OCA - Oceania Group - retirement villages

[Gunner]

I would argue that it was a typo, whereas most of the things I mock stem from a limited proficiency in the English language.

Prove instead of proof is not a typo, there instead of their
If my general command of the language was even 1/10 as bad as you're then I'd admit I waz a hippocrit

One assumes you're lashing out irrationally because you're embarrassed. The 1/10 comment is not backed by rational information. Irrational traits are not ideal characteristics of an investor.

[SailorRob]

One assumes you're lashing out irrationally because you're embarrassed. The 1/10 comment is not backed by rational information. Irrational traits are not ideal characteristics of an investor.


That assumption is wrong.

However you are correct my 1/10 comment is not backed by anything but a suspicion.

I have reviewed the last 40 of your posts and I am totally wrong. I'm confusing you with some of the others.

The data is there and the data clearly shows that I was wrong.

[winner69]

Mav mentioned this the other day when discussing the high margins OCA were getting -

The thing that makes this absurd margin reality (for now) is that apartment building construction also always has 3-5 years of capital gains baked in at the sell down phase. OCA has also been clear to tell us that until now all construction contracts have been held at rates before the rampant construction price rises of the last few years. So we are getting new retail sales prices now on stuff built at 2019 build prices. And we know how significant building cost increases have been the last 2 years.

Thanks for reminding us of that. It is indeed something Oceania have been at pains to remind us off.

With all these ‘rampart construction price rises of last few years’ it’s a wonder the contractors haven’t gone broke in the process….if anything we should be grateful to them for continuing to build at ‘cheap’ rates

A few years ago The Helier was touted as a $120m project but now it seems to be a $150m project. No idea where they pull these figures from but if it’s the cost then the costs have increased by 25% …hmmmm

[Gunner]

Mav mentioned this the other day when discussing the high margins OCA were getting -

The thing that makes this absurd margin reality (for now) is that apartment building construction also always has 3-5 years of capital gains baked in at the sell down phase. OCA has also been clear to tell us that until now all construction contracts have been held at rates before the rampant construction price rises of the last few years. So we are getting new retail sales prices now on stuff built at 2019 build prices. And we know how significant building cost increases have been the last 2 years.

Thanks for reminding us of that. It is indeed something Oceania have been at pains to remind us off.

With all these ‘rampart construction price rises of last few years’ it’s a wonder the contractors haven’t gone broke in the process….if anything we should be grateful to them for continuing to build at ‘cheap’ rates

A few years ago The Helier was touted as a $120m project but now it seems to be a $150m project. No idea where they pull these figures from but if it’s the cost then the costs have increased by 25% …hmmmm

I'm a quantity surveyor and I'd be very surprised if the contractor does not have some form of price escalation in their contract. The contract can be lump sum and have tags that allows for material reprieve over a certain period of time for example. Entering a contract in 2019 with no provisions for price escalation would be highly unlikely.

[WAIKEN]

I see OCA reaching NTA IN 2024 and moving beyond that figure.
I have had a lot of success buying at a discount to NTA over many years. Some assets are tricky such as stock of a manufacturer or specialized buildings as Freezing Works. I see RV assets as similar to other commercial and even residential property assets. I asked a manager in one of the big three commercial real estate firms recently if sophisticated long term investors were looking through the current devaluations in commercial properties owing to the higher interest rates determining cap rates and thus valuations. He said they were and many dis their own appraisal of the actual cost of land per metre and the actual replacement construction costs per metre. He sees commercial valuations rising from early 2024.
OCAs NTA will be way below replacement costs and it owns some very large well located and valuable sites based on the land alone. The care suites are a very valuable asset. I have a relative who consults to government bodies suing his deep commercial experience. He told me the health system is currently in crisis. The Government is totally reliable on the RV sector to provide beds for the sick elderly. Our care suites will find their own commercial path. When MET got to half of its NTA I bought heavily and sold just below the Swedish funds 6.00 offer. The offer went sideways when covid hit and the NTA was smashed again. When it again approached 50% of NTA I bough again and sold just below the revised offer price on market. Recently I topped my ARV holding at 0.92 as it was too deeply discounted to NTA. They have since gone to 1.25 and I am predicting they will reach current NTA of 1.90 By the end of 2024. I have had big OCA holding for a number of years and I am now in buyer mode.

[RTM]

Thanks Waiken for sharing your observations.
Appreciated. I would be buying more too if they weren’t already a solid % of my portfolio.
RTM

[kiora]

"Now if income growth were the only factor, then property would double every twenty years. But clearly it’s not the only factor."
"Let’s call this figure our fair market price.

A house that was worth $170,000 in 2000 should be worth $730,000 today purely based on equivalent affordability or % of income used to service the debt."
https://www.squirrel.co.nz/blogs/housing-market/beyond-2020-the-next-housing-boom

[winner69]

I'm a quantity surveyor and I'd be very surprised if the contractor does not have some form of price escalation in their contract. The contract can be lump sum and have tags that allows for material reprieve over a certain period of time for example. Entering a contract in 2019 with no provisions for price escalation would be highly unlikely.

Thanks Gunner for that insight from an industry perspective. Good stuff.

Good that Rob hasn’t challenged you to ‘prove’ it eh

[ValueNZ]

Thanks Gunner for that insight from an industry perspective. Good stuff.

Good that Rob hasn’t challenged you to ‘prove’ it eh
I'd appreciate someone trying to find some more information regarding the construction contracts, All I can seem to find about it is from the last years annual meeting transcript. Which is "We have observed some supply chain disruptions, particularly Gib products as well as access to some specialty sub trades, both of which have been well managed and mitigated to date. We have entered into fixed price contracts with our construction partners for the development activities underway for FY2023 and FY2024." And also "Our most recent fixed price contract was initially negotiated at 50% fixed and then a further 23% was fixed after careful assessment of the potential future escalation on this component of trades. The balance 27% is carried at our risk with an appropriate specific contingency allowance to cover potential escalation which is determined jointly by the contractor, their subcontractors and our independent Quantity Surveyor."

Speaking of annual meetings, Oceania has one coming up on the 25th of August. It's probably worth discussing on this forum what questions we are wanting to ask the board of directors, any ideas anyone? I'm pretty sure they can be typed online from what I can tell.

[SailorRob]

I see OCA reaching NTA IN 2024 and moving beyond that figure.
I have had a lot of success buying at a discount to NTA over many years. Some assets are tricky such as stock of a manufacturer or specialized buildings as Freezing Works. I see RV assets as similar to other commercial and even residential property assets. I asked a manager in one of the big three commercial real estate firms recently if sophisticated long term investors were looking through the current devaluations in commercial properties owing to the higher interest rates determining cap rates and thus valuations. He said they were and many dis their own appraisal of the actual cost of land per metre and the actual replacement construction costs per metre. He sees commercial valuations rising from early 2024.
OCAs NTA will be way below replacement costs and it owns some very large well located and valuable sites based on the land alone. The care suites are a very valuable asset. I have a relative who consults to government bodies suing his deep commercial experience. He told me the health system is currently in crisis. The Government is totally reliable on the RV sector to provide beds for the sick elderly. Our care suites will find their own commercial path. When MET got to half of its NTA I bought heavily and sold just below the Swedish funds 6.00 offer. The offer went sideways when covid hit and the NTA was smashed again. When it again approached 50% of NTA I bough again and sold just below the revised offer price on market. Recently I topped my ARV holding at 0.92 as it was too deeply discounted to NTA. They have since gone to 1.25 and I am predicting they will reach current NTA of 1.90 By the end of 2024. I have had big OCA holding for a number of years and I am now in buyer mode.


