Capital losses and holding costs of unsold stock.

There are accrued benefits to occupiers, massive rent savings, positive mental health rewards and peace of mind for relatives.
The capital gain over the last 7 years is also unlikely to continue, which the article doesn't seem to mention.

[Aaron]

I wonder if Janine Starks has mortgaged her house to invest in retirement village operators? Seeing as they are making "SUPER" profits.

https://www.stuff.co.nz/business/opinion-analysis/300909614/how-do-operators-make-money-on-retirement-villages

If I follow her calculations correctly.

Development Margins 187,500. I assume this means the cost to build is $562,500 plus a 33% markup. I wonder if that is still achievable with land prices and building costs the way they are.
Weekly Fee $54,600(over 7 years) is the $150 over and above the cost to maintain the property. How much would residents normally pay a week $150 plus how much? Not a profit if costs come off this
Deferred management fee for a 7 year tenure. This is profit. My thinking might be muddled but would this be 4.8%pa on a $562,500 investment. (($187,500/7)/562,500)
Interest Free Loan - This is the free capital SailorRob talks so much about. What happens if instead of putting it on term deposit you invested it in more land and buildings. If the property market had a downturn that might mean you lost money on the land and buildings and you would take a loss on the free capital if you have to pay it back at some stage.
Capital Gains as a result of low interest rates and easy money 2016-2023 has there ever been a better time for capital gain with no corresponding earnings growth. Not sure they will continue at the same rate.

Probably being a bit negative and maybe Janine is seeing things other investors are not.

Janine and SailorRob can't be competing that hard for shares this week as I think the price was falling for a couple of operators.

Hard not to see an investment in land doing well over the long term. Not sure about SUPER profits though.

[Snow Leopard]

RESEARCH REPORT – ANALYSIS OF RETIREMENT VILLAGE COSTS
https://static1.squarespace.com/static/5f555ba23c9a4e1e22c9155f/t/6492488732b36f4ab474628e/1687308426837/Analysis+of+Retirement+Village+Costs+-+June+2023+MoneyTips.pdf (https://static1.squarespace.com/static/5f555ba23c9a4e1e22c9155f/t/6492488732b36f4ab474628e/1687308426837/Analysis+of+Retirement+Village+Costs+-+June+2023+MoneyTips.pdf)....

Got to the bottom of page 1, mildly disagreeing with some of her inputs has I went, and then decided that if she is going to abuse the term operator earnings then I would read no further.

[Guild]

One thing that hasn't been allowed for in her analysis with the weekly fee is rates and electricity. At least at Arvida these are included in this fee. Residents that are entitled to the rates reduction and winter power subsidy get this direct still. My personal point of view is any other costs are overridden by the benefits of living in this enviroment, friendship, stimulation, security and health benefits. As I heard lately from one of the staff, people come to get more out of life before they hopefully have a peaceful death.

[dubya]

From today's Sunday Star Times:

https://i.stuff.co.nz/business/property/132340798/retirement-village-prices-are-up-but-that-hasnt-dented-demand

[justakiwi]

Jarden’s contribution to the media “debate:”

https://i.stuff.co.nz/business/opinion-analysis/300925334/are-retirement-villages-really-superprofiters (https://i.stuff.co.nz/business/opinion-analysis/300925334/are-retirement-villages-really-superprofiters)

[ValueNZ]

Jarden’s contribution to the media “debate:”

https://i.stuff.co.nz/business/opinion-analysis/300925334/are-retirement-villages-really-superprofiters (https://i.stuff.co.nz/business/opinion-analysis/300925334/are-retirement-villages-really-superprofiters)
I do believe the retirement village sector in general is very profitable because of it's access to cheap capital, but I don't even know how "super" profits are defined. Apparently it's a "concept in Karl Marx's critique of political economy subsequently elaborated by Vladimir Lenin and other Marxist thinkers."

If they (the other article, not the one you posted) mean supernormal profit, which is an economic concept, that can argument can be easily dismantled with the knowledge that the retirement village market is a competitive one.

Anyway it's great to see a balanced article thanks JAK.

[Balance]

Hardly surprising to see all the angst out there against the profiteering RVs, is it when we have a Labour government which has been pitching that landlords and property owners are greedy and selfish enemies of the people?

Add elderly to the mix here and it’s not hard for the woke media & commentators out there to take aim at the RV sector.

[Bjauck]

Hardly surprising to see all the angst out there against the profiteering RVs, is it when we have a Labour government which has been pitching that landlords and property owners are greedy and selfish enemies of the people?

Add elderly to the mix here and it’s not hard for the woke media & commentators out there to take aim at the RV sector. Labour has always found that companies and shareholders are an electorally more palatable target than the millions of “greedy and selfish” private individuals that amass leveraged capital gains from residential housing.

Yes the mix of nursing care, elderly and disabled, the beloved middle class kiwi entitlement to capital gains from real estate and general susceptibility to government fiscal and monetary policy is a heady one and not just for snowflakes and the wokesters!

[Valuegrowth]

https://hbr.org/1984/01/strategies-for-staying-cost-competitive


Strategies for Staying Cost Competitive
by Arthur A. Thompson, Jr. (https://hbr.org/search?term=arthur%20a.%20thompson%2C%20jr.)
From the Magazine (January 1984) (https://hbr.org/archive-toc/3841)

"No company can totally avoid the impact of increasing costs. And most managers have learned to adjust to the effect inflation has on current operating costs. But few have factored it into their competitive strategies. And most managers, particularly those in capital-intensive industries, have not paid enough attention to the way increasing capital requirements affect their ability to compete in the long run."

[ronaldson]

One interesting point made by the ARV Chair in his Report on Friday, in mentioning the current separate sector reviews being undertaken by the Commerce Commission and the Ministry of Housing and Urban Development, is that there are some 200 operators involved in the sector and covered by the relevant legislation.

We are all aware of the around ten listed operators including Metlifecare which still is covered by NZX due to its debt listings, which collectively own or manage hundreds of such facilities, but I was surprised at the number of the independent operators out there, many of which in turn will themselves have more than one facility. But then given many will also lack any economy of scale it is no wonder there are regular media exposes of stresses and closures affecting the industry and that there are advocates for more/better regulation.

[Baa_Baa]

Aged Care Association launch their new campaign targeting chronic under funding of the sector. https://www.dominoeffect.co.nz/

"Each year, the government calculates how much funding each aged care facility needs. Then they ignore it. This results in underfunding each year, which has compounded into the issue we face today. And it will only get worse.

For far too long, New Zealand has been underfunding the Aged Care sector. It’s now become unsustainable, with residential facilities closing down right around the country. Looking ahead to 2030 and beyond, Aged Care beds will become extremely limited."

[Baa_Baa]

Pity that aged care funding, pay parity for nurses and care givers etc are not emerging as policy in the lead up to election. The industry is going backwards, beds being closed across the country, care workers stressed to the max, all the while the aging population is increasing, demand increasing.

https://www.stuff.co.nz/southland-times/132683210/caregivers-in-tears-before-their-shifts-start

Write to your favourite political party and ask them what they are going to do about this appalling situation.

[Baa_Baa]

"I am told details of the Aged Care Review should be known in the coming week." Carmela Petagna, Chief Executive, Home and Community Health Association

[justakiwi]

I have emailed or messaged both National and NZF about this - and have never had a reply. Zero point asking ACT because I can tell you now, it will most definitely not be on their list of "important things to do."

As I have already mentioned in various threads, I have a major dilemma this time round. I looked into TOP the other day, out of sheer desperation, but good grief - some of their policies are beyond ridiculous. Something needs to change. We can't go on like this, voting a party that is less than ideal in, just to get rid of another. The choices right now are abysmal.



Pity that aged care funding, pay parity for nurses and care givers etc are not emerging as policy in the lead up to election. The industry is going backwards, beds being closed across the country, care workers stressed to the max, all the while the aging population is increasing, demand increasing.

https://www.stuff.co.nz/southland-times/132683210/caregivers-in-tears-before-their-shifts-start

Write to your favourite political party and ask them what they are going to do about this appalling situation.

[Baa_Baa]

I have emailed or messaged both National and NZF about this - and have never had a reply. Zero point asking ACT because I can tell you now, it will most definitely not be on their list of "important things to do."

National and ACT are committed to pay parity and both recognise the serious issues with resourcing the aged care sector, reducing/closing beds etc. Don't know about NZF. Labour have had five years and Dr DoLittle has done next to nothing for aged care workers, moreover created disparity between DHB Nurses and aged-care Nurses. What Labour did do, as you'll see below, is the "Support Workers (Pay Equity) Settlements Amendment Bill (https://www.legislation.govt.nz/bill/government/2022/0144/latest/LMS710184.html)" which expires 31 December 2023, and you'll note how abysmal the 'pay equity' is:

Firstly though for comparison:
- Minimum wage in NZ is $22.70 p/h effective 1st April 2023.
- Living wage is $26.00 p/h effective from 1st September 2023.

Now here's what our 'Support Workers' can expect, note the length of service(!) and/or qualifications, to get a pay rise:

Worker’s length of service with employer 1 July 2022 to 31 December 2023
Less than 3 years $22.49 (less than minimum wage, how can that be?)
3 years or more but less than 8 years $24.06 (less than living wage)
8 years or more but less than 12 years $26.16 (16 cents more than living wage)
12 years or more, if subclause (2) applies $27.20 (wow, $1.20 more than living wage)
12 years or more, if subclause (2) does not apply $28.25 (pushing the boat out, $2.25 more than living wage)

Worker’s level of qualification 1 July 2022 to 31 December 2023
No relevant qualification $22.49
Level 2 qualification $24.06
Level 3 qualification $26.16
Level 4 qualification $28.25

This is what is expected of a 'Health Care Assistant (https://www.careers.govt.nz/jobs-database/health-and-community/health/health-care-assistant/)', for the pay rates above. Have a read of the comments "What's the job really like?"

[Panda-NZ-]

National and ACT are committed to pay parity and both recognise the serious issues with resourcing the aged care sector, reducing/closing beds etc.

If by resourcing you mean they will bring in heaps of migrants, then it's true.

National/Act don't have a single policy on lifting wages, for anyone, so that's what we can expect.

[justakiwi]

I'm less concerned with pay rates. I am much more concerned with things such as increased government subsidies to all providers who are contracted to provide standard care beds, for those folk who are assessed as requiring rest home, hospital or dementia level care. My number one concern however, is that the government of the day wakes up and listens to calls for Safe Staffing Levels. Both unions are working on this, but so far nothing has happened. Currently all we have are "guidelines" - there are literally no legal requirements with regards to staffing (I am talking about caregivers here - unsure about RN situation). Most providers will be meeting the guidelines, but they have not changed for many years. Unions and staff want this looked at, and government commitment to introducing mandatory minimum staffing levels. Until we get that, caregivers will continue to burn out (physically and emotionally). More money does nothing to help those of us on the ground floor, coping with the daily demands of the job.

I am now only doing casual shifts, but my pay rate is the Level 3 rate of $26.16/hour. As you said, just over the living wage. While of course I would welcome more money, more permanent staff per shift would be my preference. I also believe providers need to re-think how they do things. This probably doesn't apply to the likes of OCA etc, but the smaller providers still have caregivers doing tasks such as laundry/ironing, cleaning etc. We should not be doing those tasks. Every minute/hour we spend on "housekeeping" tasks, if a minute/hour we cannot spend with our residents. The organisation I worked for, should have extended the housekeeping staff's hours to full-time, so that they could do all of those tasks, so that we caregivers, could do the job we are trained to do.

I'll take your word for it that National/ACT are committed to pay parity - as they should be, but I have zero confidence that they will address any of these other issues.

P.S. The description of "What's the job really like?" is a terrible indication of what the job involves. It is a dumbed down explanation for secondary school kids, which does not reflect the realities of the job in any way.


National and ACT are committed to pay parity and both recognise the serious issues with resourcing the aged care sector, reducing/closing beds etc. Don't know about NZF. Labour have had five years and Dr DoLittle has done next to nothing for aged care workers, moreover created disparity between DHB Nurses and aged-care Nurses. What Labour did do, as you'll see below, is the "Support Workers (Pay Equity) Settlements Amendment Bill (https://www.legislation.govt.nz/bill/government/2022/0144/latest/LMS710184.html)" which expires 31 December 2023, and you'll note how abysmal the 'pay equity' is:

Firstly though for comparison:
- Minimum wage in NZ is $22.70 p/h effective 1st April 2023.
- Living wage is $26.00 p/h effective from 1st September 2023.

Now here's what our 'Support Workers' can expect, note the length of service(!) and/or qualifications, to get a pay rise:

Worker’s length of service with employer 1 July 2022 to 31 December 2023
Less than 3 years $22.49 (less than minimum wage, how can that be?)
3 years or more but less than 8 years $24.06 (less than living wage)
8 years or more but less than 12 years $26.16 (16 cents more than living wage)
12 years or more, if subclause (2) applies $27.20 (wow, $1.20 more than living wage)
12 years or more, if subclause (2) does not apply $28.25 (pushing the boat out, $2.25 more than living wage)

Worker’s level of qualification 1 July 2022 to 31 December 2023
No relevant qualification $22.49
Level 2 qualification $24.06
Level 3 qualification $26.16
Level 4 qualification $28.25

This is what is expected of a 'Health Care Assistant (https://www.careers.govt.nz/jobs-database/health-and-community/health/health-care-assistant/)', for the pay rates above. Have a read of the comments "What's the job really like?"

[Baa_Baa]

Another thing to consider, regardless of which government is in power, it's the Ministry of Health, or Te Whatu Ora if you like, that is responsible for fixing this atrocious situation with under funded aged care in New Zealand.

Have a listen to this and see if it gives you any confidence https://www.facebook.com/AMShowNZ/videos/250136744562972/ "Underfunded, understaffed and under the pump — AM's Laura Tupou questions a Te Whatu Ora Director about the sorry state of aged-care bedding provision in New Zealand."

[Baa_Baa]

"Te Whatu Ora Health New Zealand responds to the Aged Care Association NZ's concerns re the Aged Care Crisis www.dominoeffect.co.nz. Doesn't know the pay gap for aged care nurses (it's between 10-16K - they were left out of the pay equity deal); Doesn't know the bed day rate for aged care ($180-$372 depending level of care vs staying in public hospital at $1700 per day). TWO's official forecast says we need another 13500 beds by 2030, but the answer is ANOTHER review to follow the previous review that looked at the same thing completed by Ernst and Young in 2019. Thank you, Laura Tupou and AM Show for giving this important issue coverage. Sadly, only yesterday another 22 residents and their families in Havelock North received letters about another closure making it 46 beds the provider has closed in the last year. While we in industry talk about beds for those involved it is their home." - Katherine Rich.

Ex boss of Te Whatu Ora, Rob Campbell, Director makes comment:

"Just unacceptable. Not making excuses for Te Whatu Ora which should be an advocate for aged care, staff and whanau not an apologist for policy and funding failures. But the Ministry and successive Ministers have controlled policy and funding to create this situation."

[justakiwi]

Yep, but what everyone needs to remember is that this is not specifically a Labour problem. NO party/government has shown any interest whatsoever in Aged Care. They have buried their heads in the sand for years, and have put it in the too hard basket, hoping that by some miracle, the issues will go away. National is just as responsible for the current situation as Labour is.

The writing has been on the wall for years, and there is no excuse for the situation we now find ourselves in. Our elderly folk deserve better. So do providers, and the dedicated staff caring for these folk.



"Te Whatu Ora Health New Zealand responds to the Aged Care Association NZ's concerns re the Aged Care Crisis www.dominoeffect.co.nz (http://www.dominoeffect.co.nz). Doesn't know the pay gap for aged care nurses (it's between 10-16K - they were left out of the pay equity deal); Doesn't know the bed day rate for aged care ($180-$372 depending level of care vs staying in public hospital at $1700 per day). TWO's official forecast says we need another 13500 beds by 2030, but the answer is ANOTHER review to follow the previous review that looked at the same thing completed by Ernst and Young in 2019. Thank you, Laura Tupou and AM Show for giving this important issue coverage. Sadly, only yesterday another 22 residents and their families in Havelock North received letters about another closure making it 46 beds the provider has closed in the last year. While we in industry talk about beds for those involved it is their home." - Katherine Rich.

Ex boss of Te Whatu Ora, Rob Campbell, Director makes comment:

"Just unacceptable. Not making excuses for Te Whatu Ora which should be an advocate for aged care, staff and whanau not an apologist for policy and funding failures. But the Ministry and successive Ministers have controlled policy and funding to create this situation."

