Originally Posted by
Beagle
Welcome to the forum Sinvester. Without any doubt the risk to the sector apart from property prices is dominated by Government policy. At this stage Govt has chosen not to release the preliminary findings of the tax working group for reasons best known to them but there is speculation that a capital gains tax may be less likely than previously thought. In any event its worth noting that the sale of an occupation right falls under the financial arrangements section of the Income tax Act and would presently be exempt from any capital gains tax on property per se, unless the Act was changed such that a possible new proposed Capital Gains tax also includes gains under financial arrangements which I think is very unlikely.
Human resources is another area of significant challenge for the sector. One shouldn't underestimate the additional costs imposed by the pay equity settlement last year as the process works its way through, caregivers will eventually earn as much as $27 per hour in 2020 or is it 2021, (Couta1 help me out here mate).
This affects retirement village operators with a more intensive care operation the most. ARV, OCA and RYM. SUM least affected due to its predominant independent living care model.
The significant pay rises accorded to Nurses in the DHB settlement are presently causing some waves in the retirement sector as there is presently a significant difference between what DHB's are now paying Nurses and what retirement village companies are paying. My understanding is this is probably only a temporary matter as funding increases should be forthcoming for all those in care but I will ask the CEO of OCA about this on Wednesday night at the shareholders association presentation.
Due to the tax policy working group's present work and risk from Govt policy change I have kept my sector exposure at a very modest level up until quite recently with the OCA placement but my sense is that the Govt policy intervention risks now appear lower than I previously thought so I am looking at increasing my stake in OCA and SUM fairly considerably as opportunities present themselves in the coming months.
This is a sector with huge demographic tailwinds and the structure is such that these companies are all very tax efficient. I think RYM, ARV and MET shareholders will also do very well over the long run and I wouldn't rule out buying RYM if the SP corrects to somewhere near historical normal valuation metrics.
P.S. I got on with the job of adding a bit to my OCA holding this morning.