'I see OCA reaching NTA IN 2024 and moving beyond that figure'.

You are predicting a 67% + rise within a period of 18 Months. What is your past success rate been of these types of calls? That is a huge move in a very specific time period.

Also with the mate in management, who sees the valuations turning in EARLY 2024. Why is he in management when there is an asset class that they can apply a lot of leverage too, with the ability to predict the turn like they are claiming, surely they would have made a lot of money doing this for themselves and not have to work for someone else in a management role? Does he hot have a vested interest?

I have had a lot of success buying at a discount to NTA over many years. Some assets are tricky such as stock of a manufacturer or specialized buildings as Freezing Works.

Good points, all NTA's are certainly not created equal, replacement costs are totally irrelevant for many, including much commercial property. But not so with OCA.


I'm also an OCA bull, but you've made some big and bold calls when OCA has left many very smart people in the dust from the IPO. I'd be pretty careful with predicting anything like you have within a very small time frame.

[SailorRob]

Thanks Gunner for that insight from an industry perspective. Good stuff.

Good that Rob hasn’t challenged you to ‘prove’ it eh


Well it's hardly a 'insight', what he has highlighted is normal commercial practice. Even in Roman times this was so.

[Rawz]

'I see OCA reaching NTA IN 2024 and moving beyond that figure'.

You are predicting a 67% + rise within a period of 18 Months. What is your past success rate been of these types of calls? That is a huge move in a very specific time period.

Also with the mate in management, who sees the valuations turning in EARLY 2024. Why is he in management when there is an asset class that they can apply a lot of leverage too, with the ability to predict the turn like they are claiming, surely they would have made a lot of money doing this for themselves and not have to work for someone else in a management role? Does he hot have a vested interest?

I have had a lot of success buying at a discount to NTA over many years. Some assets are tricky such as stock of a manufacturer or specialized buildings as Freezing Works.

Good points, all NTA's are certainly not created equal, replacement costs are totally irrelevant for many, including much commercial property. But not so with OCA.


I'm also an OCA bull, but you've made some big and bold calls when OCA has left many very smart people in the dust from the IPO. I'd be pretty careful with predicting anything like you have within a very small time frame.

Shesh Sailor your posts were good for awhile but lately have turned to complete rubbish adding no value.

Waiken simply posts his outlook on a stock based on anecdotal evidence and what has worked well in the past. This is what you do in an online forum. If people didnt share their outlooks then what's the point?

Your reply was obvious and completely pointless.

Bring back the Sailor that would just highlight deep value on stocks................

[winner69]

Quote SailorRob - Good points, all NTA's are certainly not created equal, replacement costs are totally irrelevant for many, including much commercial property. But not so with OCA.

So Rob a question - OCA has NTA of $1.34 per share, what then is replacement costs (per share)

We all should know seeing such a number is not totally irrelevant and would give us a better idea of what OCA is really worth

[SailorRob]

Shesh Sailor your posts were good for awhile but lately have turned to complete rubbish adding no value.

Waiken simply posts his outlook on a stock based on anecdotal evidence and what has worked well in the past. This is what you do in an online forum. If people didnt share their outlooks then what's the point?

Your reply was obvious and completely pointless.

Bring back the Sailor that would just highlight deep value on stocks................


Sailor feels it's important to highlight to people who are more naïve that anyone calling for a 67% rise to NTA and beyond in that specific time frame is just being silly.

If they said they see the potential then that's fine.

You want deep value? Look at Stellantis.

[SailorRob]

Quote SailorRob - Good points, all NTA's are certainly not created equal, replacement costs are totally irrelevant for many, including much commercial property. But not so with OCA.

So Rob a question - OCA has NTA of $1.34 per share, what then is replacement costs (per share)

We all should know seeing such a number is not totally irrelevant and would give us a better idea of what OCA is really worth


Yes it's not totally irrelevant, but how relevant it is is unknown.

What matters is what those assets can produce in cash, and their business model will do so, how much remains to be seen.

What I said was the replacement cost is not totally irrelevant, but I have no idea what the replacement costs would be.

I suspect it wouldn't be hard to work out, but would be time consuming.

I would much rather spend my time thinking about how OCA NTA is totally rubbish as it counts their biggest asset as a liability.

What I do know is that to replace the billion dollars of float with equity would cost a billion dollars.

Understanding what OCA is worth isn't really related to it's assets replacement costs.

I once had a massive concrete statue built of a one legged black sheep, was like 20 meters tall. Meant to be a tourist attraction. Would cost way more to build today, but this has nothing at all to do with what it's worth.

[ronaldson]

I don't know the answer regarding replacement cost of existing stock. I did just look at the Annual Results Presentation (y/e 31 March 2023) and noted inventory included 1651 care beds (not suites) and that since balance date OCA has effectively exited a total of 103 such beds by concluding the lease arrangements covering the Everill Orr and Wesley facilities in Auckland so is now responsible for 1548 care beds, presumably with no reduction in NTA per share and minimal if any reduction in ongoing profitability.

Also 19 ILU's (OCA does not differentiate between Apartments and Villas in defining an ILU) and 107 care suites were classed as "Held for Sale " at balance date, and these seem to be on balance sheet at an aggregate value of $100m implying an average value of around $800k despite the predominance of care suites in that total number. That may reflect St Helier's sell down situation at that point as I assume that reflects stock on hand rather than actual existing facilities intended to be disposed on-market?

This company has a predominance of sites held with development potential/intent rather than mature facilities. So the pipeline is significant and probably a drag on both profits and NTA just now as these go through the design, consenting and construction phases, not helping the share price.

Interestingly I received a brochure for the Waterford Village in Hobsonville accompanying my NZ Herald this morning. It seems the Apartments come "fully furnished" (whatever that means) and are offered from $550k and $930k respectively for one or two bedrooms. Two bedroom Villas (with attached garage) are from $950k but no mention of furnishings. Fixed weekly fee for life. I like the location and am tempted to have a look.

[ronaldson]

And just like that I have a fill today for 30k OCA at $0.78c in my trading account.

On balance my view is that upside potential exceeds downside risk. I intend holding until at least the AGM presentation/commentary from Friday afternoon, 25 August.

[ValueNZ]

And just like that I have a fill today for 30k OCA at $0.78c in my trading account.

On balance my view is that upside potential exceeds downside risk. I intend holding until at least the AGM presentation/commentary from Friday afternoon, 25 August.
That's quite the short time-frame you have there... I hope you're not in desperate need of the cash anytime soon.

[justakiwi]

.........................

[ronaldson]

Yes, trading account - profits taxable, losses deductible. And the combined buy and sell brokerage is less than $100 in aggregate.

[X-men]

Lol..down 5% because U all mourning..

[winner69]

Lol..down 5% because U all mourning..

Didn’t recover X-men and closed at 76 cents

Nothing to mourn ….just that it’s a new moon tonight …….and nothing like bad news been leaked or such things

[Entrep]

Anyone bearish on OCA and why?

[mike2020]

Short term yes as I think there are more interest rate rises to come with all that has entailed to date, maybe a little too simplistic, but long term I'm on board.