[ValueNZ]

If by resourcing you mean they will bring in heaps of migrants, then it's true.

National/Act don't have a single policy on lifting wages, for anyone, so that's what we can expect.
Not necessarily related to the aged healthcare sector pay but you lift wages by becoming more productive as an economy and increasing GDP in real terms. Considering National/ACT have more free market policies than the likes of Labour and Greens, it follows that the economy is likely to do better under National/ACT which will lift peoples wages on the whole.

[dobby41]

Not necessarily related to the aged healthcare sector pay but you lift wages by becoming more productive as an economy and increasing GDP in real terms. Considering National/ACT have more free market policies than the likes of Labour and Greens, it follows that the economy is likely to do better under National/ACT which will lift peoples wages on the whole.

Wages overall - yes.
For an individual sector it depends on where they start.
If they start lower than is fair (same work, same pay etc) then productivity increases will never make it right.

[Baa_Baa]

Aged care crisis looms as providers close up (https://www.rnz.co.nz/national/programmes/ninetonoon/audio/2018902224/aged-care-crisis-looms-as-providers-close-up) well worth a listen, shocking situation.

"Leaders within the aged care sector are warning New Zealand could find itself short of tens of thousands of beds within the next two decades.

Te Whatu Ora projects 78,000 beds will be needed by 2040, but the Aged Care Association estimates we're on track to have only 33,000.

Since January 2021, 21 facilities have closed up, due to staff shortages or damage from severe weather.

And as of March 26, 136 patients were left waiting in hospital beds for aged care spaces to open up, compounding pressure on the health system.

Te Whatu Ora says it is reconsidering the funding model for aged care.

Susie Ferguson speaks to Aged Care Association interim CEO Katherine Rich, and Te Whatu Ora interim director of primary, community and rural, Emma Prestidge."

[Baa_Baa]

Katherine Rich on New Zealand's residential aged care challenges (https://youtu.be/b0oiI7QO8y4)


https://youtu.be/b0oiI7QO8y4

[kiora]

"A new report on New Zealand’s retirement village and aged care sector says NZ needs an extra 61,121 retirement village units within the next 10 years"

https://businessdesk.co.nz/article/property/nz-will-need-100000-retirement-village-units-by-2033-says-report?utm_source=7am+Headlines+from+BusinessDesk&utm_campaign=a129a09bb4-7am+Headlines&utm_medium=email&utm_term=0_617c2ef34a-a129a09bb4-446239310

[ronaldson]

It seems both National and Labour are intent on removing depreciation as a deduction for commercial and industrial buildings, from 1 April 2024.

Does this regime apply to retirement village complexes/aged care facilities? Or are they in another category/different tax situation so far as deducting depreciation is concerned. I presume their Financial Statements will still be prepared recognising depreciation on both buildings and chattels (the latter I imagine obviously still deductible) but can the depreciation charge on buildings still be offset against profits, for tax purposes?

Answer is clearly relevant for all operators. Apologies for being too lazy to try to get my head around the Income Tax Act 2007 as amended currently, as it just seems easier to post.

[Poet]

It seems both National and Labour are intent on removing depreciation as a deduction for commercial and industrial buildings, from 1 April 2024.

Does this regime apply to retirement village complexes/aged care facilities? Or are they in another category/different tax situation so far as deducting depreciation is concerned. I presume their Financial Statements will still be prepared recognising depreciation on both buildings and chattels (the latter I imagine obviously still deductible) but can the depreciation charge on buildings still be offset against profits, for tax purposes?

Answer is clearly relevant for all operators. Apologies for being too lazy to try to get my head around the Income Tax Act 2007 as amended currently, as it just seems easier to post.

Oceania claimed around $11m of depreciation on buildings in the last fy. Presumably this deduction won't be allowed in future.
But shouldn't make much difference to the cashflow since OCA doesn't appear to pay any net tax anyway, and will probably continue not to pay tax for the next few years at least.

[Snoopy]

It seems both National and Labour are intent on removing depreciation as a deduction for commercial and industrial buildings, from 1 April 2024.

Does this regime apply to retirement village complexes/aged care facilities? Or are they in another category/different tax situation so far as deducting depreciation is concerned. I presume their Financial Statements will still be prepared recognising depreciation on both buildings and chattels (the latter I imagine obviously still deductible) but can the depreciation charge on buildings still be offset against profits, for tax purposes?

Answer is clearly relevant for all operators. Apologies for being too lazy to try to get my head around the Income Tax Act 2007 as amended currently, as it just seems easier to post.


ronaldson, this 'interpretive document' published by the IRD (IS22/04) looks to provide your answer:
https://www.taxtechnical.ird.govt.nz/-/media/project/ir/tt/pdfs/interpretation-statements/2022/is-22-04.pdf?modified=20220719225111&modified=20220719225111

Buildings are defined as 'residential' or 'non-residential'. The tax definition of the latter is that it is 'not the former'. So it is worthwhile considering just what a residential building is, for tax purposes.

-----------------------------------

From p11
residential building—
(a) means a dwelling; and
(b) includes a building intended to ordinarily provide accommodation for periods of less than 28 days at a time, if the building, together with other buildings on the same land, has less than 4 units for separate accommodation

A 'dwelling' is further defined as "any place configured as a residence or abode, whether or not it is used as a place of residence or abode, including any appurtenances (e.g. garages or sheds) belonging to or enjoyed with the place."

but specifically NOT including:

"a rest home or retirement village, EXCEPT to the extent that, in relation to a relevant place, it is, or can reasonably be foreseen to be, occupied as a person’s principal place of residence for independent living."

This is further clarified on p13:
"Buildings within rest homes and retirement villages will generally be non-residential buildings. This is because they are excluded from the definition of “dwelling”. However, places within a rest home or retirement village occupied under independent living arrangements are not excluded from the definition of dwelling and therefore may be a residential building. "

"Independent living is defined in as occupancy of a place under an arrangement that—
(a) does not have a level of compulsory care:
(b) has a level of compulsory care that is merely incidental to the occupancy"

-------------------------------------

So it looks to me as though this proposed 'setting the depreciation rate to zero' for commercial buildings, will result in no depreciation being able to be claimed against taxable income for the 'rest home' part of the retirement village business. Such a law change will not directly effect the depreciation rates of and associated 'independent living units', because these units, being 'dwellings', are not allowed to be depreciated with the law as it stands currently (i.e. their depreciation rate is already zero).

SNOOPY

[ronaldson]

Thanks, Snoopy. Clarifications/the interpretive document are often confusing.

As I have it - since the covid relief package introduced in 2020 rest homes/retirement village operators will have charged depreciation on non-residential buildings (care centers, clubhouse/amenity buildings and the like, but not villas, independent living apartments and so on) so we would need to look at each operator's most recent set of Financial Statements to determine the impact on that entity of the Government in due course reducing the depreciation rate (for buildings, not chattels, plant and equipment) to 0%.

Of course, under accounting rules depreciation (which is a non- cash expense) on buildings will still be applied/recorded/shown, just not allowed as a deduction against taxable profit?

[Snoopy]

Thanks, Snoopy. Clarifications/the interpretive document are often confusing.

As I have it - since the covid relief package introduced in 2020 rest homes/retirement village operators will have charged depreciation on non-residential buildings (care centers, clubhouse/amenity buildings and the like, but not villas, independent living apartments and so on) so we would need to look at each operator's most recent set of Financial Statements to determine the impact on that entity of the Government in due course reducing the depreciation rate (for buildings, not chattels, plant and equipment) to 0%.


Going back to the National Party press release, commenting on the 'money saved': https://www.national.org.nz/boosting_incomes_for_kiwis_the_responsible_way
"$525 million on average per year from ending the commercial building depreciation tax break."

There is no distinction in that quotation made between buildings with a life of over 50 years or under 50 years. I may have this wrong. But IIRC when depreciation was first removed as a deduction in the FY2011/2012 financial year, this was only for buildings with an expected life of more than 50 years. If the building life was <50years, then you were able to go on depreciating it, as previously allowed.

I notice looking at the Oceania Annual Report for FY2023 on p53, 'Freehold Buildings' are listed as having a life range of 10-50 years. So does that mean such a pending depreciation rule change will have no effect on the likes of Oceania? IOW, no commercial building with a life of 50 years or more in your property portfolio means no change? Or is National planning to scrap all commercial building depreciation? I am unclear on this matter.



Of course, under accounting rules depreciation (which is a non- cash expense) on buildings will still be applied/recorded/shown, just not allowed as a deduction against taxable profit?


If none of these retirement village buildings have a commercial life of more than 50 years, and 'IRD allowable depreciation' on these buildings is reduced to 0%, that doesn't mean those buildings will not have to be replaced eventually. So I suspect you are correct ronaldson. There would have to be two sets of accounts. One with 0% depreciation as required by the IRD. The second set of accounts would be kept by management where depreciation is still booked so that management have a picture of how much capital value is being lost via real depreciation that is not recognized by the IRD. The second set of accounts would be the one presented to shareholders. I.e. depreciation is still reported on, but is disallowed as a business expense.

SNOOPY

[Bjauck]

Going back to the National Party press release, commenting on the 'money saved': https://www.national.org.nz/boosting_incomes_for_kiwis_the_responsible_way
"$525 million on average per year from ending the commercial building depreciation tax break."

There is no distinction in that quotation made between buildings with a life of over 50 years or under 50 years. I may have this wrong. But IIRC when depreciation was first removed as a deduction in the FY2011/2012 financial year, this was only for buildings with an expected life of more than 50 years. If the building life was <50years, then you were able to go on depreciating it, as previously allowed.

I notice looking at the Oceania Annual Report for FY2023 on p53, 'Freehold Buildings' are listed as having a life range of 10-50 years. So does that mean such a pending depreciation rule change will have no effect on the likes of Oceania? IOW, no commercial building with a life of 50 years or more in your property portfolio means no change? Or is National planning to scrap all commercial building depreciation? I am unclear on this matter.



If none of these retirement village buildings have a commercial life of more than 50 years, and 'IRD allowable depreciation' on these buildings is reduced to 0%, that doesn't mean those buildings will not have to be replaced eventually. So I suspect you are correct ronaldson. There would have to be two sets of accounts. One with 0% depreciation as required by the IRD. The second set of accounts would be kept by management where depreciation is still booked so that management have a picture of how much capital value is being lost via real depreciation that is not recognized by the IRD. The second set of accounts would be the one presented to shareholders. I.e. depreciation is still reported on, but is disallowed as a business expense.

SNOOPY

How do companies account for any FIF overseas income they have? Their FIF may not have any actual income during the year, yet for tax purposes they are deemed to produce a "fair" dividend of 5% of the opening capital value.

[Snoopy]

How do companies account for any FIF overseas income they have? Their FIF may not have any actual income during the year, yet for tax purposes they are deemed to produce a "fair" dividend of 5% of the opening capital value.


Keeping on topic, provided those retirement village operators who have expanded into Australia have an imputation credit account in Australia, they will not come under the FIF regime.

To address your question more generally, FIF is just part of income tax. FIF is calculated and incorporated within the income tax liability. The 'fact' there is not necessarily any cashflow backing the FIF income is 'just that'.

SNOOPY

[Snow Leopard]

How do companies account for any FIF overseas income they have? Their FIF may not have any actual income during the year, yet for tax purposes they are deemed to produce a "fair" dividend of 5% of the opening capital value.

If you are referring to the tax implications of the australian assets of the likes of RYM and SUM* then this is not a FIF thing at all.

*and many other companies

[Baa_Baa]

Exactly, let's not over complicate this.

Depreciation is an accounting item recognising decreasing value of an asset over time, usually offset to some extent by maintenance expenses to extend the lifetime of the assets. Normally for most other businesses asset depreciation is a deductible expense, from income. The question is only whether RV's are a normal business or are being singled out for special treatment and allowed, or not, to deduct that depreciation.

I think the denominating fact will be that most of the RV's assets are ultimately some other persons mid-long term accomodation, i.e they have purchased the rights to occupy the property for however long they live. It is reasonable and right that the landlord claims depreciation on those assets that the, in effect renter, has leased out.

[Snoopy]

I think the denominating fact will be that most of the RV's assets are ultimately some other persons mid-long term accommodation, i.e they have purchased the rights to occupy the property for however long they live. It is reasonable and right that the landlord claims depreciation on those assets that the, in effect renter, has leased out.


Yes but the phrase 'reasonable and right' and the word 'taxation' do not often appear in the same sentence for a reason. An RV ILU is, for taxation purposes, 'a residential dwelling'. Thus no depreciation against income can be claimed, and hasn't been able to be claimed for some years.

SNOOPY

[BlackPeter]

Yes but the phrase 'reasonable and right' and the word 'taxation' do not often appear in the same sentence for a reason. An RV ILU is, for taxation purposes, 'a residential dwelling'. Thus no depreciation against income can be claimed, and hasn't been able to be claimed for some years.

SNOOPY

Just playing here devils advocate ...

Would it really be appropriate to allow the RV provider to claim depreciation on residents ILU? These units are brought up to as new standard every time the residents change (and the process is paid by the departing resident). No value lost (unless we add the jitters of the housing market, but that normally jitters upwards).

Any maintenance during the occupancy time is paid by the RV provider, and no doubt, the cost for that are fully tax deductable.

So - why would there be a case for allowing RV providers additionally to depreciate ILU's? The ILU's don't lose value and all costs to keep them "as new" are either paid by the resident or they are tax-deductable anyway.

[Baa_Baa]

Another 'nothing to be proud of moment' for NZ healthcare. WORST in the OECD!

Two charts;

1. "Number of Months from Global First Launch to Public Reimbursement by OECD Country (of all new medicines launched and reimbursed by country from 2012 to end of 2021)"
https://phrma.org/-/media/Project/PhRMA/PhRMA-Org/PhRMA-Refresh/Report-PDFs/A-C/2023-04-20-PhRMA-Global-Access-to-New-Medicines-Report-FINAL-1.pdf
14738

2. "Percentage of New Medicines Reimbursed by Public Insurance Plans by OECD Country (of all 460 new medicines launch from 2012 to end of 2021)
https://www.medicinesnz.co.nz/fileadmin/user_upload/Publications/New_Zealand_s_Medicines_Landscape_2022-23.pdf
14739

[Muse]

Yeah but if you turn the charts upside down then we become number one

[Snoopy]

Just playing here devils advocate ...

Would it really be appropriate to allow the RV provider to claim depreciation on residents ILU? These units are brought up to as new standard every time the residents change (and the process is paid by the departing resident). No value lost (unless we add the jitters of the housing market, but that normally jitters upwards).

Any maintenance during the occupancy time is paid by the RV provider, and no doubt, the cost for that are fully tax deductible.

So - why would there be a case for allowing RV providers additionally to depreciate ILU's? The ILU's don't lose value and all costs to keep them "as new" are either paid by the resident or they are tax-deductible anyway.

I have to say, in this instance, I agree with the devil!

SNOOPY

[mike2020]

I remember when you could claim depreciation on rentals and it seemed like a bit of con to me. I knew people who bought and sold often enough, made gains, paid no tax and scored depreciation as well.
Mostly R and M is the real cost.

[clearasmud]

I remember when you could claim depreciation on rentals and it seemed like a bit of con to me. I knew people who bought and sold often enough, made gains, paid no tax and scored depreciation as well.
Mostly R and M is the real cost.

No you don't score the depreciation if you make a gain on sale

[mike2020]

I'm going back a while and these people usually held over 12 months at the least.

[ronaldson]

I'm going back a while and these people usually held over 12 months at the least.


I think Clearasmud is trying to tell you that selling at a gain requires you to record "depreciation recovered" on the taxable side of the ledger, if it has been charged as a deductible expense in previous years.

[mike2020]

Ok, maybe I had that wrong, I know I had to pay back some when I sold a house I built and rented. Maybe the grass was looking greener back then.

[Aaron]

I think Clearasmud is trying to tell you that selling at a gain requires you to record "depreciation recovered" on the taxable side of the ledger, if it has been charged as a deductible expense in previous years.

Maybe they sold the house at written down book value and took a tax free capital gain on the land?

[Greekwatchdog]

For Bars latest Review on sector.

The aged care sector has had another tough month, led by Ryman Healthcare (RYM) down ~-12%, re-tracing most of its post capital raise performance. Where to from here? We remain of the view that the sector in general, and RYM particularly, presents some of the best risk-reward opportunities in the NZ market. Over the last six months: (1) house prices and turnover have inflected; (2) the aged care association has reached its most favourable funding agreement with aged care providers for several years; (3) staff shortages have eased materially through record immigration; and (4) NZ has had an election with an outcome that is likely to be modestly positive for the sector. November will bring with it the aged care heavy earnings season, when all but Summerset (SUM) will report earnings. We expect ~+10% aggregate growth in annuity EBITDA and underlying earnings for FY24, and a substantial improvement in cash generation from a year ago.


