Would pick arvida..30% gearing
Better gearing than other property stocks
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Would pick arvida..30% gearing
Better gearing than other property stocks
More positive signs perhaps. Happy if the prices stay at this level and sales go up from here.https://www.nzherald.co.nz/business/...IMMQEP5DZS7OE/
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.
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-...in-rivals-both
- 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/ho...a-ae2829d3c61e
World's top 10 most expensive property markets: Sydney's unenviable title
https://nomadcapitalist.com/finance/...state-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
https://www.bosshunting.com.au/lifes...using-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
Latest REINZ data https://www.reinz.co.nz/Web/Web/News..._may_data_2023
https://www.stuff.co.nz/business/132...rder-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…..”
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-livin...ngs?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/...es-since-2010/
Mapped: How Global Housing Prices Have Changed Since 2010
https://www.numbeo.com/property-inve...jsp?region=142
Asia: Current Property Prices Index by City
https://www.newshub.co.nz/home/new-z...ince-2021.html
The button touched
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
"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.
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/opi...ement-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.
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.
From today's Sunday Star Times:
https://i.stuff.co.nz/business/prope...-dented-demand
Jarden’s contribution to the media “debate:”
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.
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!
https://hbr.org/1984/01/strategies-f...st-competitive
Strategies for Staying Cost Competitive
by Arthur A. Thompson, Jr.
From the Magazine (January 1984)
"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."
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.
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."
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-ti...r-shifts-start
Write to your favourite political party and ask them what they are going to do about this appalling situation.
"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
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.
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" 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', for the pay rates above. Have a read of the comments "What's the job really like?"
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.
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/vi...0136744562972/ "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."
"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."
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.
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.
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."
"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/p...9bb4-446239310
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.
ronaldson, this 'interpretive document' published by the IRD (IS22/04) looks to provide your answer:
https://www.taxtechnical.ird.govt.nz...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
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?
Going back to the National Party press release, commenting on the 'money saved': https://www.national.org.nz/boosting...esponsible_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
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
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.
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.
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/Ph...rt-FINAL-1.pdf
Attachment 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/filead...pe_2022-23.pdf
Attachment 14739
Yeah but if you turn the charts upside down then we become number one
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.
I'm going back a while and these people usually held over 12 months at the least.
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.
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.
Thanks greekwatchdog
Ditto...Thanks gw
see RV consents fell 7% , wonder which companies pulling back the most
ANZ Property Focus Report says housing market is weak, revises house price expectations down
https://www.interest.co.nz/property/...e-expectations
no wonder all RV stocks heading down again
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.
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 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.
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
https://www.nzherald.co.nz/business/...MXVI5HEEBIQNI/
Christchurch Metlifecare retirement village resident complains of $285,000 charge to transfer apartments
Not good when this sort of thing gets full airing
What a mess this sector. Totally investable this sector.
You only need to address one flea...then the rest of it will keep coming
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 .
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.
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.
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:
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:Quote:
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
that was for the 30 Sept date.Quote:
in that most recent 6 monthly period
And secondly, this part:
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.Quote:
but the period to 31 March 2024 will benefit from the full 100%
My bad but good to see we are all on the same page.
Good to have you back Ferg
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.
Aged Care Sector
Montgomerie-Ibbotson Aged Care Pricing Index from For Bar
After 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
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/...nd-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.
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.
Still living rent free in your thoughts I see. Hope your having a great day champ.
What astounds me is focus on the housing MKT....surely when folk need to move into a retirement home...they just move.
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.
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.
"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.