[bull....]

say last week 79c need be decisively broken , no one wanted to really buy at 80c yetersday thats why it fell back , someone did a big dump because no buyer support at 80c yet. unless some fundamental problem should attempt another breakout at some stage. inflation data wed be good to watch

[SailorRob]

Short term yes as I think there are more interest rate rises to come with all that has entailed to date, maybe a little too simplistic, but long term I'm on board.


If you think there are more rises to come, and you could be right, unless you have a different take to the market, then is this information not already priced in?

If your take is different to the market, then you must be correct in order to benefit from any discrepancy.

Nobody I have heard of has been able to consistently call rates different to market outlook and be correct.

So any view on rates is priced in.

[mike2020]

50/50 I think. Yesterday WP and ANZ agree possibly August. First I have read that. Consensus seems to be moving around often.

[winner69]

NZ Warriors on fire ……going to have a home quarter final and then go on an win the whole thing

“It’s our year” finally going to happen

And that’s the curtain raiser for Oceania having a “it’s our year” experience …….wonder what share price will be after ASM in August and release of boomer half result in November

[Lego_Man]

50/50 I think. Yesterday WP and ANZ agree possibly August. First I have read that. Consensus seems to be moving around often.

ANZ and Westpac are off guard after erroneously jacking up their OCR peak targets post the April 50bps surprise. After what Orr said in May, the bar for another hike is incredibly high. We'd need to see a re-acceleration of growth and inflation and in this environment + pre election uncertainty i just don't see that as a possibility.

[RTM]

NZ Warriors on fire ……going to have a home quarter final and then go on an win the whole thing

“It’s our year” finally going to happen

And that’s the curtain raiser for Oceania having a “it’s our year” experience …….wonder what share price will be after ASM in August and release of boomer half result in November

Not all Boomers have moved in there Winner.

[bull....]

looks like they want to test 74c again ? 74 - 79 is da range

[bottomfeeder]

looks like they want to test 74c again ? 74 - 79 is da range

Very little demand until close to next dividend and interim results announcement.

[ronaldson]

Very little demand until close to next dividend and interim results announcement.

On the contrary, daily volume is high and this share is consistently liquid, albeit currently in something of a trading range as bull suggests. But you are right that it will take news/a sentiment shift of some kind for a breakout, the most likely source now being the market view following the AGM presentations next month.

Dividend is so small (and with effect from 1 October 2022 the Board reduced the payout policy from 50 - 60% of NPAT to a range of 30 - 50%) that accruing is hardly impactful.

[winner69]

Will ASM have much of an impact?

Share price went up a few cents after last years ASM but soon recommenced it’s downward trend

OCA meetings usually boring as ……this year be different?

And not prone to giving any guidance …but last year Brett did say ‘This financial year, full year 2023, is off to a good start, and while only two months in, we can report an observed uptick in our enquiries with sales volumes, average capital gain and resale margins all ahead of the same point last year’ …pity it didn’t end up like that year end.

At least we should how the sustainability initiatives are progressing

[Entrep]

Dividend is so small (and with effect from 1 October 2022 the Board reduced the payout policy from 50 - 60% of NPAT to a range of 30 - 50%) that accruing is hardly impactful.

Whats the rough gross yield with the new policy?

[bull....]

Whats the rough gross yield with the new policy?

who know's but based on current div's 3% after tax with the potential for reducing further going forward ?

[X-men]

This dog is so sheet

[bull....]

yep pure breed dog

[bottomfeeder]

Down a bit more and I will be buying again.

[ronaldson]

Whats the rough gross yield with the new policy?

Jarden give the gross yield as 4.2%, presumably based upon the last closing price of $0.74.

This will be based upon the 14/12/22 interim dividend for FY23 of 1.9c and the 21/06/23 final dividend for FY23 of 1.3c, giving an aggregate of 3.2c for the full year. There were no imputation credits attached so withholding tax was deducted from those payments in both instances. A DRIP was available to holders.

I don't wish to dispute Jarden but my calculation suggests the gross yield is actually 4.3%.

[Habits]

This dog is so sheet

In the words of Warren Buffett: ‘A market downturn doesn’t bother us. It is an opportunity to increase our ownership of great companies with great management at good prices"

Question mark over that last bit

[blackcap]

The problem I have with OCA, is that they are not profitable operationally. To add to that, their debt levels are high. Yes the debt is dated 27 and 28 with good rates. However if rates remain high, then this will hurt when time comes to renew.

[ValueNZ]

The problem I have with OCA, is that they are not profitable operationally. To add to that, their debt levels are high. Yes the debt is dated 27 and 28 with good rates. However if rates remain high, then this will hurt when time comes to renew.
Is the nearly billion dollars in interest free loans and 250 million in very low interest bond repayments not worth more in a higher rate environment?

[SailorRob]

The problem I have with OCA, is that they are not profitable operationally. To add to that, their debt levels are high. Yes the debt is dated 27 and 28 with good rates. However if rates remain high, then this will hurt when time comes to renew.


Debt levels are high? How are you calculating this?

If debt levels were any lower they would be breaking their duty to shareholders.

The lack of operating profitability isn't a major when considered alongside the rest of the Business, but agree it is a concern.

[bottomfeeder]

Low dividend yield is temporary. When their properties that are surplus to requirements are settled, dividends will return to appropriate levels. Meanwhile as costs of new construction escalate, the value of existing property stock increases in value. It has to. There will be temporary glitches in these increases due to interest rate and recession factors. However interest rates will start to decline very soon. There have been lower interest rate movements as evidenced by recent reduction in bond yields. As interest rates decline recessionery effects will lessen. Then we shall see the revaluation of property stock markedly increase.

[blackcap]

Debt levels are high? How are you calculating this?

If debt levels were any lower they would be breaking their duty to shareholders.

The lack of operating profitability isn't a major when considered alongside the rest of the Business, but agree it is a concern.

Debt/Equity is 1.64, (total liabilities/equity). That is getting up there. Operating lossability not a good look when compared to their peers, who although don't make much of a profit, still make one.

[SailorRob]

Debt/Equity is 1.64, (total liabilities/equity). That is getting up there. Operating lossability not a good look when compared to their peers, who although don't make much of a profit, still make one.


How many times do I have to bloody go through this.

If measured like you are then I want the ratio to be AS BAD AS IT POSSIBLY CAN.

The liabilities are an ASSET BETTER THAN EQUITY.

[SailorRob]

I am literally just shaking my head right now, but it is this Lazy and utter lack of understanding that gives us the opportunity to make fat stacks of cash.

[winner69]

I am literally just shaking my head right now, but it is this Lazy and utter lack of understanding that gives us the opportunity to make fat stacks of cash.

Careful where you point the boat when you in this state Rob …web don’t want you to run aground

[mike2020]

Do you know if he actually has a boat? It could just be a nickname or maybe a uniform he likes to wear on the weekends

[winner69]

Do you know if he actually has a boat? It could just be a nickname or maybe a uniform he likes to wear on the weekends

He was talking about his yacht a while ago. ..probably a huge one funded by debt

[blackcap]

How many times do I have to bloody go through this.

If measured like you are then I want the ratio to be AS BAD AS IT POSSIBLY CAN.

The liabilities are an ASSET BETTER THAN EQUITY.