While we acknowledge the aged care sector has had many challenges over the last 24 months, and that it continues to have some, we point out that: (1) the sector has de-rated by >50%; (2) against the many known headwinds the sector has delivered substantial aggregate growth in annuity earnings, underlying earnings and even book value; and (3) the demographic trends that are underpinning the long-term investment case for this sector have not changed.


Cash generation and net debt in focus — at below book value the license to continue to build can no longer be taken for granted
The three aged care companies reporting 1H24 earnings trade comfortably below book value. Hence, we expect focus to be squarely on the ability to control debt. The companies have three levers to control debt with: (1) cash generation from ongoing operations, primarily collecting cash from resales. We expect an improvement from RYM and Oceania Healthcare (OCA), and largely unchanged from Arvida (ARV); (2) capex, we expect meaningfully reduced capex spend from all three, controlling the controllable; and (3) new sales cash flow. This is the biggest unknown, but we expect RYM and OCA to show solid improvements from a (very) weak 1H23 and for ARV to show some deterioration, in-line with its comments at its 2Q24 update.


Care earnings — dare to dream
Three years of run-away opex growth, COVID challenges and inadequate funding increases has largely obliterated care earnings for the aged care sector. We estimate that EBITDA margins have declined from ~20% to low single digits. The last earnings seasons presented some glimmers of hope, with at least a halt of the continued deterioration. We expect that this positive trend will continue when the companies report 1H24 and accelerate towards the full year. We expect care EBITDA margins to accelerate to ~9% in FY24 versus ~7% in FY23 and for opex to decelerate to +8% YoY. The first absolute improvement in care earnings for several years.


Summerset now at a near record ~+40% premium to RYM on our preferred valuation metric of EV/annuity EBITDA
Three years ago RYM was trading at a +20%–40% premium to the smaller but faster growing SUM (depending on the valuation metric). The reasons given at the time was a combination that RYM had a stronger brand, longer track record of organic growth, a more established presence in Australia, and a superior care offering. The premium did not make sense to us given SUM's superior cash recovery of capex and, therefore, faster growth. Today the situation is largely reversed. SUM is valued at a +20–40% premium to RYM depending on the valuation metric. In our view, this suggests that the market expects no improvement in RYM's care earnings or cash recovery of capex: the two areas where it has lagged SUM. We continue to view SUM as well positioned but struggle with the relative valuation: (1) RYM has delivered faster annuity EBITDA growth over COVID; (2) on our estimates RYM will be FCF positive in FY25; and (3) RYM has an established presence in Australia with decades of unencumbered growth ahead. This is offset by SUM's superior cash recovery of capex, more capital light development model and therefore ability to grow faster. We value both companies on the same multiple. We make minor downgrades to our estimates and reiterate our OUTPERFORM ratings on RYM, ARV and OCA.

Housing market appears to have reached an inflection point
Sales updates and comments
Both SUM and ARV have released their new and resale numbers for the six months covering 1H24 (period for RYM, ARV and OCA). SUM's update was solid, with resales increasing +25% YoY and +18% sequentially (after adjusting for a March YE), new sales also showed signs of an improved residential market, up +12% YoY, both broadly in-line with our expectations. ARV's sales were not as strong, with resales up +12% YoY but down -12% sequentially, new sales were up +11% sequentially but down -3% YoY, these were slightly below our expectations and we lower our estimates with this update.


Additionally to these figures were comments made supporting the idea that the housing market has reached an inflection point. SUM stated, 'we’re seeing positive signs that the property market is improving'. Demand at its latest Auckland development, St Johns, opening next year, 'has been very high'. Winton at its AGM reported that pre-sales for its high-end Northbrook aged care developments are now over NZ$80m (up +NZ$30m in two months). Winton also stated that the NZ housing market is 'beginning to show signs of recovery' and Fletcher Building stated that there is 'potential upside' to its FY24 residential sales target if current sales momentum continues.

Ryman Healthcare (RYM)
Debt, cash flow and care earnings in focus
RYM's latest debt update stated that it had negotiated a change in its interest coverage ratio (ICR) covenant calculation to change the basis of the earnings from adjusted EBIT to adjusted EBITDA. This change, on our modelling, suggests that it is unlikely to breach covenants when covenants return to 2.25x in FY26, even when accounting for the recent increase in interest rates. Cash flow and net debt build will continue to be a key focus for RYM over the next few years. We estimate that RYM will add a modest amount of debt in FY24 as it finishes construction of several main buildings in villages that are unlikely to fully re-cycle cash. We expect a substantial improvement on FY23 and model early signs of its strategy shift paying off in its 1H24 result. We believe RYM can achieve its goal of positive FCF in FY25 (largely by controlling the controlables, notably capex), and continued positive FCF post FY25 is possible given lower high density construction and lower proportion of care.

Earnings changes
We make minor changes to our forecasts, slightly higher care fees offset by: lower new sales gains (our new ORA sales estimate decreased to 525 from 550 in FY24), higher opex, and higher interest costs. Annuity EBITDA remains broadly unchanged.

Arvida (ARV)
Interest costs, debt, and operating expenses
Arvida has already pre-announced its sales numbers (resales and new sales); hence, we expect focus to be on cash generation and costs. ARV indicated in its 2Q24 update that extended settlement times had continued to be a feature and that it hadn't seen a material change in behaviour from the slight improvement seen in the housing market. We expect another six months of negative free cash flow. That said, we expect a material improvement in cash generation from recent periods, primarily due to lower investment cash flow. We forecast an increase of +NZ$45m in net debt versus FY23.




Earnings changes
We marginally decrease our earnings estimates for ARV due to a combination of: lower resale gains following its 1H24 update, lower care fees, and higher interest costs, slightly offset in FY24 by higher new sale gains and lower D&A. Our net debt path also increases.

Oceania Healthcare (OCA)
Interest costs, debt, and cash flow
OCA's flagship ~NZ$150m development The Helier will likely be in focus. Large scale launch of the apartment sell down was not until late August. We are unlikely to see many if any sales in the 1H24 period, but OCA should have seen at least a handful after period end. The delay of The Helier will result in yet another period with increasing debt, we estimate ~+NZ$40m (to NZ$585m). For the full year we expect largely flat net debt and positive free cash flow. A first for many years for any of the listed aged care operators.

Earnings changes
We lower our forecasts on the back of lower resale gains (lower prices), lower new sale gains (prices and units in FY24), lower DMF and slightly higher interest costs (OCA has the lowest effective interest rate in the sector given its high portion of fixed debt, notably its retail bonds). Our net debt forecasts increase and we no longer forecast a fall in FY24 due to higher capex and lower cash flow from new sales.

[winner69]

Thanks greekwatchdog

[troyvdh]

Ditto...Thanks gw

[bull....]

see RV consents fell 7% , wonder which companies pulling back the most

[bull....]

ANZ Property Focus Report says housing market is weak, revises house price expectations down

https://www.interest.co.nz/property/125422/anz-property-focus-report-says-housing-market-weak-revises-house-price-expectations

no wonder all RV stocks heading down again

[60yearsold]

Rumour has it that Summerset are looking at buying and developing half of Gulf Harbour Golf Course.
There is an encumbrance restricting the land to being a golf course only for 999 years.
The Land is unstable as it was constructed for Golf Course loadings.
The local community are outraged.
It's an interesting story, Banned company Director Greg Olliver is involved, Summerset, if involved, should be very careful. Google for details.

[ronaldson]

I wonder at what point any of the listed RV operators would consider their business "mature" and that they have reached an optimum size operationally, such as to withdraw from new development and consolidate to focus simply upon their residents and shareholders, and reduce risk accordingly?

At the moment development capital expenditure is the major cash outflow for all, with management seeking to structure development projects to ensure capital commitments match capacity limits whilst maintaining high build rates and keeping costly land banks on hand, and churning sales and resales as fast as market forces allow. Those where rest home beds predominate are (rightly) pivoting away as fast as they can so as to minimise dependence upon government funding support.

Some of the stresses the current approach delivers to shareholders have been manifesting. And this despite the demographic tailwinds blowing hardest just now. I would have thought that targetting, say, 2030 to scale back and consolidate to just operate then existing sites would be most beneficial to holders. I have the same view about listed property company entities where the share price has remained more or less static over decades despite buying, selling and developing over the intervening period. No doubt great fun for those involved but doesn't move the actual share price for more than a generation. Compare that with the outcome for those who buy or co-own a single property and divest after the same timespan and invariably the capital return is far higher.

Of course there are benefits to society/the aged community from the current approach but why should investors be responsible for that? So what is the endgame here, or indeed is there an end point envisaged at all or do we just continue until population growth and home ownership rates drop to unsustainable levels and the model fails? Interested in what current investors in the sector think given dividend growth/returns are no longer market leading.

[mike2020]

I think of Fonterra and it's world domination approach under previous management and I see exactly what you are saying. At some point its just upgrades and modernization but there is massive population growth expected in the near future. I bet the scenario you are considering is well over a decade off.

[Ggcc]

I wonder at what point any of the listed RV operators would consider their business "mature" and that they have reached an optimum size operationally, such as to withdraw from new development and consolidate to focus simply upon their residents and shareholders, and reduce risk accordingly?

At the moment development capital expenditure is the major cash outflow for all, with management seeking to structure development projects to ensure capital commitments match capacity limits whilst maintaining high build rates and keeping costly land banks on hand, and churning sales and resales as fast as market forces allow. Those where rest home beds predominate are (rightly) pivoting away as fast as they can so as to minimise dependence upon government funding support.

Some of the stresses the current approach delivers to shareholders have been manifesting. And this despite the demographic tailwinds blowing hardest just now. I would have thought that targetting, say, 2030 to scale back and consolidate to just operate then existing sites would be most beneficial to holders. I have the same view about listed property company entities where the share price has remained more or less static over decades despite buying, selling and developing over the intervening period. No doubt great fun for those involved but doesn't move the actual share price for more than a generation. Compare that with the outcome for those who buy or co-own a single property and divest after the same timespan and invariably the capital return is far higher.

Of course there are benefits to society/the aged community from the current approach but why should investors be responsible for that? So what is the endgame here, or indeed is there an end point envisaged at all or do we just continue until population growth and home ownership rates drop to unsustainable levels and the model fails? Interested in what current investors in the sector think given dividend growth/returns are no longer market leading.
I feel if all RV companies worked together to halt production of new villages until the NZ government looked into funding, only then might you see some action. Shareholders seem to have a carrot hanging in front of them thinking things will get better. Those invested in the RV will understand that carrot has been in front of them for a while and the general public don't understand that RVs are not earning a whopping big income for what they are spending on developing. Just my 2 cents

[nztx]

https://www.nzherald.co.nz/business/christchurch-metlifecare-retirement-village-resident-complains-of-285000-charge-to-transfer-apartments/GIILP3QVENHOFMXVI5HEEBIQNI/

Christchurch Metlifecare retirement village resident complains of $285,000 charge to transfer apartments


Not good when this sort of thing gets full airing

[X-men]

What a mess this sector. Totally investable this sector.

You only need to address one flea...then the rest of it will keep coming

[Greekwatchdog]

What a mess this sector. Totally investable this sector.

You only need to address one flea...then the rest of it will keep coming

I don't know if this is a common practice with the other RV stocks. If it is they need a kick up the arse. Wouldn't want to assume this is industry wide.

[X-men]

Problems are these oldies want luxury....want to be taken care but not willing to spend money....

Nothing free in this world...U want a good retirement....U need to be able to service it .

[ronaldson]

The ARV interim report enlightens us with the following, which is applicable to all listed operators:-

" The gazetted increase in care funding rates, effective from 1 July 2023, are 8.6% for rest home, 9.5% for dementia and 11.3% for hospital-level care."

That means for those entities with a half or full year reporting date of 30 Sept that 50% of that increase flowed to the bottom line in that most recent 6 monthly period, but the period to 31 March 2024 will benefit from the full 100%. Obviously actual receipts will vary according to the mix of beds the operator provides. So a marginally better circumstance coming for some, perhaps RAD in particular but others also.

[Ferg]

" The gazetted increase in care funding rates, effective from 1 July 2023, are 8.6% for rest home, 9.5% for dementia and 11.3% for hospital-level care."

That means for those entities with a half or full year reporting date of 30 Sept that 50% of that increase flowed to the bottom line in that most recent 6 monthly period, but the period to 31 March 2024 will benefit from the full 100%.

Hi ronaldson, that is not quite right.

30 Sept 2023 balance date gets 25% of the benefit, and 31 March 2024 gets 75% of the benefit given the period 1 April to 30 June 2023 was at the old rates. For December and June balance dates you are correct.

[ronaldson]

Hi ronaldson, that is not quite right.

30 Sept 2023 balance date gets 25% of the benefit, and 31 March 2024 gets 75% of the benefit given the period 1 April to 30 June 2023 was at the old rates. For December and June balance dates you are correct.

Perhaps you should read my words more carefully.

[Maverick]

Hey Hey Ferg! wonderful to have you back!
I said just yesterday I was having a break from ST to get on with real things but you posting today can`t go by uncelebrated.

And what's more you AND Ronaldson working together, some of the best share traders RV analysts chatting ... got to be part of that.

Here's my contribution to your topic...using OCA details of course but it applies to all providers.

I said a while back I was expecting OCA to demonstrate a real improvement in care profit 1HY24. It did not happen. Disappointed, I then removed any growth expectations going forward in care profits ( less PAC and DMF ever growing revenue) despite the meaningful 10% boost from Whatu Ora funding 1.7.23.

ARV`s Jeremy, commented it was a timing issue??? Inspired by his comment, so I've since dug around. Turns out there was a rise in wages 1.4.2023.
Taken straight from NZNO website;
A flat rate salary increase to all steps of all scales of $4000 will be effective from 1 April 2023.

So that's about an average 5% pay rise for a rest home nurse salary and subsequent staff ranks.
We already know the 10% Whatu Ora increase only came half way through the 1HY as you both point out.

Let's do some numbers using OCA figures ( rounded off and pro rata) , as I know them inside out, to see if ARVs story is supported by the latest OCA result;

2hy23 care funding was $90m
2Hy23 care wage expenses $90m
Therefore 2HY23 care profit = $nil

1HY24 care funding increased 10% for half the period…$90 x 10% X ½ = $94.5m
1HY24 care expenses are $90m x 5% = $94.5m
Therefore 1HY24 care profit = $nil
So 1HY24 care profit = $nil … despite the 10% DHB increase.

So this basic math shows that despite a 10% DHB boost half way through, the net care growth was a big fat zero as it was exactly the case with OCA. Very disappointing to me after so much hope.

But Wait …there's more! Let's look at the effect in 2HY24….watch this;

2HY 24 care funding will be $90m x 10% -= $99m, ( capturing the full effect of DHB rise)
2HY 24 care expenses will be $90 x 5% =94.5
Therefore 2HY24 care profit = +$4.5m

Now we see the care profit increase from zero to +$4.5m.

So to me , ARVs comments and proved by OCAs actual experience and all stack up perfectly. RYM also said the care funding boost was material.

I now expect care profits to rise sustainably for OCA $4.5m for the 2hy24 after all.

All RVs will benefit from this, obviously some more than others depending on their care weightings. Then next year it will be captured in both HYs . So, should govt maintain this new pattern , then that's $9m in OCAs case.

There you go Ferg and Ronaldson. What do you think of those numbers and logic?
While it all stacks up to me, feel free to pull it apart if you disagree.

Welcome back Ferg, your've been missed.

[Ferg]

Thanks Maverick. Happy to contribute where I can.

You are correct: given the funding increases take effect from 1 July then only half the benefit is captured in H1. Hence the first 50% of the year gets 50% of the benefit => which is 25% of the funding increase. The second half of the year gets the full effect so 50% @ 100% => 50% which added to the 25% for H1 delivers 75% of the funding increase for that fiscal year. So 2 things:
1) your workings are correct, and
2) re-reading and re-interpreting ronaldson's post it appears we are saying the same thing.

What threw me was 2 things: firstly my interpreting a year end of 30 Sept got 50% of the increase:


That means for those entities with a half or full year reporting date of 30 Sept that 50% of that increase flowed to the bottom line

The bold part is the part that I interpreted as incorrect; that reporting period of 1 year gets 25% of the funding increase given no-one reports H2 in isolation. Generally reporting periods refer to either the first half or the full year, not the second half....which is where the confusion arose because I omitted seeing (and quoting above) the qualification posted by ronaldson:


in that most recent 6 monthly period
that was for the 30 Sept date.

