I think that due to recent changes in tax (depreciation), the broker forecasts I have seen estimate they will begin paying tax in 2013. So I guess after that there is the possibility of partial imputation?
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I think that due to recent changes in tax (depreciation), the broker forecasts I have seen estimate they will begin paying tax in 2013. So I guess after that there is the possibility of partial imputation?
Sauce and others, thanks for great thread. Few questions I have
1. Unrealised re-sale bank currently $160m. If the average churn of RV units is 7 years can we expect approximately (1/7th) of this amount to be released each year as re-sale gains? The re-sale bank will be replenished with any FV gains and building of new units.
2. Do the aged care beds only contribute to aged care fees and do not include DMF’s or re-sale gains?
3. The total stock of 2,733 units, how is this split between RV units and aged care beds and how do the average margins on each compare?
4. While dividends are unimputed, wouldnt it make sense to retain all earnings in the business, rather than distribute them to shareholders who have to pay tax on them in the current income year?
5. Will dividends only be partially imputed once tax losses are fully utilised?
Hi mamos
Nice to have some discussion going on RYM, gives me a chance to enjoy some more digging around. :p
People have basically answered your questions already but my thoughts for what its worth:
At the half year 2011 turnover was about 13% which was way down on the long term average which I believe is about 20%. So somewhere between 5 - 7 years seems right.Quote:
1. Unrealised re-sale bank currently $160m. If the average churn of RV units is 7 years can we expect approximately (1/7th) of this amount to be released each year as re-sale gains? The re-sale bank will be replenished with any FV gains and building of new units.
Yes, the re-sale bank does get slightly replenished by new builds due to the discount they are initially offered to the first occupant - but I am not sure how significantly. The theory goes that if RYM cannot increase the market value of their occupancy rights for a long period of time, then their re-sale margin will decrease, and their rate of growth will slow down somewhat. But care/management and new build growth would continue regardless.
However, It's worth noting that the company increased their estimated future re-sale gains by 15% (140m to 160m) in just the last 6 months. I expect this is already evidence that RYM will surprise many with the pricing power they can still tap into in future years when the residential property market is flat. Although some of this 20m increase will reflect the fact they discount their new sales to get new villages off the ground smoothly, leaving some margin for re-sale gain at the expense of new-sale margin.
The company has stated they do not need to increase prices to achieve growth targets for the next 4-5 years, and that was when they had 140m of embedded gains not 160m.
I understand that when people are transferred to a care bed, their unit goes on the market, and the purchase of the care bed is deducted from what is repaid to them after the management fee comes off. And often their ongoing care fees are then paid from these proceeds also until they pass.Quote:
2. Do the aged care beds only contribute to aged care fees and do not include DMF’s or re-sale gains?
I think all the care bed revenue is recorded under care fees but I will check.
Total number at 1h11 is actually 4,217 units split 2,543 independent and 1,674 care beds. The margins depend on if you mean resales or new units. Margins at half year:Quote:
3. The total stock of 2,733 units, how is this split between RV units and aged care beds and how do the average margins on each compare?
Care fees 14.4%
New sales 20.2%
Re sales 19.8%
RYM have so much cash they can re-invest from the interest free occupancy advances by residents, they can easily meet their target returns while paying out shareholders half of all the profit component. And wisely, they do not wish or need to risk getting speed wobbles.Quote:
4. While dividends are unimputed, wouldnt it make sense to retain all earnings in the business, rather than distribute them to shareholders who have to pay tax on them in the current income year?
If you add up the initial share capital raised by RYM at its IPO, and then add the 50% of profits that are retained by the company for each year since the IPO, you are left with a figure that is a true shareholders equity figure. I.e. it does not include all the asset revaluations required by accounting rules.
By dividing the realised cash profits into this estimate of shareholders capital you will see that RYMs underlying economic return has averaged 31.34% pa on all funds invested on behalf of shareholders since listing.
Shareholders Equity (ex revaluations) End 2010 = $243m
(Forecast) realised profit for 2011 = 71m
(Forecast) Return on Invested Capital FY12 = 29.2%
What this doesn't account for is their use of occupancy advance cashflow to re-invest in new development.
So basically RYM are able to throw off a whole bunch of cash to shareholders and still grow at a phenomenal rate, because they have access to all this interest free cash they can use to fund growth with instead.
The company would say they are simply comfortable compounding at the rate they are and generating a huge amount of wealth at a very do-able pace.
I hope this is interesting and helpful to you or anyone else with interest in RYM mamos. I would love to hear your thoughts and any analysis you come up with. Do you hold RYM mamos?
With regards,
Sauce
Mamos
One other quick comment:
RYM have never needed additional equity from the markets to fund growth, not once since listing, which is also attributable to their ability to recycle their capital. Compare this to hundreds of companies in Australia which actually RAISE capital to fund growth in the same year as paying out profit as dividends that shareholders then pay tax on, while reinvesting tax-paid cash back into the companies capital raising!!!
Hows that for ludicrous behavior !
Regards,
Sauce
Good work Sauce! You sound very positive -- do you hold?
Cheers.
Hi Scamper
I certainly do hold. And yes I am convinced that RYM will be a very good investment for the foreseeable future. The days of 28% compounding capital growth are over, but either side of 15% pa, PLUS dividends, will do me fine.
And most importantly basically ZERO chance of losing your capital.
What about yourself Scamper?
With regards,
Sauce
"basically ZERO chance" is perhaps a bit exuberant. Swap for "very little chance"
;-)
yep, Scamper holds, but the timing was lousy.
Bought almost at the end of last year's upswing, so am only in single digit profit.
I reckon the 3% divi is pretty miserable, and after a year of sideways trading, am losing confidence...
consequently, was most impressed with your research, and its positivity. Cheers.