At present the debt is good, at low rates. But when it matures it will have to be re-issued. You go make your stacks of cash. Why is there such a large discount to NTA in this stock? You obviously know something more than I do. Anyway, I will be talking to Liz Coutts at some stage in the next month so will ask her myself.

[SailorRob]

He was talking about his yacht a while ago. ..probably a huge one funded by debt


One of my yachts is 76 feet and the other 45 feet, I'd say you're well aware neither is funded by debt.

Together they are an insignificant part of my asset base.

[SailorRob]

At present the debt is good, at low rates. But when it matures it will have to be re-issued. You go make your stacks of cash. Why is there such a large discount to NTA in this stock? You obviously know something more than I do. Anyway, I will be talking to Liz Coutts at some stage in the next month so will ask her myself.



The bank and bond debt, 500 million against total assets of 2.6 billion.

You are thinking the refundable occupational rights agreements and the deferred management fees are debt...

They are in fact an asset that is better than equity capital.

So do your calculation again with the 500 debt against equity plus the ROR and DMF and see how good it looks then.

Liz will explain it, or I can if you want but I've been highlighting it for so long... hence the frustration.

The discount to NTA is because virtually nobody understands the float and they think this business is like Argosy or something.

[Rawz]

Sailor may I suggest you swap the rum for weed lol

[SailorRob]

Sailor may I suggest you swap the rum for weed lol


No need to swap one for the other.

[alokdhir]

I do think I can understand what gives SR confidence about his calculations of OCA dynamics ...as he treats OR deposits as interest free gift / not even loan ..means OR deposits will never need be refunded till company finds another replacement also they never need provide any returns for them ...company is free to use them any way they like ie to make more units thus so on ...a time will come when this cycle will gain enough momentum on its own to self fund development and free cash flows ...all good ...but if thats so simple then why whole market not getting the golden goose analogy ...this part fails me ...maybe I am not well trained in accounts or RV accounts which Mr B used to say needs skills of a forensic accountants at times to fully understand the layers ...

[SailorRob]

I do think I can understand what gives SR confidence about his calculations of OCA dynamics ...as he treats OR deposits as interest free gift / not even loan ..means OR deposits will never need be refunded till company finds another replacement also they never need provide any returns for them ...company is free to use them any way they like ie to make more units thus so on ...a time will come when this cycle will gain enough momentum on its own to self fund development and free cash flows ...all good ...but if thats so simple then why whole market not getting the golden goose analogy ...this part fails me ...maybe I am not well trained in accounts or RV accounts which Mr B used to say needs skills of a forensic accountants at times to fully understand the layers ...


Good post yep, I agree the income statement is complex with these companies but the balance sheet is not.

Why doesn't the market get it, good question, I guess some of the others have proved the model and I guess even a interest free loan which has no conditions attached and only has to be paid back once refinanced with another free loan... if you used this money to buy yachts then it's still bad even though it's free, so they need to prove they can use the free money to make money.

Plenty of companies you can lend them a billion dollars interest free against a similar amount of equity capital and they will still screw up.

BUT, what does interest me is how OCA trades in lockstep with the BS property companies that DONT have access to this free funding, and this more than anything else proves to me that the market doesn't get it.

[SailorRob]

Apologies to Blackcap, if you have not thought about this aspect of the funding in this way, I am happy to explain it as I see it.

But using a traditional debt/equity ratio for this company is just crazy, it just doesn't work like that.

[Baa_Baa]

You are thinking the refundable occupational rights agreements and the deferred management fees are debt...

They are in fact an asset that is better than equity capital.

Technically individually they are refundable, but in practice the 'float' never gets repaid and even grows at the rate of new builds!

[winner69]

Good post yep, I agree the income statement is complex with these companies but the balance sheet is not.

Why doesn't the market get it, good question, I guess some of the others have proved the model and I guess even a interest free loan which has no conditions attached and only has to be paid back once refinanced with another free loan... if you used this money to buy yachts then it's still bad even though it's free, so they need to prove they can use the free money to make money.

Plenty of companies you can lend them a billion dollars interest free against a similar amount of equity capital and they will still screw up.

BUT, what does interest me is how OCA trades in lockstep with the BS property companies that DONT have access to this free funding, and this more than anything else proves to me that the market doesn't get it.

I’ve heard some say the RV model is a Ponzi Scheme …I must google Ponzi to see what he got up to …was he one of Warren’s mates?

[alokdhir]

Good post yep, I agree the income statement is complex with these companies but the balance sheet is not.

Why doesn't the market get it, good question, I guess some of the others have proved the model and I guess even a interest free loan which has no conditions attached and only has to be paid back once refinanced with another free loan... if you used this money to buy yachts then it's still bad even though it's free, so they need to prove they can use the free money to make money.

Plenty of companies you can lend them a billion dollars interest free against a similar amount of equity capital and they will still screw up.

BUT, what does interest me is how OCA trades in lockstep with the BS property companies that DONT have access to this free funding, and this more than anything else proves to me that the market doesn't get it.

If main difference is OR deposits then all RV companies have that advantage not just OCA and some like SUM has proven to manage current cash flows better for various reasons also they being able to sell better as they address the demand end of the market better ...

[SailorRob]

If main difference is OR deposits then all RV companies have that advantage not just OCA and some like SUM has proven to manage current cash flows better for various reasons also they being able to sell better as they address the demand end of the market better ...


That's correct, but perhaps to differing degrees, you'd have to look at the ratios of this type of funding vs actual equity and debt.

There are plenty of other companies that also have this type of 'float' funding but I have never seen any as good as this, and usually it's fought over so viciously that the actual business doesn't make any return only the invested 'free money'. This is how insurance works.

The next thing is that the ones that are proven will be more expensive due to that reason.

Bu as I've said, they would have to try hard to bugger it up.

[alokdhir]

That's correct, but perhaps to differing degrees, you'd have to look at the ratios of this type of funding vs actual equity and debt.

There are plenty of other companies that also have this type of 'float' funding but I have never seen any as good as this, and usually it's fought over so viciously that the actual business doesn't make any return only the invested 'free money'. This is how insurance works.

The next thing is that the ones that are proven will be more expensive due to that reason.

Bu as I've said, they would have to try hard to bugger it up.

That makes them super property stocks ...as they part finance their property with free deposits thus their NAV shud be rising much faster in up property cycle then pure REITs etc ...also their stability in down cycles / high rate environment shud be better . Makes sense they shud rate higher then pure REITs

[SailorRob]

That makes them super property stocks ...as they part finance their property with free deposits thus their NAV shud be rising much faster in up property cycle then pure REITs etc ...also their stability in down cycles / high rate environment shud be better . Makes sense they shud rate higher then pure REITs


Yes much much higher, plus operating side much better too, and they are developing as well.

[davflaws]

One of my yachts is 76 feet and the other 45 feet, I'd say you're well aware neither is funded by debt.

Together they are an insignificant part of my asset base.

All boats are characterised by length, beam, and debt.

But I hold my OCA as a foundational part of my portfolio, and they will be the last shares I sell. By the time I have to (or more likely my widow has to), I hope the 'free capital' will be paying off, and the price will be North of $3.

[Maverick]

All boats are characterised by length, beam, and debt.

But I hold my OCA as a foundational part of my portfolio, and they will be the last shares I sell. By the time I have to (or more likely my widow has to), I hope the 'free capital' will be paying off, and the price will be North of $3.