And secondly, this part:


but the period to 31 March 2024 will benefit from the full 100%

had no such qualification and re-reading it, it is still confusing. I would have assumed a reporting period of 31 March is for 1 year.

My bad but good to see we are all on the same page.

[Rawz]

Good to have you back Ferg

[Muse]

Good to have you back Ferg

Ditto that - ST was a lesser place without Ferg

[davflaws]

Ditto that - ST was a lesser place without Ferg

I appreciate Ferg's rational and sober analysis of stocks on the NZX forum. It is good to have posters who are able to share their understanding at a level that is well beyond my ability.

[Valuegrowth]

I noticed retirement village sector has taken too much debt. If I am correct their debt level is higher than any other sector. How are they going to pay down debt while developing projects? Cash flow is king for me.Cheers.

[Greekwatchdog]

Aged Care SectorMontgomerie-Ibbotson Aged Care Pricing Index from For BarAfter four turbulent years in the housing market, both generally and within the aged care sector specifically, we are broadly back to normal across the board. House prices and housing turnover are back to trend and the aged care companies have seen their post COVID pricing buffers return to largely zero. The aged care companies built up a massive incremental ~+20% pricing buffer in 2021, only for it to be entirely depleted (and some) through 2022/23 as they first increased unit prices then held steady in a steeply falling housing market. The Montgomerie-Ibbotson (MI) index has remained flat since our last update six months ago. However, house prices have recovered modestly during this period, resulting in buffers recovering somewhat but still being negative (just). One thing, however, has not returned to normal, and that is valuation. On most valuation metrics the aged care sector is at a steep ~30% to 50% discount to its pre-COVID median. The higher interest rates and the weaker care profitability can account for some of that. We still see attractive value in the sector generally and specifically in Ryman Healthcare (RYM) and Oceania Healthcare (OCA).

NZ housing market — lots of screaming for not much wool
The last four years have been some of the most turbulent in the history of the New Zealand housing market. However, looking at it today and comparing it to five years ago it looks distinctively normal. Days to sell are ~40 days (long run average 38), HPI has increased by a CAGR of ~+6% annually, in-line with the ~+6% to 7% delivered over the last 40 years, and ten year bond rates are in-line with the 20 year average, albeit up from five years ago. It's not over yet, affordability still looks very stretched and mortgage rates have not reacted to the recent decline in interest rates. However, after one year where the focus has been on when/if the aged care companies will have to cut unit prices, it is now more a question of when they will be able to increase them again.

Unit price buffer has begun to retrace as New Zealand house prices rebound
In mid-2023 our unit price buffer was in negative territory for both Summerset (SUM) and RYM (representing the cumulative price inflation from the aged care providers in excess of the broader NZ residential market since pre-COVID). However, given the ~+4% increase in house prices since May 2023, and RYM and SUM holding unit prices flat, the buffers have returned to a more neutral level. Should the broader housing market continue to improve the sector could return to delivering unit price increases broadly in-line with house price inflation.

Our overall MI index has remained broadly flat for 18 months
The trend of flat unit prices continued over the second half of 2023. Our MI index has now been broadly flat for 18 months. During 2023 both RYM (+0%) and SUM (+1%) saw no overall unit price increases, with similar trends seen across both serviced apartments and independent living units. Data for Arvida (ARV) and OCA is no longer available, however, similar trends were seen prior to data ceasing.

Figure 1. Sector valuation summary


Company
Rating
Current price (NZ$)
Target price (NZ$)
12m fwd yield
P/NTA (x)
12m fwd PE (x)
12m fwd EV/EBITDA (x)
12m fwd EV/ annuity EBITDA (x)
12m fwd PE annuity (x)


Oceania Healthcare (OCA)
OUTPERFORM
0.70
1.00
4.1%
0.50
7.5
11.9
21.0
18.6


Arvida (ARV)
NEUTRAL
1.13
1.18
2.7%
0.57
11.3
14.8
19.5
16.1


Summerset (SUM)
NEUTRAL
10.61
10.50
2.3%
1.07
13.8
16.3
27.2
29.8


Ryman Healthcare (RYM)
OUTPERFORM
5.85
8.60
0.0%
0.86
11.5
14.5
19.7
17.5

[bull....]

ANZ's economists pick house prices to remain flat in the first half of this year and then rise by 2% in the second half

https://www.interest.co.nz/property/126134/anzs-economists-pick-house-prices-remain-flat-first-half-year-and-then-rise-2

confirms other data on a flat property market this yr.

[Balance]

ANZ's economists pick house prices to remain flat in the first half of this year and then rise by 2% in the second half

https://www.interest.co.nz/property/126134/anzs-economists-pick-house-prices-remain-flat-first-half-year-and-then-rise-2

confirms other data on a flat property market this yr.

Real estate industry trying to stoke the market up with all kinds of bullish comments about demand etc etc etc.

I talked to a real estate agent friend who works for Barfoot & Thompson who said it is a real struggle out there unless vendors are realistic with their asking prices.

All the talk about migrants pushing up house prices is just a load of BS & crxp with little substance.

The migrants currently pouring into NZ are mostly semi-skilled workers on work visas from India, Philippines and China - they cannot afford to buy a house in NZ, especially Auckland, where the jobs are even if they sell all their possessions in their home countries!

They are renters and that's why the rental market is so tight for family units ((rents have gone up by around $30 to $40 a room (yes, by room) in Auckland in the last year)).

Meanwhile, many of the NZers leaving NZ permanently to go to Australia especially are leaving behind a property or two to sell.

Property prices aren't going to go up in a big hurry until interest rates drop by 2% or more in her opinion.

[thedrunkfish]

Real estate industry trying to stoke the market up with all kinds of bullish comments about demand etc etc etc.

I talked to a real estate agent friend who works for Barfoot & Thompson who said it is a real struggle out there unless vendors are realistic with their asking prices.

All the talk about migrants pushing up house prices is just a load of BS & crxp with little substance.

The migrants currently pouring into NZ are mostly semi-skilled workers on work visas from India, Philippines and China - they cannot afford to buy a house in NZ, especially Auckland, where the jobs are even if they sell all their possessions in their home countries!

They are renters and that's why the rental market is so tight for family units ((rents have gone up by around $30 to $40 a room (yes, by room) in Auckland in the last year)).

Meanwhile, many of the NZers leaving NZ permanently to go to Australia especially are leaving behind a property or two to sell.

Property prices aren't going to go up in a big hurry until interest rates drop by 2% or more in her opinion.

We are looking to purchase at the moment, something around the 2 acre mark with decent workshop etc.

Nothing seems to be selling down here outside of the premium stuff, we are just sitting on our hands for a while as alot of sellers are still in la la land. I get the feeling like that will change shortly.

[Balance]

We are looking to purchase at the moment, something around the 2 acre mark with decent workshop etc.

Nothing seems to be selling down here outside of the premium stuff, we are just sitting on our hands for a while as alot of sellers are still in la la land. I get the feeling like that will change shortly.

Not surprising with all the bullish talk by the real estate industry that vendors are expecting prices to hold at 2021 valuations or higher!

[SailorRob]

We are looking to purchase at the moment, something around the 2 acre mark with decent workshop etc.

Nothing seems to be selling down here outside of the premium stuff, we are just sitting on our hands for a while as alot of sellers are still in la la land. I get the feeling like that will change shortly.

Well... Who wants to live there...

All your other 'feelings' have been way off the mark, not sure why this one would be different.

[Balance]

Well... Who wants to live there...

All your other 'feelings' have been way off the mark, not sure why this one would be different.

Are you feeling the burn, SR?

Where’s the ‘I want OCA to be down at 45c’? :t_up:

Got to admit that it would be wonderful if OCA keeps going down and falls to 25c!

[thedrunkfish]

Still living rent free in your thoughts I see. Hope your having a great day champ.

[troyvdh]

What astounds me is focus on the housing MKT....surely when folk need to move into a retirement home...they just move.

[mike2020]

I think that still depends on the type of village or home. Mum took 6 months to sell her house at the money she wanted before buying into a village. Its been a very positive move and shes happier than any of us imagined but she was firm on her price and it took time.

[Baa_Baa]

What astounds me is focus on the housing MKT....surely when folk need to move into a retirement home...they just move.

It does seem simple on face value, but 'retirement home' has various meanings nowadays. In days gone past, they were just a communal living block of rooms for the aged, who need living support of varying degrees, from making dinner and keeping a tidy room, through to daily support or hospital care, dementia care and respite and end-of-life care. This by definition is defined as "need" and you're right, the choice is stark and the moves into this are usually triggered and swift.

Modern 'retirement villages' are much more than that. Far more even. Although the listed companies provide for the above old aged care and infirmed, the RV's have developed and move into earlier aged life living circumstances. They have luxurious apartments, nice apartments, self contained villas, independent living, amenities, with care facilities available as or if needed. The RV's 'retirement' living is far more sophisticated than the old school charities old age through end-of-life care. It is a choice decision, not just a need decision.

Able bodied retirees have choice, about whether they continue in their own homes, alone, or trade that for the community that independent living in a modern RV offers, from high-end accomodation and facilities, through to more affordable independent living, mostly well before they need old-age care, hospital, or dementia care.

It's that choice, and the continuum of care alongside it, that sets the modern RV's apart from the 'needs based' care that the rest of the sector mainly caters for.

And that choice, not need, plays into the housing market. An able bodied retiree, who owns their own home, but 'chooses' to move into an RV apartments, villa, or home, usually must sell their home to pay for it. That's why the housing market matters, it is relinquishing existing property to pay for the right to occupy an RV property. The market determines the relinquish price, and the RV sector determines the ORA price, the right to occupy.

The housing market therefore, is very influential in decisions to choose an RV, before becoming infirmed.

[bull....]

Real estate industry trying to stoke the market up with all kinds of bullish comments about demand etc etc etc.

I talked to a real estate agent friend who works for Barfoot & Thompson who said it is a real struggle out there unless vendors are realistic with their asking prices.

All the talk about migrants pushing up house prices is just a load of BS & crxp with little substance.

The migrants currently pouring into NZ are mostly semi-skilled workers on work visas from India, Philippines and China - they cannot afford to buy a house in NZ, especially Auckland, where the jobs are even if they sell all their possessions in their home countries!

They are renters and that's why the rental market is so tight for family units ((rents have gone up by around $30 to $40 a room (yes, by room) in Auckland in the last year)).

Meanwhile, many of the NZers leaving NZ permanently to go to Australia especially are leaving behind a property or two to sell.

Property prices aren't going to go up in a big hurry until interest rates drop by 2% or more in her opinion.

take out immigration house prices be down again.
no one be around to buy old peoples houses :scared:

[SailorRob]

Are you feeling the burn, SR?

Where’s the ‘I want OCA to be down at 45c’? :t_up:

Got to admit that it would be wonderful if OCA keeps going down and falls to 25c!



"I look at a stock as a business. Other people would look at it and say, 'Well, the stock hasn't done anything for a few years.'Who cares whether the stock has done anything for a few years? I don't care whether the price of my farm has done anything for a few years. I know that it can produce.So you've got to look at it as a productive asset and not as something that wiggles around on a piece of paper."

WB45c is arbitrary, last time the Sailor really filled his gullet was between 39 and 41 cents. Sold shortly after at 86.

So I'd prefer sub 45 thanks, or sub 25 if I can get. Hell I'd even take shares for free.

Currently I have been able to get my average (this round) below 80c but of course prefer much cheaper.

What are you asking about feeling the burn? Yep been hot and just had a kina cut so need to be careful in the Sun, nice not having to go back to work with everyone else I can tell you. This is purely because I have been able to purchase businesses with very LOW share prices to their ability to produce cash in future.

[dobby41]

What astounds me is focus on the housing MKT....surely when folk need to move into a retirement home...they just move.

What is astounding? It's about money - if the price you get for your house is going to be less but the unit you buy costs the same you'll feel worse off so less inclined to do it.

[dobby41]

take out immigration house prices be down again.
no one be around to buy old peoples houses :scared:

But you can't take out immigration - it is there for all to see and doesn't seem to be going away.

[bull....]

But you can't take out immigration - it is there for all to see and doesn't seem to be going away.

a slowdown in immigration may cause a slowdown in demand for property . prices may soften.
banks were saying house prices would go up double digits this yr 6 mths ago , now they are saying flat

[Bjauck]

a slowdown in immigration may cause a slowdown in demand for property . prices may soften.
banks were saying house prices would go up double digits this yr 6 mths ago , now they are saying flatGovernments on both left and right have more or less given up on introducing policies to boost investment in business to increase labour productivity. So immigration is needed to keep the economy alive. And be sure that if house prices looked like they were going to drop meaningfully they would find ways to keep the Ponzi scheme from collapsing. Unless they wanted to face electoral oblivion. Our three year parliamentary terms will ensure that.

"From 1996 to 2022, the average annual growth in labour productivity in New Zealand was 1.3 percent, compared with 1.9 percent in Australia."
"Part of this difference could be explained by Australia’s higher levels of capital investment. Growth in Australia’s capital inputs has averaged 3.9 percent per year compared with New Zealand’s 2.8 percent"

https://www.stats.govt.nz/information-releases/productivity-statistics-1978-2022/

[dobby41]

a slowdown in immigration may cause a slowdown in demand for property . prices may soften.
banks were saying house prices would go up double digits this yr 6 mths ago , now they are saying flat

Let's hope that there is a slowdown in immigration.

[troyvdh]

Bull....immigration etc.Mate how bloody sad is that.You maybe a legend.How healthy is it to have a nations wealth and prosperity depended on house price appreciation ??????????.
I weep.
Thanks dobby.

[bull....]

How healthy is it to have a nations wealth and prosperity depended on house price appreciation ??????????.
I weep.

totally agree and dont forget cows and sheep

[troyvdh]

Thankyou...I will put the tissues away.
Bloody milk powder....I live in the mainland.Our enviornment has been violated...in many respects...WATER.
I could go on.

[mike2020]

Thankyou...I will put the tissues away.
Bloody milk powder....I live in the mainland.Our enviornment has been violated...in many respects...WATER.
I could go on.
You should go on, on the salmon anglers website and learn the full impact yet to be felt in urban centers. We have our own N word. I could also go on.

[mike2020]

"I look at a stock as a business. Other people would look at it and say, 'Well, the stock hasn't done anything for a few years.'Who cares whether the stock has done anything for a few years? I don't care whether the price of my farm has done anything for a few years. I know that it can produce.So you've got to look at it as a productive asset and not as something that wiggles around on a piece of paper."

WB45c is arbitrary, last time the Sailor really filled his gullet was between 39 and 41 cents. Sold shortly after at 86.

So I'd prefer sub 45 thanks, or sub 25 if I can get. Hell I'd even take shares for free.

Currently I have been able to get my average (this round) below 80c but of course prefer much cheaper.

What are you asking about feeling the burn? Yep been hot and just had a kina cut so need to be careful in the Sun, nice not having to go back to work with everyone else I can tell you. This is purely because I have been able to purchase businesses with very LOW share prices to their ability to produce cash in future.

I sold at 1.59, 1.60 and 1.61 but that kind of luck is rare for me, I was just overweight after ditching my fsf shares and oca was looking cheap. Like it is now. The only difference this time is people are suspicious of it being so cheap.

[troyvdh]

Sorry Mike.It appears to me that you just dont get.Like dairy farms in the high country (above 700 meters) are ideally suited...the soil is ideal for cows.And with 1.5 km long sprinklers delivering water...Like what can go wrong mate.

[mike2020]

Not sure what you think I dont get. I have spent some serious time fishing high country lakes and rivers Canterbury, Otago. Telling people I had been a dairy farmer got me a few lengthy lectures.

[Neophyte]

Sorry Mike.It appears to me that you just dont get.Like dairy farms in the high country (above 700 meters) are ideally suited...the soil is ideal for cows.And with 1.5 km long sprinklers delivering water...Like what can go wrong mate.

And you have a degree in soil science? Keep your absolute nonsense off of a forum about Retirement Villages. Remove the income from our primary industries and see what happens to the price of property, and almost all other aspects of our economy

[bull....]

Pro Stock Picks 2024: Ryman, Sky TV are in as tech and health named trends to watch
https://www.nzherald.co.nz/business/pro-stock-picks-2024-ryman-sky-tv-are-in-as-tech-and-health-named-trends-to-watch/NLEUYFMCAJHFXKWETQJZ3NCJ3Y/

FB picking ryman , Craigs picking sum

[Aaron]

Maybe the marketeers of the product are getting desperate to keep things moving.

https://newsroom.co.nz/2024/02/29/probe-finds-retirement-villages-may-have-breached-fair-trading-act/

Preying on old people is not a new thing.

[Ggcc]

Maybe the marketeers of the product are getting desperate to keep things moving.

https://newsroom.co.nz/2024/02/29/probe-finds-retirement-villages-may-have-breached-fair-trading-act/

Preying on old people is not a new thing.

What would you suppose the commerce commission do? Penalise them for doing something the government hasn't got the resources to do. They are a business and all of the retired people I talk to love the village life. Yes their kids will have less than what they had hoped, but the parents would have had a fantastic end to their life.

[Aaron]

What would you suppose the commerce commission do? Penalise them for doing something the government hasn't got the resources to do. They are a business and all of the retired people I talk to love the village life. Yes their kids will have less than what they had hoped, but the parents would have had a fantastic end to their life.

Fair enough moving to a retirement village is a big decision at least you should read and understand the contract before signing or pay someone to read it for you.

I just know that all the times I have clicked on "accept terms and conditions" I am just relying on the honesty and decency of the party I am transacting with. Same goes for insurance policies, I do not know what I am really covered for but hope the insurance company is reasonable.

I would have assumed care facilities would be available in a retirement village if I did not visit sharetrader.

[JeffW]

Fair enough moving to a retirement village is a big decision at least you should read and understand the contract before signing or pay someone to read it for you.

I just know that all the times I have clicked on "accept terms and conditions" I am just relying on the honesty and decency of the party I am transacting with. Same goes for insurance policies, I do not know what I am really covered for but hope the insurance company is reasonable.

I would have assumed care facilities would be available in a retirement village if I did not visit sharetrader.

Residents are required to take independent legal advice prior to the purchase of the ORA

[Bjauck]

Maybe the marketeers of the product are getting desperate to keep things moving.

https://newsroom.co.nz/2024/02/29/probe-finds-retirement-villages-may-have-breached-fair-trading-act/

Preying on old people is not a new thing. They provide a service for older people which is outlined in law and before entering a contract the purchaser must seek legal advice. These people are better protected than many other consumers. Of course these consumers have to pay for the service offered by the ORA. They are not forced to enter contracts.

If they were of unsound mind and there has been duress or misrepresentation by the villages, then they should and do have recourse. Their solicitors should have picked that up too.

[ronaldson]

A bit of a beat up in my view. With 50k+ elderly folk in villages, some with faculties failing, there will always be those with a gripe to air either directly or via family members.

The listed operators do their best to be reasonable, and have improved any historic wordings/practices where criticism has been justified. And independant legal advice prior to entry is mandatory.

Poor behaviour does get called out and in a highly competitive industry that can be salutory of itself but often examples I have seem in the media are very questionable and reflect as much (or more) upon the complainant as the operator.

[nztx]

https://www.consumer.org.nz/articles/consumer-win-12-retirement-village-operators-warned-about-potential-fair-trading-act-breaches

Consumer win: 12 retirement village operators warned about potential Fair Trading Act breaches

[peat]

From the Building Cconomist a statistic about RV's


Dear Customer,

The average cost of a residential dwelling per m2 rose 12.15% during 2023, but the total cost to build that average unit rose only 8.22% because the average size of that unit reduced 3.65%.
Residential units are a mix of stand-alone houses, town houses, Retirement Units (down on Ave 23% in 2023) and apartments (down 43% in 2023).

[winner69]

Here’s 70 pages on retirement sector

https://nzaca.org.nz/wp-content/uploads/2024/02/ARC-sector-profile-2024.pdf

[ronaldson]

Here’s 70 pages on retirement sector

https://nzaca.org.nz/wp-content/uploads/2024/02/ARC-sector-profile-2024.pdf

Winner - I had a quick look and there are some revealing insights, although it deals with aged care beds (including those provided by RVs under ORAs) and not RV residents generally.

There is a great article in The Australian today examining the population demographics with respect to the massive increase in the 85+ cohort which must be expected when the first of the baby boomers (b1946) commence reaching that age in that country and the lack of any plan to address the consequences. The situation is/will be no different in NZ. Not only that but the proportion of the aged who can currently self fund their costs is falling incrementally.

The tsunami is coming. And RV operators are purposefully downsizing or exiting the provision of aged care beds as a matter of policy even now, with the intent of only providing for their own residents transition into care.

Our commitment to "short termism" isn't helping, with other more immediate crisis to focus upon.

[Bjauck]

Winner - I had a quick look and there are some revealing insights, although it deals with aged care beds (including those provided by RVs under ORAs) and not RV residents generally.

There is a great article in The Australian today examining the population demographics with respect to the massive increase in the 85+ cohort which must be expected when the first of the baby boomers (b1946) commence reaching that age in that country and the lack of any plan to address the consequences. The situation is/will be no different in NZ. Not only that but the proportion of the aged who can currently self fund their costs is falling incrementally.

The tsunami is coming. And RV operators are purposefully downsizing or exiting the provision of aged care beds as a matter of policy even now, with the intent of only providing for their own residents transition into care.

Our commitment to "short termism" isn't helping, with other more immediate crisis to focus upon.
A very interesting set of figures. Thanks W69. Years of underfunding are catching up. Those who can pay premium rates or stump up the cash for an ORA bed may be ok.

Otherwise in the absence of further boosts to funding, will Health Boards need to supply squalid dormitories/ doss houses for the rest? Will Rest homes in more prosperous areas decide to go private so they can charge more than the maximum contribution rate, as with OCA’s Helier.

[ronaldson]

Someone needs to talk to Sam Stubbs about being a first mover for constructing specially designed "Build to Rent" apartment blocks in main centres for those elderly 70+, with suitable support facilities included.

Cheaper for Government to pay an accommodation supplement to those needing assistance to afford occupation than any alternative. Of course when full aged/hospital type care is needed they would have to move on, but is that any different to now? And meantime tenure would be secure, in a community environment.

[kiora]

Or this model?
"Australia has 12 million empty bedrooms... So could this company crack the housing crisis code?
Empty nesters continue to stay put in their family homes, despite Australia's demand for housing skyrocketing.
6TH MAR, 24
PRINT WIRE

Matthew Kidman
Centennial Asset Management


FOLLOW
Affordable housing seems to be an elusive goal in Australia. However, Lifestyle Communities (ASX: LIC), which is celebrating its 21st birthday in 2024, might have just cracked the code."
https://www.livewiremarkets.com/wires/australia-has-12-million-empty-bedrooms-so-could-this-company-crack-the-housing-crisis-code?utm_medium=email&utm_campaign=Trending%20on%20Livewire%20%20Saturda y%209%20March%202024&utm_content=Trending%20on%20Livewire%20%20Saturday %209%20March%202024+CID_daade2d063a84b2b70238ff456 187a6a&utm_source=campaign%20monitor&utm_term=LISTEN%20%20READ

[Bjauck]

Someone needs to talk to Sam Stubbs about being a first mover for constructing specially designed "Build to Rent" apartment blocks in main centres for those elderly 70+, with suitable support facilities included.

Cheaper for Government to pay an accommodation supplement to those needing assistance to afford occupation than any alternative. Of course when full aged/hospital type care is needed they would have to move on, but is that any different to now? And meantime tenure would be secure, in a community environment.

The government for years has had tax and other policies in place that encourage households to over-invest in existing residential property, and then have a generous accommodation supplement benefit to enable some to rent the expensive residential investments.

So hey ho, income earners subsidise residential investors (both owner-occupiers and investors) and then subsidise those paying them rents. This continues because neither major political Party wants to face the electoral consequences of tackling this such massively government subsidised investment class, and the resulting effects on our capital markets and economy. A slow dismantlement of these large subsidies is needed.

Why doesn’t the government for a start, remove GST from building products and labour for new builds, and impose a stamp duty on purchases on second and subsequent exisiting houses, except perhaps for multiple dwelling blocks, and a CGT on all gains from investment in existing residential properties.

[bull....]

The housing market looks like it ended the peak summer selling season with new listings and average asking prices in March both down compared to February and a huge overhang of unsold stock as we head towards the quieter months of winter, according to the latest figures from property website Realestate.co.nz

https://www.interest.co.nz/property/127090/housing-market-heading-winter-shed-load-unsold-properties-looking-buyers

[ronaldson]

The housing market looks like it ended the peak summer selling season with new listings and average asking prices in March both down compared to February and a huge overhang of unsold stock as we head towards the quieter months of winter, according to the latest figures from property website Realestate.co.nz

https://www.interest.co.nz/property/127090/housing-market-heading-winter-shed-load-unsold-properties-looking-buyers


You could look at the number of new listings (which are sharply up from March 2023) as a positive indicator for the RV sector, that folk intent on entering a village are finally now listing their existing property so as to ultimately relocate into such a facility.

Similarly the article records that price expectations are adjusting lower, and we know downside adjustments are psycologically difficult and have a greater lag time in the market than upside movements. More sales will follow once vendors are more comfortable with meeting the current market.

Of course listings made with that underlying purpose will always be only a minor proportion of the total, but most RV operators are presently offering incentives to take up an ORA to better drive occupation decisions. Hence I don't put a negative spin for RV investors on the statistics reported above.

[bull....]

You could look at the number of new listings (which are sharply up from March 2023) as a positive indicator for the RV sector, that folk intent on entering a village are finally now listing their existing property so as to ultimately relocate into such a facility.

Similarly the article records that price expectations are adjusting lower, and we know downside adjustments are psycologically difficult and have a greater lag time in the market than upside movements. More sales will follow once vendors are more comfortable with meeting the current market.

Of course listings made with that underlying purpose will always be only a minor proportion of the total, but most RV operators are presently offering incentives to take up an ORA to better drive occupation decisions. Hence I don't put a negative spin for RV investors on the statistics reported above.

lower prices mean new unit's would have to be priced lower and re-sales as well surely unless you believe the people entering these units dont see price as a consideration, but then that would imply rv stocks are recession proof which stock prices dont seem to imply

anyway more headlines today compounding the negativity

Property listings hit near-decade high
https://www.newshub.co.nz/home/money/2024/04/property-listings-hit-near-decade-high.html

[ronaldson]

Article today in "Business Desk" that tells it like it is for the aged care sector and highlights the ever declining number of basic beds given the underfunding.

References the policy decisionmaking of OCA and ARV to divest facilities that either exclusively comprise or are overweight in the care bed component as a canary for how it will be in future and the demographic increase in the 85+ age group coming as the boomer generation approach that age and need such care and the lack of any plan to address this. At a minimum 13000 new beds required and none being built and existing facilities closing!

[Bjauck]

Article today in "Business Desk" that tells it like it is for the aged care sector and highlights the ever declining number of basic beds given the underfunding.

References the policy decisionmaking of OCA and ARV to divest facilities that either exclusively comprise or are overweight in the care bed component as a canary for how it will be in future and the demographic increase in the 85+ age group coming as the boomer generation approach that age and need such care and the lack of any plan to address this. At a minimum 13000 new beds required and none being built and existing facilities closing!
Oldies will need to sell their over-priced houses and see their capital dwindle more quickly to get a premium bed when the basic beds have gone. What will happen to the poor oldies without their own homes? The knacker’s yard?

[thegreatestben]

Inter-generational households likely to become more commonplace in NZ. Not a big part of majority of cultures here but very common in pacific and asian groups.

[Greekwatchdog]

For Bars latest on ARV, OCA and RYM.Aged Care SectorMore Sellers than Buyers
Over the last six months the three aged care operators with March year ends are down a further ~-20%, with Ryman Healthcare (RYM) the worst performer. Its market cap is now two thirds of what it was a decade ago, when it was about to report annuity earnings of NZ$59m, compared to the all-time high of NZ$187m we expect it to report for FY24. It is easy to look at the share prices and conclude that it is all doom and gloom in aged care land, but we disagree. (1) Care profits are depressed but margins are improving for the first time in a decade, the glass half full approach would suggest we should pay a higher multiple for depressed but recovering earnings. (2) The housing market is weak, with low turnover. But cash recovery is improving for the sector in general and for RYM in particular. (3) We expect the three reporting aged care companies to report the lowest increase in net debt on record for the last six months, with RYM's net debt broadly flat and modest increases for Oceania Healthcare (OCA) and Arvida Group (ARV). Against that we have lower growth, though with an average multiple of ~0.5x NTA it is unlikely to be the impediment for a re-rating. Instead, we believe investors are concerned about potential capital raises. We do not believe the aged operators need, will, or should raise capital. But never say never; market caps close to or below net debt tend to stress investors out. We believe all eyes will be on communication around capital needs and cash generation. A weak message is unlikely to be taken well.

What have we learnt since last reporting season? Care occupancy improving, villas selling well, apartments and care suites less so
All four main listed aged care companies have either reported, or recently guided to, sales for the six months to March 2024. On average resales were up ~+15% year-on-year from a weak March 2023 period, with OCA having the strongest (+30%) and ARV the weakest (+12%). The more cyclical new sales have a wider spread. ARV's villa heavy period grew +26% and RYM's service apartment heavy deliveries and inventory was weak, down -10% YoY. Summerset (SUM) delivered solidly on both. In aggregate, the sector will deliver all-time high ORA sales, up +15% YoY (+10% ex. SUM) during a recession. Hardly a sector in structural decline. Occupancy in care has continued to improve. This comes on top of increased funding, ~+10% per bed as of July 2023, and reduced wage inflation.

Net debt finally starting to plateau — counter-cyclical cash generation evident in the sector's first downturn
The NZ aged care sector is experiencing its first housing downturn since listing. RYM and ARV have lowered build rates and we estimate OCA will only start one new major construction in FY25. The reduced build rates are slowly making their way to improved cash flow. We expect net cash generation for the first time in FY25. The ability to reduce capex substantially, should the weak housing market persist, is the main reason we think the aged care operators do not need more capital. At current valuations it would be highly dilutive to raise capital. Unless forced by the banks, something we see as highly unlikely, we see a low risk for capital raises.

Operating expenses a potential source for disappointment
In tough times developers tend to give incentives to prospective buyers rather than cut pricing. The aged care sector is no exception. However, rather than showing up as reduced margins, our understanding is that these incentives appear in the opex line. One of the many quirks with the non-GAAP reporting by the aged care sector. These incentives are difficult to quantify and are not reported separately. SUM reported opex growth of +24% in 2H23, substantially ahead of our estimates. We believe partly driven by incentives.

RYM may provide a strategy refresh — the devil will be in the details
With a new Executive Chair and a new CFO, RYM will line up a fresh management. This comes with risks and opportunities. We expect RYM to accelerate its communicated shift of focus from underlying earnings to cash generation. Related, we believe RYM may substantially reduce its medium-term development ambitions and focus on reduced costs and increased steady state revenues.

A look ahead to FY24 earningsA look ahead to FY24 earnings


(1) Recent sales updates mixed but speak to the underlying growth and resilient margins: Resales are broadly back on trend while the more cyclical new sales appear mixed. But overall sales are growing despite the backdrop of a weak housing market.
(2) Care is improving: Government funding and occupancy have improved, cost inflation has subsided, each beneficial to margins.
(3) A more optimistic outlook: Aged care sector was the most upbeat on current demand and outlook in our latest business survey.
(4) Valuation attractive: Multiples have de-rated materially despite improving cash flows and solidly growing annuity earnings.

We also provide company specific earnings previews with key areas of focus for RYM, ARV, and OCA ahead of their FY24 results.

(1) Recent sales updates are mixed but speak to the underlying growth & resilient margins
All four aged care companies have either reported (OCA, ARV, and SUM) or given recent detailed guidance (RYM) on sales for the six months to March 2024 period. In aggregate these point to ORA sales up +15% versus an admittedly weak 2H23. Resales will grow ~+18% (+15% excluding SUM) and new sales +10% (broadly flat excluding SUM). Resales are now back to trend with growth of ~+8% annually. Importantly, potentially reduced development pipelines will have only a marginal impact on this resales growth rate over the next five years, as resales are modest in villages younger than five years. ARV has also released expected resale margins (largely flat year-on-year). RYM pointed to margins being down (we estimate ~-4 percentage points) while we expect OCA's to be broadly flat. Overall, resale margins have held up well given the soft housing market.

New sales paint a different picture relative to resales, with RYM in particular looking weak, down -22% year-on-year in FY24. RYM cited new sales weakness in four ‘problem’ villages as the key reason for its profit downgrade in February 2024. While we acknowledge the poor relative performance for RYM, we believe some of this relates to RYM's change of focus, from underlying earnings (which only requires a deposit), to cash flow (which aligns better with how SUM reports). Looking at cash collected from new sales (as a proxy for settled sales), we expect RYM to report settled sales down -3% year-on-year in FY24 after +17% in FY23.