Not sure when you are planning in dying Dave but on a PE of 16 ( next few years of impressive growth should secure that) then you can hope for $2.50 fy 2026

[SailorRob]

Not sure when you are planning in dying Dave but on a PE of 16 ( next few years of impressive growth should secure that) then you can hope for $2.50 fy 2026

Yes if they can effectively use their balance sheet a PE of 16, or a 6.25% yield would be very reasonable.

However. The biggest determinant of the PE in 2026 will perhaps be the rate a 10 year sovereign sells at.

[Rawz]

Does OCA deserve a PE of 16 thou? Seems a bit high based on past performance

[SailorRob]

Does OCA deserve a PE of 16 thou? Seems a bit high based on past performance

When you say past performance, I believe you are referring to the share price?

The voting booth?

[Habits]

the BS property companies that DONT have access to this free funding,

The BS REITs have higher tax free yield. When the RVs get to grips with a better structure then just maybe they will outperform

[Rawz]

When you say past performance, I believe you are referring to the share price?

The voting booth?

EPS... hasn’t been great.. so deserves a 11-13 p/e maybe

Isn’t that how P/Es work. Need trust on EPS to get a high teens PE

[SailorRob]

the BS property companies that DONT have access to this free funding,

The BS REITs have higher tax free yield. When the RVs get to grips with a better structure then just maybe they will outperform


Yield paid from other sources apart from cash earnings doesn't count, that's why every single dividend has been wiped out by the share price.

Anyone can sell shares and borrow money to pay a dividend.

Yes OCA has done this too.

[Baa_Baa]

Yield paid from other sources apart from cash earnings doesn't count, that's why every single dividend has been wiped out by the share price.

Anyone can sell shares and borrow money to pay a dividend.

Yes OCA has done this too.

But, once you own some shares and assuming you own them not just to trade for a higher capital price. i.e. as an investment, the share price doesn't really matter that much, except for whether you want to get some more shares on market at a low price.

I'm constantly amazed at how the discussion conflates market price to long term value. The two are not correlated, the market prices things however they want to and OCA share price has been very volatile (surprisingly so for an RV), but the value of the company is much more stable, quietly growing over time.

There are a lot of companies currently underpriced by the market, OCA is one of them. Maybe it's not that surprising as we have had a decade or so of overpriced companies (by the market) and perhaps it takes some time for common investment sense to prevail, that the value is not dictated by the price.

OCA may or may not be the best investment in the sector, who knows what the future holds, but it has presented extraordinary buying opportunity for quite a while.

Investors in OCA hopefully take into account their property portfolio and business model when they listed, and their ambition to revise both of those with their strategy. Which they're doing very well. That's the only thing we're invested in, that they achieve their strategy.

The share price will eventually follow success. Then you'll be confronted with the conundrum of whether you realise the capital gains and forgo all future earnings, by selling out, or visa versa, by continuing to hold.

In any event, the market is gifting OCA at low prices, you have to ask yourself whether you're in it for the long game, or just looking for some capital gains. The IRD will be interested in your conclusion.

[SailorRob]

But, once you own some shares and assuming you own them not just to trade for a higher capital price. i.e. as an investment, the share price doesn't really matter that much, except for whether you want to get some more shares on market at a low price.


Generally I'd agree, but in the context of you replying to my comment, the share price matters an awful lot if your income is derived by the company consuming itself (borrowing to pay dividends or selling shares etc)
Then you get dividend in once had and lose 2 in the other hand.

Yes as you suggest you own for the earnings and the price will follow.

What I'm saying is all the Refinery's dividends were BS... and many other examples, fake earnings from incorrect depreciation and inability of new assets to earn money...

So what I mean is a company that pays a good dividend but by selling itself to do so, then you will see the overall result in the share price and that will matter as your business is essentially dissolved.

[Baa_Baa]

Technically individually they are refundable, but in practice the 'float' never gets repaid and even grows at the rate of new builds!

Apologies for quoting myself, but it's incredible imo that so few people invested in RV's seem to get this?

SailorRob calls it the 'float', that seems to be a fair description. It is the most amazing thing about the RV's business model. A sustainable growing balance sheet of assets that can be leveraged to grow the company.

Your customers basically give you money, for the right to occupy, that you have to only give back part of when they leave, and you can do what ever you like with the money while you have it. When they leave, you 'sell' the property to someone else, hopefully at a greater amount, and top up the 'float'.

You never have to repay the float. Never. It is an ongoing interest free asset on the balance sheet that is growing every year in line with the asset base growth.

There's nothing like this in commercial investments.

[Baa_Baa]

Generally I'd agree, but in the context of you replying to my comment, the share price matters an awful lot if your income is derived by the company consuming itself (borrowing to pay dividends or selling shares etc)
Then you get dividend in once had and lose 2 in the other hand.

Yes as you suggest you own for the earnings and the price will follow.

What I'm saying is all the Refinery's dividends were BS... and many other examples, fake earnings from incorrect depreciation and inability of new assets to earn money...

So what I mean is a company that pays a good dividend but by selling itself to do so, then you will see the overall result in the share price and that will matter as your business is essentially dissolved.

Sometimes you're difficult to agree with when we're actually on the same page. Point is, the market does not value the company, it prices it. The market is not always right.

[bull....]

oh my 2 pages of fortune telling
what's anyone's track record on predicting stock prices based on pe ratio,s ?

[SailorRob]

Sometimes you're difficult to agree with when we're actually on the same page. Point is, the market does not value the company, it prices it. The market is not always right.


Yes we are on the same page.

Great post on the float too, I get the term from the insurance industry, maybe even Buffett coined it.

[ronaldson]

The last Annual Report mentioned Oceania had sold two Auckland care sites to a smaller experienced operator, conditional upon the consent of M of H and Te Whatu Ora and expected to settle in August 2023.

I sought to clarify if this was a reference to exiting Everill Orr and Wesley, both of which have been the subject of recent media interest and effectively occurred by expiry of lease, or whether OCA has conditionally on sold two further premises.

Brent has indicated OCA is in the final stages of this process and remains on track to settle in August, clarifying that these properties are separate from Everill Orr and Wesley which were their leasehold properties in Auckland and are in addition to those closures. He intends to provide an update at the AGM, which is scheduled on Friday, 25 August ( 2.00pm at the Park Hyatt, 99 Halsey Street, Auckland ).

So OCA are in fact incrementally resetting their business operation, I believe in fashion that will benefit holders in the longer term.

[winner69]

The last Annual Report mentioned Oceania had sold two Auckland care sites to a smaller experienced operator, conditional upon the consent of M of H and Te Whatu Ora and expected to settle in August 2023.

I sought to clarify if this was a reference to exiting Everill Orr and Wesley, both of which have been the subject of recent media interest and effectively occurred by expiry of lease, or whether OCA has conditionally on sold two further premises.

Brent has indicated OCA is in the final stages of this process and remains on track to settle in August, clarifying that these properties are separate from Everill Orr and Wesley which were their leasehold properties in Auckland and are in addition to those closures. He intends to provide an update at the AGM, which is scheduled on Friday, 25 August ( 2.00pm at the Park Hyatt, 99 Halsey Street, Auckland ).

So OCA are in fact incrementally resetting their business operation, I believe in fashion that will benefit holders in the longer term.