(2) Care is improving
Change in care profitability is predominantly a function of three factors: (1) government funding, (2) occupancy, and (3) wage inflation. During the COVID impacted years from 2020–23 all three of these factors negatively impacted profitability. Government funding did not keep up with steady-state cost growth, occupancy declined, and we estimate that wage inflation at times ran at double digits. Over the last 12 to 18 months these three factors have all turned from net negatives to net positives. Occupancy is improving, we estimate a further one percentage point on average on an underlying basis in 2H24, care funding increased by ~+10% per bed from July 2023, above general cost increases, and wage inflation has likely moderated substantially. Outside of OCA, the aged care operators do not report care profitability. However, our proxy for aged care EBITDA margins point to the first improvement in a decade in FY24. For bellwether RYM we expect margins to increase by approximately five percentage points, from ~6% to ~11% in FY24.

(3) A more optimistic outlook
Our Forsyth Barr Pulse of NZ Business survey (conducted in April 2024) highlighted respondents from the aged care sector as the ones with both the most positive outlook on profit view for the next 12 months and on current demand. This compares to being one of the least optimistic 18 months ago. While we should have paid attention then, we think it is worth paying attention now.

Ryman Healthcare (RYM)
RYM will report its FY24 result on Monday, 27 May. While its February downgrade gave some insight into the drivers of the result, we expect the key focus areas to be:


Strategy refresh: An update on RYM's strategic shift from underlying earnings to metrics more aligned with medium-term cash generation. Specifically, we expect RYM to reduce focus on new sales gains, something we see as positive. Related, we expect to see an increased focus on cost control and cash generation of the existing business.
Cash flow breakeven for FY25: At its capital raise in February 2023 RYM stated an ambition to be cash flow positive in FY25. It has since communicated (February 2024) that it expects net debt to be broadly flat in 2H24. We expect RYM to reiterate its ambition to being cash flow positive in FY25, but it will depend on whether RYM wants to accelerate the completion of the four main buildings currently under construction and its expectations for new sales out of existing inventory. It is not a given.
FY25 build rate: At its capital raise, the previous management guided for unit deliveries of 750–800 (FY24) and 850–900 (FY25) and a substantial increase over the following years. At its 1H24 results RYM lowered expectations for FY24 and stated that its medium-term build rate would be reviewed at its FY24 results, coming up now in May. We expect 650 deliveries for FY24 (bottom end of revised guidance) and 720 deliveries for FY25. We expect its revised medium-term build rate to be a combination of ‘it depends on demand’ as well as an indication that ~700–900 units should be expected under normal circumstances.
Care profitability: Care fees grew a very strong +18% in 1H24. We expect continued strong growth in 2H24 (+15%) driven by increased funding, increased beds, and increased occupancy. Some of this will be offset in higher costs, but we expect margins to expand approximately five percentage points in FY24 versus FY23.
Problem villages: We expect to receive an update on progress RYM has made in finishing its five impacted sites. At its 1H24 result RYM expected a total capital recycling deficit of ~NZ$370m from these five sites. We will look for commentary as to whether this has expanded given the negative trading update in February.


Arvida Group (ARV)
ARV will report its FY24 result on Tuesday, 28 May. It has pre-released most key details, both new and resales (including volumes, margins, and values) and debt levels. We expect the key focus areas at its FY24 result to be:


Cash flow drivers: ARV's update indicated better-than-expected net debt over 2H24. The drivers of this result will be important; cash collections of sales were weak in 1H24 and it appears this has recovered through 2H24 along with improved reported sales. But the devil will be in the details.
Care profitability: ARV indicated care occupancy had improved one percentage point over 2H24 versus 1H24, along with the benefit of a full period of improved care funding, we believe this will contribute to improved care profitability.
Apartment heavy pipeline: In FY25 ARV is due to complete its Queenstown Country Club apartments and care (~60% of its FY25 build rate guidance). Beyond FY25 ARV's development pipeline at its opened villages is ~70% apartments and care. Offsetting this is its three new large villa-focused developments (no apartments), but these sites are yet to start construction.


Oceania Healthcare (OCA)
OCA will report its FY24 results on Friday, 24 May. While it has pre-released sales volumes we expect the key focus areas to be:


Net debt: OCA indicated it believed it was at ‘peak net debt’ at both its FY23 and 1H24 results. Following its soft 2H24 sales update (primarily driven by new sales), we believe 2H24 net debt will see an increase again. We estimate net debt ~+NZ$50m over 2H24 to NZ$650m (consensus: ~NZ$630m). We still believe net debt will fall over the medium term, with the delay due to housing market conditions rather than anything structural. We will look for OCA to reiterate peak-net-debt target again at its FY24 result.
Care earnings: As mentioned, 2H24 will be the first full half under the new funding arrangement. OCA is the most exposed to care of the four large listed operators, and has had its care EBITDA margins fall. OCA's results will be impacted by multiple sales executed at the end of 1H24, which will impact both revenues and costs (in approximately equal measure).
Longer-term build rate/selling down its elevated inventory: OCA could provide more colour on its build rate beyond FY25 to further cement its ability to reduce net debt. OCA's elevated inventory could allow it to retain new sales around our current estimates, but dramatically reduce build rate over FY26/FY27, allowing lower capex and a fall in net debt through FY25 and FY26.
The Helier: Recent sales updates and care occupancy on its flagship development will be important. The Hellier will initially be a meaningful drag on profitability as it takes time to increase occupancy. Recent commentary indicated The Helier has been selling down okay; this, combined with care occupancy, will be important given the villages high fixed opex base since it opened.

[ValueNZ]

For Bars latest on ARV, OCA and RYM.

Aged Care Sector

More Sellers than Buyers


Over the last six months the three aged care operators with March year ends are down a further ~-20%, with Ryman Healthcare (RYM) the worst performer. Its market cap is now two thirds of what it was a decade ago, when it was about to report annuity earnings of NZ$59m, compared to the all-time high of NZ$187m we expect it to report for FY24. It is easy to look at the share prices and conclude that it is all doom and gloom in aged care land, but we disagree. (1) Care profits are depressed but margins are improving for the first time in a decade, the glass half full approach would suggest we should pay a higher multiple for depressed but recovering earnings. (2) The housing market is weak, with low turnover. But cash recovery is improving for the sector in general and for RYM in particular. (3) We expect the three reporting aged care companies to report the lowest increase in net debt on record for the last six months, with RYM's net debt broadly flat and modest increases for Oceania Healthcare (OCA) and Arvida Group (ARV). Against that we have lower growth, though with an average multiple of ~0.5x NTA it is unlikely to be the impediment for a re-rating. Instead, we believe investors are concerned about potential capital raises. We do not believe the aged operators need, will, or should raise capital. But never say never; market caps close to or below net debt tend to stress investors out. We believe all eyes will be on communication around capital needs and cash generation. A weak message is unlikely to be taken well.

What have we learnt since last reporting season? Care occupancy improving, villas selling well, apartments and care suites less so


All four main listed aged care companies have either reported, or recently guided to, sales for the six months to March 2024. On average resales were up ~+15% year-on-year from a weak March 2023 period, with OCA having the strongest (+30%) and ARV the weakest (+12%). The more cyclical new sales have a wider spread. ARV's villa heavy period grew +26% and RYM's service apartment heavy deliveries and inventory was weak, down -10% YoY. Summerset (SUM) delivered solidly on both. In aggregate, the sector will deliver all-time high ORA sales, up +15% YoY (+10% ex. SUM) during a recession. Hardly a sector in structural decline. Occupancy in care has continued to improve. This comes on top of increased funding, ~+10% per bed as of July 2023, and reduced wage inflation.

Net debt finally starting to plateau — counter-cyclical cash generation evident in the sector's first downturn


The NZ aged care sector is experiencing its first housing downturn since listing. RYM and ARV have lowered build rates and we estimate OCA will only start one new major construction in FY25. The reduced build rates are slowly making their way to improved cash flow. We expect net cash generation for the first time in FY25. The ability to reduce capex substantially, should the weak housing market persist, is the main reason we think the aged care operators do not need more capital. At current valuations it would be highly dilutive to raise capital. Unless forced by the banks, something we see as highly unlikely, we see a low risk for capital raises.

Operating expenses a potential source for disappointment


In tough times developers tend to give incentives to prospective buyers rather than cut pricing. The aged care sector is no exception. However, rather than showing up as reduced margins, our understanding is that these incentives appear in the opex line. One of the many quirks with the non-GAAP reporting by the aged care sector. These incentives are difficult to quantify and are not reported separately. SUM reported opex growth of +24% in 2H23, substantially ahead of our estimates. We believe partly driven by incentives.

RYM may provide a strategy refresh — the devil will be in the details


With a new Executive Chair and a new CFO, RYM will line up a fresh management. This comes with risks and opportunities. We expect RYM to accelerate its communicated shift of focus from underlying earnings to cash generation. Related, we believe RYM may substantially reduce its medium-term development ambitions and focus on reduced costs and increased steady state revenues.

A look ahead to FY24 earningsA look ahead to FY24 earnings




(1) Recent sales updates mixed but speak to the underlying growth and resilient margins: Resales are broadly back on trend while the more cyclical new sales appear mixed. But overall sales are growing despite the backdrop of a weak housing market.
(2) Care is improving: Government funding and occupancy have improved, cost inflation has subsided, each beneficial to margins.
(3) A more optimistic outlook: Aged care sector was the most upbeat on current demand and outlook in our latest business survey.
(4) Valuation attractive: Multiples have de-rated materially despite improving cash flows and solidly growing annuity earnings.

We also provide company specific earnings previews with key areas of focus for RYM, ARV, and OCA ahead of their FY24 results.

(1) Recent sales updates are mixed but speak to the underlying growth & resilient margins


All four aged care companies have either reported (OCA, ARV, and SUM) or given recent detailed guidance (RYM) on sales for the six months to March 2024 period. In aggregate these point to ORA sales up +15% versus an admittedly weak 2H23. Resales will grow ~+18% (+15% excluding SUM) and new sales +10% (broadly flat excluding SUM). Resales are now back to trend with growth of ~+8% annually. Importantly, potentially reduced development pipelines will have only a marginal impact on this resales growth rate over the next five years, as resales are modest in villages younger than five years. ARV has also released expected resale margins (largely flat year-on-year). RYM pointed to margins being down (we estimate ~-4 percentage points) while we expect OCA's to be broadly flat. Overall, resale margins have held up well given the soft housing market.

New sales paint a different picture relative to resales, with RYM in particular looking weak, down -22% year-on-year in FY24. RYM cited new sales weakness in four ‘problem’ villages as the key reason for its profit downgrade in February 2024. While we acknowledge the poor relative performance for RYM, we believe some of this relates to RYM's change of focus, from underlying earnings (which only requires a deposit), to cash flow (which aligns better with how SUM reports). Looking at cash collected from new sales (as a proxy for settled sales), we expect RYM to report settled sales down -3% year-on-year in FY24 after +17% in FY23.

(2) Care is improving


Change in care profitability is predominantly a function of three factors: (1) government funding, (2) occupancy, and (3) wage inflation. During the COVID impacted years from 2020–23 all three of these factors negatively impacted profitability. Government funding did not keep up with steady-state cost growth, occupancy declined, and we estimate that wage inflation at times ran at double digits. Over the last 12 to 18 months these three factors have all turned from net negatives to net positives. Occupancy is improving, we estimate a further one percentage point on average on an underlying basis in 2H24, care funding increased by ~+10% per bed from July 2023, above general cost increases, and wage inflation has likely moderated substantially. Outside of OCA, the aged care operators do not report care profitability. However, our proxy for aged care EBITDA margins point to the first improvement in a decade in FY24. For bellwether RYM we expect margins to increase by approximately five percentage points, from ~6% to ~11% in FY24.

(3) A more optimistic outlook


Our Forsyth Barr Pulse of NZ Business survey (conducted in April 2024) highlighted respondents from the aged care sector as the ones with both the most positive outlook on profit view for the next 12 months and on current demand. This compares to being one of the least optimistic 18 months ago. While we should have paid attention then, we think it is worth paying attention now.

Ryman Healthcare (RYM)


RYM will report its FY24 result on Monday, 27 May. While its February downgrade gave some insight into the drivers of the result, we expect the key focus areas to be:


Strategy refresh: An update on RYM's strategic shift from underlying earnings to metrics more aligned with medium-term cash generation. Specifically, we expect RYM to reduce focus on new sales gains, something we see as positive. Related, we expect to see an increased focus on cost control and cash generation of the existing business.
Cash flow breakeven for FY25: At its capital raise in February 2023 RYM stated an ambition to be cash flow positive in FY25. It has since communicated (February 2024) that it expects net debt to be broadly flat in 2H24. We expect RYM to reiterate its ambition to being cash flow positive in FY25, but it will depend on whether RYM wants to accelerate the completion of the four main buildings currently under construction and its expectations for new sales out of existing inventory. It is not a given.
FY25 build rate: At its capital raise, the previous management guided for unit deliveries of 750–800 (FY24) and 850–900 (FY25) and a substantial increase over the following years. At its 1H24 results RYM lowered expectations for FY24 and stated that its medium-term build rate would be reviewed at its FY24 results, coming up now in May. We expect 650 deliveries for FY24 (bottom end of revised guidance) and 720 deliveries for FY25. We expect its revised medium-term build rate to be a combination of ‘it depends on demand’ as well as an indication that ~700–900 units should be expected under normal circumstances.
Care profitability: Care fees grew a very strong +18% in 1H24. We expect continued strong growth in 2H24 (+15%) driven by increased funding, increased beds, and increased occupancy. Some of this will be offset in higher costs, but we expect margins to expand approximately five percentage points in FY24 versus FY23.
Problem villages: We expect to receive an update on progress RYM has made in finishing its five impacted sites. At its 1H24 result RYM expected a total capital recycling deficit of ~NZ$370m from these five sites. We will look for commentary as to whether this has expanded given the negative trading update in February.


Arvida Group (ARV)


ARV will report its FY24 result on Tuesday, 28 May. It has pre-released most key details, both new and resales (including volumes, margins, and values) and debt levels. We expect the key focus areas at its FY24 result to be:


Cash flow drivers: ARV's update indicated better-than-expected net debt over 2H24. The drivers of this result will be important; cash collections of sales were weak in 1H24 and it appears this has recovered through 2H24 along with improved reported sales. But the devil will be in the details.
Care profitability: ARV indicated care occupancy had improved one percentage point over 2H24 versus 1H24, along with the benefit of a full period of improved care funding, we believe this will contribute to improved care profitability.
Apartment heavy pipeline: In FY25 ARV is due to complete its Queenstown Country Club apartments and care (~60% of its FY25 build rate guidance). Beyond FY25 ARV's development pipeline at its opened villages is ~70% apartments and care. Offsetting this is its three new large villa-focused developments (no apartments), but these sites are yet to start construction.


Oceania Healthcare (OCA)


OCA will report its FY24 results on Friday, 24 May. While it has pre-released sales volumes we expect the key focus areas to be:


Net debt: OCA indicated it believed it was at ‘peak net debt’ at both its FY23 and 1H24 results. Following its soft 2H24 sales update (primarily driven by new sales), we believe 2H24 net debt will see an increase again. We estimate net debt ~+NZ$50m over 2H24 to NZ$650m (consensus: ~NZ$630m). We still believe net debt will fall over the medium term, with the delay due to housing market conditions rather than anything structural. We will look for OCA to reiterate peak-net-debt target again at its FY24 result.
Care earnings: As mentioned, 2H24 will be the first full half under the new funding arrangement. OCA is the most exposed to care of the four large listed operators, and has had its care EBITDA margins fall. OCA's results will be impacted by multiple sales executed at the end of 1H24, which will impact both revenues and costs (in approximately equal measure).
Longer-term build rate/selling down its elevated inventory: OCA could provide more colour on its build rate beyond FY25 to further cement its ability to reduce net debt. OCA's elevated inventory could allow it to retain new sales around our current estimates, but dramatically reduce build rate over FY26/FY27, allowing lower capex and a fall in net debt through FY25 and FY26.
The Helier: Recent sales updates and care occupancy on its flagship development will be important. The Hellier will initially be a meaningful drag on profitability as it takes time to increase occupancy. Recent commentary indicated The Helier has been selling down okay; this, combined with care occupancy, will be important given the villages high fixed opex base since it opened.


More sellers than buyers?