One of the issues I have with Oceania is it’s what they don’t say or report …….and often what are they really saying when they do say something

[ronaldson]

One of the issues I have with Oceania is it’s what they don’t say or report …….and often what are they really saying when they do say something

We could be more generous and acknowledge disclosures are not always easy in the listed sector. These potential transactions clearly do not raise any materiality issue, and no one wishes to cause alarm or distress to the residents especially when any transaction starts off by being conditional anyway.

I note that as at 31 March 2023 OCA disclose 10 sites are being actively marketed for sale (31 March 2022 - nil) and as such meet the definition of land held for sale. Of the two sites sold conditionally shortly after that date they disclose the carrying value is $10.2m. Given they are in Auckland, and if one assumes they have care beds only (ie no suites or ILUs) then the suspects are Green Valley Lodge and Te Mana on the North Shore, Amberwood in Waitakere and Takanini or Franklin in South Auckland. I don't have any information that could winnow these down further.

It can't be easy to on-sell care homes in the current environment, especially if you are concerned that any new operator be experienced and sets high standards. But OCA are obviously focused on adjusting the overall ratio of care beds to suites/ILUs which given the inadequacies of sector funding by Government is a good thing for holders as it reduces the extent of total reliance on subsidy.

[Maverick]

Thanks for doing that bit of work Ronaldson. 2 Excellent posts and thanks for sharing.

[winner69]

Blis, Truscreen and Oceania top of NZX leaderboard now

OCA in good company …must be a good day for the markets

[winner69]

Oceania or somebody else?

https://www.nzherald.co.nz/business/gulf-harbour-country-club-suddenly-shuts-locals-fear-whats-next/2B7X33HR4RCGDA3WGF4PXTPSMQ/

[bottomfeeder]

Oceania or somebody else?

https://www.nzherald.co.nz/business/gulf-harbour-country-club-suddenly-shuts-locals-fear-whats-next/2B7X33HR4RCGDA3WGF4PXTPSMQ/

What makes you think a Golf Club has anything to do with Oceania.

[winner69]

What makes you think a Golf Club has anything to do with Oceania.

Extract -

One real estate specialist in the area said a retirement village might be being planned.

“There is a credible report that there is a retirement village planned on the course but if allowed to proceed, it would be a travesty,” the specialist said.

[Bjauck]

Extract -

One real estate specialist in the area said a retirement village might be being planned.

“There is a credible report that there is a retirement village planned on the course but if allowed to proceed, it would be a travesty,” the specialist said.
I would have thought the neighbours would be pleased if a retirement village were planned for the Guif Harbour Course. Ignoring the fact that the golf course itself (or the prior previous farmland) destroyed the pre-existing natural environment, at least it would mean there would not be dreaded social housing. I would have thought sedate middle-lass retired folk as neighbours would elicit a less hostile reaction.

However Perhaps the neighbours liked the boost to house prices that the fast increasing Auckland population brought but expected the necessary houses to accommodate it would be built in somebody else’s back yard…

Nimbyism exists because housing is so expensive in this country and it is a repository of such a big share of households’ nest eggs.

[jagger]

One of my yachts is 76 feet and the other 45 feet, I'd say you're well aware neither is funded by debt.

Together they are an insignificant part of my asset base.

Wow, look at you.

Most of us can claim our boats are bigger than our egos though, so there is that.

[jagger]

The bank and bond debt, 500 million against total assets of 2.6 billion.

You are thinking the refundable occupational rights agreements and the deferred management fees are debt...

They are in fact an asset that is better than equity capital.

So do your calculation again with the 500 debt against equity plus the ROR and DMF and see how good it looks then.

Liz will explain it, or I can if you want but I've been highlighting it for so long... hence the frustration.

The discount to NTA is because virtually nobody understands the float and they think this business is like Argosy or something.

The discount is because these businesses make no free cash flow.

Can you please ask Liz to explain that to the market?
I would absolutely love to see it.

[SailorRob]

Wow, look at you.

Most of us can claim our boats are bigger than our egos though, so there is that.


Nothing to be jealous about, they are holes in the water to pour cash. Certainly don't want the two of them.

[SailorRob]

The discount is because these businesses make no free cash flow.

Can you please ask Liz to explain that to the market?
I would absolutely love to see it.


I can probably do that for you, what's your definition of free cash flow?

[jagger]

I can probably do that for you, what's your definition of free cash flow?

You don't need to. It's been done already by the guys whose full time job it is to follow this stock closer, better & more professionally than any of us can dream of.
I don't need to dust off my textbooks for the definitions you'll use.

According to Arie Dekker of Jarden it was -$10m for FY23.

I'd still love to have Liz muddle around a response to the question though without a pre-prepared script or access to someone prompting her with answers.

[SailorRob]

You don't need to. It's been done already by the guys whose full time job it is to follow this stock closer, better & more professionally than any of us can dream of.
I don't need to dust off my textbooks for the definitions you'll use.

According to Arie Dekker of Jarden it was -$10m for FY23.

I'd still love to have Liz muddle around a response to the question though without a pre-prepared script or access to someone prompting her with answers.


So his full time job is working for someone else for a salary when if he was better than any of us why isn't he investing his own capital and living off that like many of us are?

Please explain.

If someone possesses the exceptional ability to analyse stocks with a level of professionalism and insight that exceeds others, it does indeed seem logical to suggest they could make a living by investing their own money and that of family and friends.

The only caveat is if he is VERY young and even that is a stretch.

Sure he could be a decent analyst but they are nothing special and pale in comparison to many of the financially independent multimillionaires on this thread.

Also please provide us with Jardens record, and explain given your insights, why they don't beat a simple index fund.

Once you've completed all of that,

Please think through the free cash flow implications of a Gold mine that was a real Gold mine but kept all the mined gold as an investment.

Once done with all the above, go somewhere quiet sit down and take a long hard look at yourself.

Liz doesn't need to muddle nothing Sport as she is a multimillionaire many times over who invests her own money in this company.

[winner69]

Hey Rob ….that Arie is a pretty smart guy …no need to put him down

[SailorRob]

Hey Rob ….that Arie is a pretty smart guy …no need to put him down


Not putting him down, would just like a rational explanation for why he'd subject himself to dressing like that and driving to work in the rain when he could be sunning his nether regions with the family somewhere nicer.

Also I do not disagree with Arie's analysis but that is beside the point.

[SailorRob]

And if Arie can't beat the market, then hows Jigger gonna do following Arie?

[jagger]

And if Arie can't beat the market, then hows Jigger gonna do following Arie?

OK mate, silly me, we should all be bowing down at the feet of your big brain.

I should have just asked you for your google definition of free cash flow and nodded enthusiastically at whatever you responded with.

We could talk about the negative free cash flow in the sector (as identified by notable poor guy, in paid employment, Arie Dekker and others), or if you prefer we can just switch this thread up to be a shrine to your anonymous brilliance.

[SailorRob]

OK mate, silly me, we should all be bowing down at the feet of your big brain.

I should have just asked you for your google definition of free cash flow and nodded enthusiastically at whatever you responded with.

We could talk about the negative free cash flow in the sector (as identified by notable poor guy, in paid employment, Arie Dekker and others), or if you prefer we can just switch this thread up to be a shrine to your anonymous brilliance with a side of worshipping the infallibility of Liz on account of her... checks notes... having money.