Really Forsyth Bar analysts?

[Greekwatchdog]

More sellers than buyers?

Really Forsyth Bar analysts?

Yes really.

[ValueNZ]

Yes really.
Market prices are a function of the willingness of buyers and sellers to transact at a given price. Retirement village stock prices have fallen because the number of shares that people want to sell at a given price exceeds the number of shares people want to buy at that price, therefore sellers drop their prices to be able to clear their shares. Number of sellers and buyers are irrelevant.

There can be 1 very large buyer and 1000 small sellers, and the price can go up as the buyer wants to buy more shares than the sellers are willing to sell at the given price.

The number of shares sold will always equal the number of shares bought.

[Greekwatchdog]

Market prices are a function of the willingness of buyers and sellers to transact at a given price. Retirement village stock prices have fallen because the number of shares that people want to sell at a given price exceeds the number of buyers at that price, therefore sellers drop their prices to be able to clear their shares. Number of sellers and buyers are irrelevant.

There can be 1 very large buyer and 1000 small sellers, and the price can go up as the buyer wants to buy more shares than the sellers are willing to sell at the given price.

The number of shares sold will always equal the number of shares bought.

Depends on your interpretation of the head line. Don't think its about number of shares.

[Greekwatchdog]

Out of the herald..

Parliament to launch aged care inquiry to satisfy National/NZ First coalition agreement


Parliament's health select committee will commence an inquiry into the provision of aged care with a focus on how it assists people with early-onset conditions like dementia.

It will likely complement Health New Zealand's current review into aged care's funding and service models, which seeks to establish a nationally consistent approach to providing care in the community and relieve the strain on hospitals.

New Zealand's Aged Care Association welcomes Parliament's inquiry as the country stares down an older and longer-living population, set to peak within the next three decades.

The inquiry was an item in the coalition agreement between National and New Zealand First.

Discover more
Older people feel 'rushed' in the move to aged care, ...
The Front Page: How bad is the aged-care crisis in ...
Fears for rest home residents after Wesley Care Centre ...
Danger NZ will be 12,000 residential care beds short ...
Health select committee chairman and National MP Sam Uffindell said the scope of the review would include the "current and future capacity of the sector to support those experiencing early onset neurological disorders like dementia and ensuring appropriate asset thresholds for sustainable service".

The inquiry's terms of reference hadn't yet been set.

Aged Care Association chief executive and former NZ First MP Tracey Martin was supportive of any attempt to address inequities in aged care.

"From our perspective, we're very happy to have any sort of a spotlight shone onto what is quite a dire situation for the aged in this country at the moment.

"Our hope would be that inquiry will inform, once again, the Parliament into what are the current shortfalls and future needs of this particularly vulnerable demographic of New Zealanders."

Martin said the "wave" of seniors from the baby boomer generation was predicted to peak by 2048. However, how the country would address a larger elderly population who were living longer hadn't been resolved.

"Multiple governments have kicked this can down the road and I don't think there's any more road left."

About 900,000 New Zealanders were aged 65 or older. About 35,000 were in an aged care facility, while about 80,000 received home support services.

About 70,000 Kiwis lived with dementia but that number was set to triple by 2050.

In July last year, Health NZ began its review and through its first phase, it found aged care and community support services were underfunded, funding models were not fit for purpose, ethnic inequities existed within the industry, workforce pressures were significant and problems with services were worse in rural areas.

Phase two involved workshops and focus groups with providers and advocacy organisations to help inform better and more efficient pathways of care that didn't overburden the hospital system.

Health NZ aging well director Andy Inder, who was leading the review, said phase two was expected to be completed by August and a business case would be put to Health NZ's board in September.

However, Inder said changes had been made to how high-risk people were identified, meaning it was becoming easier to match sustainable services with people so they could live in their community instead of receiving more care in hospital.

Martin said she had some concerns about the Health NZ review, namely the focus on keeping older people out of hospital "at all costs".

"That's actually not putting the person at the centre of what they need."

She did acknowledge the review would identify how to break down silos so care could be provided more consistently.

Martin was set to meet with Seniors Minister Casey Costello next week and would discuss how the sector was fun

[Daytr]

Market prices are a function of the willingness of buyers and sellers to transact at a given price. Retirement village stock prices have fallen because the number of shares that people want to sell at a given price exceeds the number of shares people want to buy at that price, therefore sellers drop their prices to be able to clear their shares. Number of sellers and buyers are irrelevant.

There can be 1 very large buyer and 1000 small sellers, and the price can go up as the buyer wants to buy more shares than the sellers are willing to sell at the given price.

The number of shares sold will always equal the number of shares bought.

I'm not sure you get fixated on this sort of thing as you & SailorBoy have mentioned this many times & interpret that they don't know what they are talking about & the analysts don't understand it get it, I.e we are smarter than them.

It's pretty obvious what they are saying, not complicated at all.
For quite some time there has been more shares offered for sale at a given price than shares put up to buy, hence the share price has been smashed.
Simple.

[Daytr]

Thanks Greekwatchdog.
I thought the part about incentives was interesting & wonder what impact that will have on operating income going forward.
OCA' operating loss increased by $20M basically doubling. You wouldn't want to see this be at $60M or worse next year.

That is one of the reasons I prefer RYM, at least they operate at a profit, well we will see more on Monday. I did a rough calculation and the operating loss for OCA can be directly attributed to their higher headcount per resident. If the had the same ratio as RYM it would have a circa $40M - $50M improvement in the operating bottom line, effectively breaking even.

[SailorRob]

Thanks Greekwatchdog.
I thought the part about incentives was interesting & wonder what impact that will have on operating income going forward.
OCA' operating loss increased by $20M basically doubling. You wouldn't want to see this be at $60M or worse next year.

That is one of the reasons I prefer RYM, at least they operate at a profit, well we will see more on Monday. I did a rough calculation and the operating loss for OCA can be directly attributed to their higher headcount per resident. If the had the same ratio as RYM it would have a circa $40M - $50M improvement in the operating bottom line, effectively breaking even.


Just so everyone is aware (seems like most of you are already aware in general)

He has take two figures that he doesn't understand from a cash flow statement and confused them with an income statement.

He also doesn't understand what the actual operations of these businesses are.

[ValueNZ]

I'm not sure you get fixated on this sort of thing as you & SailorBoy have mentioned this many times & interpret that they don't know what they are talking about & the analysts don't understand it get it, I.e we are smarter than them.

It's pretty obvious what they are saying, not complicated at all.
For quite some time there has been more shares offered for sale at a given price than shares put up to buy, hence the share price has been smashed.
Simple.
The saying "More sellers than buyers" is inaccurate because market prices are not a function of the number of buyers/sellers in a market. It's the willingness of buyers and sellers to transact at a given price.

https://www.ubs.com/content/dam/WealthManagementAmericas/cio-impact/1808331jwblog.pdf

[Daytr]

The saying "More sellers than buyers" is inaccurate because market prices are not a function of the number of buyers/sellers in a market. It's the willingness of buyers and sellers to transact at a given price.

https://www.ubs.com/content/dam/WealthManagementAmericas/cio-impact/1808331jwblog.pdf

You are confusing what has been transacted and total demand & supply that hasn't been satisfied.

Have a good one & I really hope you concentrate your youth on far more fun & important questions than this one.

Like, if I have one tequila shot, does that mean that is one less that I am yet to consume?
Or will that one shot make me want a dozen more that I would never have consumed if I hadn't had the first one?

[mistaTea]

You are confusing what has been transacted and total demand & supply that hasn't been satisfied.

Have a good one & I really hope you concentrate your youth on far more fun & important questions than this one.

Like, if I have one tequila shot, does that mean that is one less that I am yet to consume?
Or will that one shot make me want a dozen more that I would never have consumed if I hadn't had the first one?

I recommend he focusses on as much rooting as possible while he is still young.

[Daytr]

I recommend he focusses on as much rooting as possible while he is still young.

I have found tequila helps in that department as well. Greek Islands & Swedish girls come to mind... 😅

[SailorRob]

I have found tequila helps in that department as well. Greek Islands & Swedish girls come to mind... 😅

Also this is why you're all still working your guts out just to keep head above water when ValueNZ will be retired long before.

[Daytr]

Also this is why you're all still working your guts out just to keep head above water when ValueNZ will be retired long before.

Money can always be earned, one thing you can't buy back is your youth.

How many people on their deathbed say "I wish I spent more time making money."
And that's not to say both you can't make money whilst having fun.

Anyway each to their own, something you seem to fail to recognize.

[kiwikeith]

Money can always be earned, one thing you can't buy back is your youth.

How many people on their deathbed say "I wish I spent more time making money."
And that's not to say both you can't make money whilst having fun.

Anyway each to their own, something you seem to fail to recognize.


Yes I remember watching CNBC where the interviewer said to an oil baron in his eighties that he wished he had his money. The oil baron asked the interviewer how old he was. The interviewer said early 40s. The oil baron said "If I could have your age, I would give you all the money I have."

[SailorRob]

Yes I remember watching CNBC where the interviewer said to an oil baron in his eighties that he wished he had his money. The oil baron asked the interviewer how old he was. The interviewer said early 40s. The oil baron said "If I could have your age, I would give you all the money I have."

Exactly, day trader would kill to be in ValueNZ's position.

[bull....]

as mentioned a yr or more ago cash crunch underway in RV's arv the latest to go to no div and all cutting back on development etc to conserve cash.
In another blow today

RBNZ pulls trigger on new bank lending limits
That means most owner-occupiers with an income of $100,000 would be able to borrow $600,000, and investors $700,000

https://www.rnz.co.nz/news/business/518029/rbnz-pulls-trigger-on-new-bank-lending-limits

guess that means most of nz wont be able to borrow to buy a house meaning even slower house sales coming and more cash crunch for RV's :scared:

[bull....]

two biggest RV's hammered today on this news

[Balance]

So in the end, we can summarized the RVs simply as glorified property developers which have got caught in the classic amateur trap of using too much debt to buy and develop expensive properties for sale/rent, and got got in a downturn.

Their time will come again for sure but the exuberance which lead to their share prices trading at huge premiums to NTA is now officially history.

[mistaTea]

So in the end, we can summarized the RVs simply as glorified property developers which have got caught in the classic amateur trap of using too much debt to buy and develop expensive properties for sale/rent, and got got in a downturn.

Their time will come again for sure but the exuberance which lead to their share prices trading at huge premiums to NTA is now officially history.

That sums it up nicely Balance.

All this absolute sh1te from some about “float” and all the other bs…

They are pretty much property developers who then need to rent out their developments. The fact they get the cash up front for the rent and then amortise it with DMF is nice, but not going to save their bacon in these current economic times.

They are just a landlord at the end of the day.

[Toddy]

That sums it up nicely Balance.

All this absolute sh1te from some about “float” and all the other bs…

They are pretty much property developers who then need to rent out their developments. The fact they get the cash up front for the rent and then amortise it with DMF is nice, but not going to save their bacon in these current economic times.

They are just a landlord at the end of the day.

Don't forget to overlay the cash (or lack of) with some mythical accounting valuations that represent a 'true and fair' value.

[ValueNZ]

Don't forget to overlay the cash (or lack of) with some mythical accounting valuations that represent a 'true and fair' value.
You don't want the float as cash... What good would that do you? You want it invested productively, so either into more villages to generate more float or into some other asset class like bonds or shares.

[SailorRob]

You don't want the float as cash... What good would that do you? You want it invested productively, so either into more villages to generate more float or into some other asset class like bonds or shares.


ValueNZ, go read toddy's post on OCA about cash is king and what he said about Auckland property, I will reply to it when I get time but one of the more astounding posts I've seen on ST.

[mike2020]

as mentioned a yr or more ago cash crunch underway in RV's arv the latest to go to no div and all cutting back on development etc to conserve cash.
In another blow today

RBNZ pulls trigger on new bank lending limits


That means most owner-occupiers with an income of $100,000 would be able to borrow $600,000, and investors $700,000

https://www.rnz.co.nz/news/business/518029/rbnz-pulls-trigger-on-new-bank-lending-limits

guess that means most of nz wont be able to borrow to buy a house meaning even slower house sales coming and more cash crunch for RV's :scared:

Most young couples I know are on joint income of min 150k. A lot over 200k.

[Bikeguy]

So in the end, we can summarized the RVs simply as glorified property developers which have got caught in the classic amateur trap of using too much debt to buy and develop expensive properties for sale/rent, and got got in a downturn.

Their time will come again for sure but the exuberance which lead to their share prices trading at huge premiums to NTA is now officially history.

Sums it up well I feel,

[bull....]

Most young couples I know are on joint income of min 150k. A lot over 200k.

you move in wealthy circles , according to stats nz average nz income is only 64k in auk/wel rest of nz 51k this before cost of housing exp's

https://www.stats.govt.nz/information-releases/household-income-and-housing-cost-statistics-year-ended-june-2023/#:~:text=Average%20annual%20household%20equivalise d%20disposable%20income%2C%20before%20housing%20co sts%2C%20by,North%20Island%20(up%204.7%20percent)

[blackcap]

you move in wealthy circles , according to stats nz average nz income is only 64k in auk/wel rest of nz 51k this before cost of housing exp's

https://www.stats.govt.nz/information-releases/household-income-and-housing-cost-statistics-year-ended-june-2023/#:~:text=Average%20annual%20household%20equivalise d%20disposable%20income%2C%20before%20housing%20co sts%2C%20by,North%20Island%20(up%204.7%20percent)

THey are interesting statistics. Does that mean outside of Auckland and Wellington the average NZ income is the minimum wage? That by definition is not possible....

Or does the average also include those not working, on pensions, benefits and students?

If that is the case, then the average for a worker would be well in the $100k plus.

[bull....]

THey are interesting statistics. Does that mean outside of Auckland and Wellington the average NZ income is the minimum wage? That by definition is not possible....

Or does the average also include those not working, on pensions, benefits and students?

If that is the case, then the average for a worker would be well in the $100k plus.

good point.
if a young person was financial savy they would know renting is better than buying at moment financially

[SailorRob]

Sums it up well I feel,

Luckily your feelings have nothing to do with anything!

[SailorRob]

That sums it up nicely Balance.

All this absolute sh1te from some about “float” and all the other bs…

They are pretty much property developers who then need to rent out their developments. The fact they get the cash up front for the rent and then amortise it with DMF is nice, but not going to save their bacon in these current economic times.

They are just a landlord at the end of the day.

Yeah but that billion bucks is pretty sweet eh mate.

But where is it?

Hmmm.

[mistaTea]

Yeah but that billion bucks is pretty sweet eh mate.

But where is it?

Hmmm.

Well total receipts since 2017 is ~$1.3B. Refunds total ~$428M.

So OCA have built up ~$870M what you call "float" (lol) over the last 8 years.




Receipts from Occupation Rights Agreements



2017: NZD 68,763,000​
2018: NZD 113,517,000​
2019: NZD 136,629,000​
2020: NZD 181,298,000​
2021: NZD 171,387,000​
2022: NZD 214,188,000​
2023: NZD 178,842,000​
2024: NZD 226,313,000

Payments for Outgoing Occupation Rights Agreements



2017: NZD 30,894,000​
2018: NZD 35,421,000
2019: NZD 39,656,000​
2020: NZD 40,341,000​
2021: NZD 52,157,000​
2022: NZD 69,998,000​
2023: NZD 79,267,000​
2024: NZD 78,780,000




About $80M (9%) of that has gone toward paying interest on the bank loans.




Interest Payments by Year



2017: NZD 3,701,000​
2018: NZD 6,524,000​
2019: NZD 7,351,000​
2020: NZD 7,537,000​
2021: NZD 9,326,000​
2022: NZD 10,851,000​
2023: NZD 14,366,000​
2024: NZD 20,013,000


Note: huge escalation in borrowing costs since 2022. Understandably a concern


Now, we know that OCA has struggled to earn a living, as its all about the float and the future prospects. Well, the dividends paid to shareholders have to come from somewhere right? Trust ORA to the rescue again.

~$152M (17%) paid out to shareholders in divvies.





Dividends Paid by Year

2017



Total Dividends Paid: NZD 0 (No dividends were declared in 2017)​

2018



Total Dividends Paid: NZD 12,732,000​

2019



Total Dividends Paid: NZD 28,682,000​

2020



Total Dividends Paid: NZD 29,904,000​

2021



Total Dividends Paid: NZD 15,559,000​

2022



Total Dividends Paid: NZD 29,315,000​

2023



Total Dividends Paid: NZD 29,924,000​


2024



Total Dividends Paid: NZD 6,763,000



The amount of money OCA can book each year as resident fees is less than how much they need to pay their suppliers and employeers.

The shortfall over the years? Approximately $100M (11%).




Receipts from Residents for Village and Care Fees

2017



Receipts from Residents: NZD 129,382,000​

2018



Receipts from Residents: NZD 154,865,000​

2019



Receipts from Residents: NZD 165,693,000​

2020



Receipts from Residents: NZD 151,347,000​

2021



Receipts from Residents: NZD 132,780,000​

2022



Receipts from Residents: NZD 190,096,000​

2023



Receipts from Residents: NZD 196,601,000​


2024



Receipts from Residents: NZD 207,911,000

Payments to Suppliers and Employees

2017



Payments to Suppliers and Employees: NZD 121,805,000​

2018



Payments to Suppliers and Employees: NZD 147,439,000​

2019



Payments to Suppliers and Employees: NZD 164,829,000​

2020



Payments to Suppliers and Employees: NZD 153,328,000​

2021



Payments to Suppliers and Employees: NZD 145,324,000​

2022



Payments to Suppliers and Employees: NZD 207,814,000​

2023



Payments to Suppliers and Employees: NZD 228,926,000​

2024



Payments to Suppliers and Employees: NZD 259,616,000

Net Difference (Total Receipts - Total Payments)



Net Difference: NZD -$100M



Over this period the CEO and Board have been paid ~$10M.

I could dig in further, adding up lease payments etc, but that all totals up to ~$342M of ORA money just propping up the house of cards.

So about 40% of the ORA money has gone towards running the business (since it does not produce enough income to pay its own way) and dividends.


Where indeed has all the money gone Bob? Hmmmmn.

The rest ($500M) has undoubtably gone towards overpaying for land and building costs.

[bull....]

Well total receipts since 2017 is ~$1.3B. Refunds total ~$428M.

So OCA have kept built up ~$870M what you call "float" (lol) over the last 8 years.




About $80M (9%) of that has gone toward paying interest on the bank loans.




Now, we know that OCA has struggled to earn a living, as its all about the float and the future prospects. Well, the dividends paid to shareholders have to come from somewhere right? Trust ORA to the rescue again.

~$170M (20%) paid out to shareholders in divvies.




The amount of money OCA can book each year as resident fees is less than how much they need to pay their suppliers and employeers.

The shortfall over the years? Approximately $100M (11%).




Over this period the CEO and Board have been paid ~$10M.

I could dig in further, adding up lease payments etc, but that all totals up to ~$360M of ORA money just propping up the house of cards.

So about 40% of the ORA money has gone towards running the business (since it does not produce enough income to pay its own way) and dividends.


Where indeed has all the money gone Bob? Hmmmmn.

The rest ($500M) has undoubtably gone towards overpaying for land and building costs.



none of them appear to make any money , anyway good summary. some of 500m probably was spent on overvalued diapers too.

[Rawz]

Well total receipts since 2017 is ~$1.3B. Refunds total ~$428M.

So OCA have kept built up ~$870M what you call "float" (lol) over the last 8 years.




About $80M (9%) of that has gone toward paying interest on the bank loans.




Now, we know that OCA has struggled to earn a living, as its all about the float and the future prospects. Well, the dividends paid to shareholders have to come from somewhere right? Trust ORA to the rescue again.

~$170M (20%) paid out to shareholders in divvies.




The amount of money OCA can book each year as resident fees is less than how much they need to pay their suppliers and employeers.

The shortfall over the years? Approximately $100M (11%).




Over this period the CEO and Board have been paid ~$10M.

I could dig in further, adding up lease payments etc, but that all totals up to ~$360M of ORA money just propping up the house of cards.

So about 40% of the ORA money has gone towards running the business (since it does not produce enough income to pay its own way) and dividends.


Where indeed has all the money gone Bob? Hmmmmn.

The rest ($500M) has undoubtably gone towards overpaying for land and building costs.



thats an interesting breakdown.

also need to factor how much capital has been raised over the years...

[allfromacell]

An of course, how much assets have increased.

[Toddy]

Based on the Warren Buffet videos that people have been posting then maybe treat depreciation as a cash expense also.

Logic was that cash is invested into Capital assets. Those assets need to be replaced at some stage. So the depreciation is actually a real cost.

Of course it's all open for debate. But that was his logic.

[mistaTea]

Based on the Warren Buffet videos that people have been posting then maybe treat depreciation as a cash expense also.

Logic was that cash is invested into Capital assets. Those assets need to be replaced at some stage. So the depreciation is actually a real cost.

Of course it's all open for debate. But that was his logic.

I would agree with this, as depreciation is absolutely a real cost. Particularly when you are in the business of owning real estate.

So add another $100M of costs funded by ORA for good measure.


Depreciation by Year

2017



Depreciation: NZD 7,706,000​

2018



Depreciation: NZD 8,694,000​

2019



Depreciation: NZD 9,007,000​

2020



Depreciation: NZD 11,717,000​

2021



Depreciation: NZD 11,225,000​

2022



Depreciation: NZD 15,440,000​

2023



Depreciation: NZD 15,185,000​


2024



Depreciation: NZD 18,485,000

of Total Depreciation



Total from 2017 to 2023: NZD 97,459,000.



So OCA has used at least $460M of ORA propping up the house of cards. In other words, 53% of the ORA "float" has gone up in smoke.

The other $400M was spent on overpriced property.

Nice.

[blackcap]

Based on the Warren Buffet videos that people have been posting then maybe treat depreciation as a cash expense also.

Logic was that cash is invested into Capital assets. Those assets need to be replaced at some stage. So the depreciation is actually a real cost.

Of course it's all open for debate. But that was his logic.

Totally. I have a few rental properties and to keep them at the standard I purchased them at I need to spend money. That's depreciation.

Depreciation, although a non-cash accounting item, is a real cost to the business and will have to be borne (by cash) at some stage.

[mistaTea]

Totally. I have a few rental properties and to keep them at the standard I purchased them at I need to spend money. That's depreciation.

Depreciation, although a non-cash accounting item, is a real cost to the business and will have to be borne (by cash) at some stage.

For sure. Which is why Charlie often referred to EBITDA as "bullsh1t earnings".

I think this kinf of cashflow analysis goes a long way to explaining why the market has priced these operators the way it has.

Certainly in OCA's case, the company has been living beyond its means from the get go and has only been able to do so because it charges its rent up front and then essentially amortises it over time with DMF.

So all this excitement about "float" and the rest evaporates when you consider where most of it has been squandered.

That does not mean brighter days are not ahead, that companies like OCA will not be worth more in the future.

How much more they might be worth will depend on a number of factors, including how effective they are at getting a handle on their high debt levels.

With an Enterprise Value of ~$1B at the moment, it is hard to argue that Mr Market has 'got it all wrong' right now.

Appreciate that these posts should probably be on the OCA thread :scared:

[Poet]

Totally. I have a few rental properties and to keep them at the standard I purchased them at I need to spend money. That's depreciation.

Depreciation, although a non-cash accounting item, is a real cost to the business and will have to be borne (by cash) at some stage.

Although, I imagine all of the retirement operators are expensing 'maintenance' each year, so if they also counted depreciation as a 'real' cost they would be double counting.

[mistaTea]

Based on the Warren Buffet videos that people have been posting then maybe treat depreciation as a cash expense also.

Logic was that cash is invested into Capital assets. Those assets need to be replaced at some stage. So the depreciation is actually a real cost.

Of course it's all open for debate. But that was his logic.

I am not sure how much of the PPE and amortisation costs in the cashflow statement was used for straight replenishment costs.


Payments for Property, Plant, and Equipment and Intangible Assets2017

Payments: NZD 33,503,000​

2018

Payments: NZD 33,389,000​

2019

Payments: NZD 72,895,000​

2020

Payments: NZD 40,433,000​

2021

Payments: NZD 36,269,000​

2022

Payments: NZD 56,289,000​

2023

Payments: NZD 55,160,000​

2024

Payments: NZD 53,850,000​

Summary of Total Payments for Property, Plant, and Equipment and Intangible Assets

Total from 2017 to 2024: NZD 381,788,000.


But that is ~$280M more than the GAAP depreciation and is real money out the door.

NOTE: this is separate to 'Payments for investment property and investment propertyunder development'.

It is not hard to see how the so-called "float" has all but disappeared over the years.

I guess that is the risk with Ponzi schemes.

[Bjauck]

Most young couples I know are on joint income of min 150k. A lot over 200k.Moneyhub has the average income on 50-80k for 25-34yo. So 150k for two people would be getting to be high average household income for that age group.

https://www.moneyhub.co.nz/average-nz-salary-by-age.html

[Cupsy]

superfluous to requirement

[mistaTea]

Disappeared or turned into an asset (property)?

Most of it seemed to go on paying wages, repleneshing (not improving!) stock and paying dividends.

So most has disappeared, yes.

The rest seems to have gone towards overpaying for land and escalating build costs.

As I say, none of this means that OCA is doomed to failure. If they get a handle on things and start making better decisions, investors may well take another look.

But there is a lot of clean up (as Brent put it) between now and then.

And anyone saying that the current EV of ~$1B is way undervalued, and everyone else is just stupid/doesn't get it is deluding themselves.

I think OCA is near enough to fair value at the moment, given the various issues and headwinds it faces at the moment.

[mike2020]

Disappeared or turned into an asset (property)?

That NTA must stand for something?

This is exhausting. If RYM go belly up all the evicted might rush OCA. I can imagine the shanty towns already when they've sold out.

[Toddy]

Disappeared or turned into an asset (property)?

No no. After Enron all bean counters are super cautious about understanding the difference between a debit to the balance sheet and a debit to the p&l.

[SailorRob]

Based on the Warren Buffet videos that people have been posting then maybe treat depreciation as a cash expense also.

Logic was that cash is invested into Capital assets. Those assets need to be replaced at some stage. So the depreciation is actually a real cost.

Of course it's all open for debate. But that was his logic.


It's not open for debate.

Of course depreciation is a real cost, it's the worst cost of all. The cash that was invested into the assets... It comes FIRST.

[SailorRob]

Well total receipts since 2017 is ~$1.3B. Refunds total ~$428M.

So OCA have built up ~$870M what you call "float" (lol) over the last 8 years.




About $80M (9%) of that has gone toward paying interest on the bank loans.




Now, we know that OCA has struggled to earn a living, as its all about the float and the future prospects. Well, the dividends paid to shareholders have to come from somewhere right? Trust ORA to the rescue again.

~$152M (17%) paid out to shareholders in divvies.




The amount of money OCA can book each year as resident fees is less than how much they need to pay their suppliers and employeers.

The shortfall over the years? Approximately $100M (11%).




Over this period the CEO and Board have been paid ~$10M.

I could dig in further, adding up lease payments etc, but that all totals up to ~$360M of ORA money just propping up the house of cards.

So about 40% of the ORA money has gone towards running the business (since it does not produce enough income to pay its own way) and dividends.


Where indeed has all the money gone Bob? Hmmmmn.

The rest ($500M) has undoubtably gone towards overpaying for land and building costs.


Interesting analysis.

I think I will stick with OCA accounts.

Maybe this is where you went wrong with SkyTV... thinking you understand accounting better than you do?

[Cupsy]

superfluous to requirement

[SailorRob]

everyone else is just stupid/doesn't get it is deluding themselves.


I remember you writing 20 pages of this on the SkyTV thread. Only they were not the stupid ones. That was you. Again.

Aside from Berkshire which I got you into, what investment has actually gone well for you?

[ValueNZ]

It's not open for debate.

Of course depreciation is a real cost, it's the worst cost of all. The cash that was invested into the assets... It comes FIRST.
Reverse float as Buffett put it.

[mistaTea]

Interesting analysis.

I think I will stick with OCA accounts.

Maybe this is where you went wrong with SkyTV... thinking you understand accounting better than you do?

All of that comes from the OCA accounts.

[mistaTea]

I remember you writing 20 pages of this on the SkyTV thread. Only they were not the stupid ones. That was you. Again.

Aside from Berkshire which I got you into, what investment has actually gone well for you?

Try to resist defaulting to gaslighting and character assassination every time you read something you don’t like.

[SailorRob]

Reverse float as Buffett put it.


That post from Toddy, saying based on a BuffetT video maybe we should treat depreciation as an expense, but open for debate.

I mean really, what can you say to that?

Do we need to watch a Buffett video to know that depreciation is an expense and then question whether it is or not? Is this really the level someone who claims to have formerly worked at a high level in finance is at? I'm lost for words.

You literally learn that depreciation is a real expense when you are a kid in real life scenarios...

[SailorRob]

All of that comes from the OCA accounts.


So their float figure is incorrect?

[Cupsy]

superfluous to requirement

[SailorRob]

Can you elaborate on this comment, I might learn something.


Believe me you will not.

[SailorRob]

All of that comes from the OCA accounts.


You're taking interest costs for 2024 from a cash flow statement? Do you understand the first thing about accounting?

[mistaTea]

So their float figure is incorrect?

Follow the cashflow analysis I did and show me where I messed up.

Cheers.

[Daytr]

That post from Toddy, saying based on a BuffetT video maybe we should treat depreciation as an expense, but open for debate.

I mean really, what can you say to that?

Do we need to watch a Buffett video to know that depreciation is an expense and then question whether it is or not? Is this really the level someone who claims to have formerly worked at a high level in finance is at? I'm lost for words.

You literally learn that depreciation is a real expense when you are a kid in real life scenarios...



I think you need to think this through more, especially before insulting others as it's your inexperience showing through here.

Many assets can be depreciated for tax purposes far quicker & lower than their actual value. Cars are good example.

[SailorRob]

I think you need to think this through more, especially before insulting others as it's your inexperience showing through here.

Many assets can be depreciated for tax purposes far quicker & lower than their actual value. Cars are good example.


Correct and many others don't depreciate at all but are able to book it as an expense.

All far beyond the level of the discussion.

[SailorRob]

Follow the cashflow analysis I did and show me where I messed up.

Cheers.


Where do I start, the whole thing is a mess up. You don't understand accrual accounting. Would take me a long time to go through and explain all of your errors.

I also didn't know the entire business was run from ORA money! Hell that's not even Revenue is it?

[mistaTea]

Where do I start, the whole thing is a mess up. You don't understand accrual accounting. Would take me a long time to go through and explain all of your errors.

I also didn't know the entire business was run from ORA money! Hell that's not even Revenue is it?

You are rich and don’t work a 9-5 so you have the time.

[allfromacell]

Net assets per share have increased from 0.74 cps to 1.44cps during that time.

Obviously that much development and acquisitions takes a lot of capital.

[SailorRob]

You are rich and don’t work a 9-5 so you have the time.

I'm 3000 hours into a yacht refit though with fair bit to go.

But the first place to start is look at why you shouldn't be booking cash expenses against something that isn't even revenue.

[SailorRob]

Net assets per share have increased from 0.74 cps to 1.44cps during that time.

Obviously that much development and acquisitions takes a lot of capital.

They have increased a lot more than that. Look where the capital has come from.

[mistaTea]

I'm 3000 hours into a yacht refit though with fair bit to go.

But the first place to start is look at why you shouldn't be booking cash expenses against something that isn't even revenue.

I disagree. And ultimately, following the actual cash received and paid out over the years tells a story.

The company operations does not produce enough cash to cover costs. So that shortfall has to come from somewhere.

And it is a big shortfall, especially when you shell out $150M of dividends over the period.

So we either say the money to pay for that shortfall came from the resident loans... or it came from the bank loans.

Take your pick, but neither is good.

[SailorRob]

I disagree. And ultimately, following the actual cash received and paid out over the years tells a story.

The company operations does not produce enough cash to cover costs. So that shortfall has to come from somewhere.

And it is a big shortfall, especially when you shell out $150M of dividends over the period.

So we either say the money to pay for that shortfall came from the resident loans... or it came from the bank loans.

Take your pick, but neither is good.

Really? Investing for growth with interest free money isn't good? A company must be cashflow positive to be good?

Interesting. I hope they carry on exactly like they have been.

And I am a shareholder not just a sidelined $hit stirrer...

But I guess you are a better investor than I am and know OCA better than I do?

Or. I guess not?

[mistaTea]

Really? Investing for growth with interest free money isn't good? A company must be cashflow positive to be good?

Interesting. I hope they carry on exactly like they have been.

And I am a shareholder not just a sidelined $hit stirrer...

But I guess you are a better investor than I am and know OCA better than I do?

Or. I guess not?

Geez.

I have just pointed out that the company has borrowed over the years (either from residents or the banks) to pay divvies and top up the operational costs.

Why are you so angry with me for doing that?