Well you haven't answered any of the simple questions but I'll guarantee I've got that little brain you yours working, which is good for once.

Not so much talking about myself, with OCA I just understand the Forrest that's all I need to do.

It's not Liz's money son, it's how she made it.

Yes if they are in the paid employment of others at that age doesn't it speak volumes?

But yes, lets talk about the negative free cash flow by all means. What is your understanding of it? Do you anticipate that at any point it will turn positive?

[jagger]

OK, I'll settle in with my small brain and defer to your brilliance at every opportunity.

My understanding of negative free cash flow?
In this business it's indisputable fact, what else is there to understand?

I anticipate it won't turn positive for a number of years and it will be dependent upon demand for premium aged care substantially ramping up as boomers age into higher levels of acuity whilst the funding model is resulting in wholesale closure of beds.
Long term there is value but that doesn't detract from the fact these businesses are burning cash at the moment and hiding behind mountains of non-GAAP nonsense to explain it away. Which is, to my initial point, why this business is trading as a hefty discount to NTA (which is another 'who cares' figure, mostly reliant upon a guy from CBRE stroking his chin. Said guy is also, gasp, another poor in paid employment).
It also makes zero sense for these businesses to pay dividends.

For a uber rich investing genius you definitely are super engaged on the fate of a sub-billion dollar small cap.

[SailorRob]

OK, I'll settle in with my small brain and defer to your brilliance at every opportunity. And I respect your unquestionable simping of the Chair.

My understanding of negative free cash flow?
In this business it's indisputable fact, what else is there to understand?

I anticipate it won't turn positive for a number of years and it will be dependent upon demand for premium aged care substantially ramping up as boomers age into higher levels of acuity whilst the funding model is resulting in wholesale closure of beds.
Long term there is value but that doesn't detract from the fact these businesses are burning cash at the moment and hiding behind mountains of non-GAAP nonsense to explain it away. Which is, to my initial point, why this business is trading as a hefty discount to NTA (which is another 'who cares' figure, mostly reliant upon a guy from CBRE stroking his chin. Said guy is also, gasp, another poor in paid employment).
It also makes zero sense for these businesses to pay dividends.
But none of that stuff matters obviously because you can point to how great Liz is for being rich or something.

For a uber rich investing genius you definitely are super engaged on the fate of a sub-billion dollar small cap.


Strongly agree they should not be paying dividends.

Somewhat agree on the Non GAAP nonsense, don't even bother looking at the income statement really.

Engaged due to the billion dollars of free money they have.

Small caps is where you get rich correct, much easier there. Not that engaged, I have reasonably small position but not too small. I have a full 60% of my net worth in 3 companies, OCA is not one of them.

I hope it won't turn positive for many years too, if it did I'd lose interest very fast.

Yes burning cash, just what I want. I want the productive gold mine burning cash, preferably free money is better to use. If the Goldmine cranks out a lot of gold and keeps it, not too worried for now.

Correct NTA means nothing, all about what cash assets can produce, otherwise worthless.

If you want to understand why they are trading at large discounts to NTA, compare the share price trend with Agrosy or other property dogs which are totally different businesses. The market doesn't understand the difference it seems.

[Baa_Baa]

I think you're arguing around the fringes. These listed RV's are ambitious property growth companies leveraging interest free debt that grows as their asset portfolio of property grows. Everything else is noise and largely irrelevant. The first sign of investor risk is when they slow or stop growing their assets base and in turn, their float that funds much of it. When this and other RV's start paying out competitive market dividend returns, that is the signal that they have reached maturity and cannot expect growth to continue. That is far far away. The conundrum is that the market doesn't realise the power of the interest free float and lumps the companies into the larger basket of traditional property investments, and valuation methods, hence the SP is shackled to a commercial property business model that is quite unlike RV's though superficially appearing to be the same.

[SailorRob]

I think you're arguing around the fringes. These listed RV's are ambitious property growth companies leveraging interest free debt that grows


This is EXACTLY what I meant when I said 'with OCA I just understand the Forest that's all I need to do'

This is the forest (what BaaBaa said). Forget about the trees.

This is why I said I don't care about the income statement.

The discount to NTA is far worse than it looks, considering a billion dollars of 'liabilities' are nothing of the sort.

[SailorRob]

I think you're arguing around the fringes. These listed RV's are ambitious property growth companies leveraging interest free debt that grows as their asset portfolio of property grows. Everything else is noise and largely irrelevant.


Absolutely 100% bang on the money.

And when do we hear damned investment banker suits bring this up? We don't as they don't get it. Back to work driving to an office in the rain they go.

[ValueNZ]

I think you're arguing around the fringes. These listed RV's are ambitious property growth companies leveraging interest free debt that grows as their asset portfolio of property grows. Everything else is noise and largely irrelevant. The first sign of investor risk is when they slow or stop growing their assets base and in turn, their float that funds much of it. When this and other RV's start paying out competitive market dividend returns, that is the signal that they have reached maturity and cannot expect growth to continue. That is far far away. The conundrum is that the market doesn't realise the power of the interest free float and lumps the companies into the larger basket of traditional property investments, and valuation methods, hence the SP is shackled to a commercial property business model that is quite unlike RV's though superficially appearing to be the same.
I hope the share price stays shackled to the returns of the low yield property companies that exist in New Zealand for a long time and continues to grow it's ORA debt at 20% yearly for as long as possible.

Great comparison with the gold mine company SailorRob. Oceania certainly has "gold" on it's balance sheet which it continues to grow...

[SailorRob]

I hope the share price stays shackled to the returns of the low yield property companies that exist in New Zealand for a long time and continues to grow it's ORA debt at 20% yearly for as long as possible.

Great comparison with the gold mine company SailorRob. Oceania certainly has "gold" on it's balance sheet which it continues to grow...


Yeah last time I looked they have been growing ORA debt at a CAGR of 26%.

I hope it's far higher.... Buffett would be proud.

[Rawz]

So Sailor you buying OCA for the float.. but why not SUM or RYM etc.. they got a float too, and bigger..?

Why OCA

[X-men]

Because OCA is under a dollar n Sum n RYM sp are too high

So OCA is cheap as chips...like BPG CEO said...cheap like Tuesday's Taco in USA

[Baa_Baa]

I think people are indoctrinated into the classic property investment model of, buy a property with debt and rent it out, hopefully covering all expenses and making a profit.

RV's are property businesses, but they aren't like that simple model. Lets make it personal, you buy an initial property with bank debt, but instead of just renting it out, you convince your tenant to pay you at the time of sale, the value of the property at ~15% discount to it's market value (money in the bank) and you guarantee you will pay back that money less 20-30% when they leave. So you have that money, interest free, until they leave.

The next property you build/buy, is with the money your first tenants 'loaned' to you interest free. And when you 'sell' the right to occupy that next property, you do so at a margin to what it cost to buy or build. And so on and so forth.

You'd only get more interest liable money from the bank if you wanted to accelerate the investment in building or getting more property, which as above, is rinse and repeat, but obviously more costly as you have to pay interest on that bank loan. In other words, the RV model is still sustainable without bank loans, if they don't want to accelerate development or land bank.

In the meantime, your tenants pay you rent as well! They wouldn't 'buy' (ORA) the property AND pay rent, unless there were some wrap-around services, whether they need it, or not, or may need it sometime. So they not only pay you for the property, but they pay you rent for it as well.

So the more properties you fund through your 'tenants' deposits and rent, the more properties you have and tenants and funding (loans) and rent, and growth in your properties assets increases and this goes on and on ad infinitum. Even if the costs to provide the wrap-around services that the tenants may or may not require, exceed what the rental income is, is largely immaterial. That is the fringe around the core property and growth business model. Call it a loss leader, or whatever.

One day your tenant leaves. Your rental income stops, but they or their estate pay you by deduction from the amount you pay back of their 'loan', to renovate the property (DMF) before you sell the right to occupy again, and get the next 'loan' and rental income from it. Then, when you sell the property to the next person, you pay the original tenant back the 'loan', less 20-30% retained margin.

This is nothing like a standard property investment company, there is one huge difference. The power of the float, which is the no interest payable 'loan' from the residents, and the leverage that comes from that.

As an investor, this is what you're buying into and hope to see continue to grow over time, the growth in property assets and income streams, funded by no interest loans that sustain various margins. When the market wakes up again and realises RV's aren't traditional commercial property investments and have demographic tailwinds for decades to come, we should expect continued growth and substantial re-rates in the market valuation of the companies SP.

[ValueNZ]

Yeah last time I looked they have been growing ORA debt at a CAGR of 26%.

I hope it's far higher.... Buffett would be proud.
I assume you've included pre-IPO data to get a CAGR that high. This probably sounds newbie but how do I access those financial statements prior to the ones published in their annual reports? Thanks

[Snow Leopard]

ALL of you are WRONG.

but some of you are wronger than others.

Snow Leopard Lunch:
https://i0.wp.com/www.islamabadscene.com/wp-content/uploads/2021/03/Ibex-Snow-Leopard.jpg?w=720&ssl=1
image from here (https://www.islamabadscene.com/wwf-releases-rare-video-of-a-snow-leopard-hunting-an-ibex/)

[SailorRob]

I assume you've included pre-IPO data to get a CAGR that high. This probably sounds newbie but how do I access those financial statements prior to the ones published in their annual reports? Thanks

Good question, from the IPO document.

IPO Documents are a must read even if it's many years later.

[bull....]

ALL of you are WRONG.

but some of you are wronger than others.

Snow Leopard Lunch:
https://i0.wp.com/www.islamabadscene.com/wp-content/uploads/2021/03/Ibex-Snow-Leopard.jpg?w=720&ssl=1
image from here (https://www.islamabadscene.com/wwf-releases-rare-video-of-a-snow-leopard-hunting-an-ibex/)

lol so true

they often say the more banter in a thread the more of a dog it is.

[winner69]

ALL of you are WRONG.

but some of you are wronger than others.

Snow Leopard Lunch:
https://i0.wp.com/www.islamabadscene.com/wp-content/uploads/2021/03/Ibex-Snow-Leopard.jpg?w=720&ssl=1
image from here (https://www.islamabadscene.com/wwf-releases-rare-video-of-a-snow-leopard-hunting-an-ibex/)

Good one Snowy ….something wrong with some posters thinking if they are all wrong eh ….and some wringer than others

[SailorRob]

ALL of you are WRONG.

but some of you are wronger than others.

Snow Leopard Lunch:
https://i0.wp.com/www.islamabadscene.com/wp-content/uploads/2021/03/Ibex-Snow-Leopard.jpg?w=720&ssl=1
image from here (https://www.islamabadscene.com/wwf-releases-rare-video-of-a-snow-leopard-hunting-an-ibex/)


I'd have to agree considering the well thought out and expressed reasoning you have showed. Very hard to argue.

[SailorRob]

So Sailor you buying OCA for the float.. but why not SUM or RYM etc.. they got a float too, and bigger..?

Why OCA


In what way are you measuring the float to say it's bigger?

[ValueNZ]

In what way are you measuring the float to say it's bigger?

From memory OCA has the largest float in relation to market cap.
Don't quote me on this but I think it goes OCA, ARV, RYM, SUM, RAD.

[SailorRob]

Because OCA is under a dollar n Sum n RYM sp are too high

So OCA is cheap as chips...like BPG CEO said...cheap like Tuesday's Taco in USA


Yeah and Berkshire is way too high at $850,000 a share. MEE today at less than 1 cent is much cheaper.

[bull....]

You don't need to. It's been done already by the guys whose full time job it is to follow this stock closer, better & more professionally than any of us can dream of.
I don't need to dust off my textbooks for the definitions you'll use.

According to Arie Dekker of Jarden it was -$10m for FY23.

I'd still love to have Liz muddle around a response to the question though without a pre-prepared script or access to someone prompting her with answers.

dekker is better at analysis than those in this thread

[SailorRob]

I think people are indoctrinated into the classic property investment model of, buy a property with debt and rent it out, hopefully covering all expenses and making a profit.

RV's are property businesses, but they aren't like that simple model. Lets make it personal, you buy an initial property with bank debt, but instead of just renting it out, you convince your tenant to pay you at the time of sale, the value of the property at ~15% discount to it's market value (money in the bank) and you guarantee you will pay back that money less 20-30% when they leave. So you have that money, interest free, until they leave.

The next property you build/buy, is with the money your first tenants 'loaned' to you interest free. And when you 'sell' the right to occupy that next property, you do so at a margin to what it cost to buy or build. And so on and so forth.

You'd only get more interest liable money from the bank if you wanted to accelerate the investment in building or getting more property, which as above, is rinse and repeat, but obviously more costly as you have to pay interest on that bank loan. In other words, the RV model is still sustainable without bank loans, if they don't want to accelerate development or land bank.

In the meantime, your tenants pay you rent as well! They wouldn't 'buy' (ORA) the property AND pay rent, unless there were some wrap-around services, whether they need it, or not, or may need it sometime. So they not only pay you for the property, but they pay you rent for it as well.

So the more properties you fund through your 'tenants' deposits and rent, the more properties you have and tenants and funding (loans) and rent, and growth in your properties assets increases and this goes on and on ad infinitum. Even if the costs to provide the wrap-around services that the tenants may or may not require, exceed what the rental income is, is largely immaterial. That is the fringe around the core property and growth business model. Call it a loss leader, or whatever.

One day your tenant leaves. Your rental income stops, but they or their estate pay you by deduction from the amount you pay back of their 'loan', to renovate the property (DMF) before you sell the right to occupy again, and get the next 'loan' and rental income from it. Then, when you sell the property to the next person, you pay the original tenant back the 'loan', less 20-30% retained margin.

This is nothing like a standard property investment company, there is one huge difference. The power of the float, which is the no interest payable 'loan' from the residents, and the leverage that comes from that.

As an investor, this is what you're buying into and hope to see continue to grow over time, the growth in property assets and income streams, funded by no interest loans that sustain various margins. When the market wakes up again and realises RV's aren't traditional commercial property investments and have demographic tailwinds for decades to come, we should expect continued growth and substantial re-rates in the market valuation of the companies SP.


This is all well and good Baa_Baa, but what about the free cash flow?

(JOKE)

Great write up as you know I have posted many similar but this is really good. Very interesting you bring up the services possibly exceeding rental income and thus being a loss leader, this again reminds me of insurance where much of the industry runs at a loss on the underwriting and associated expenses, in order to get vast sums of cheap float to make an investing margin on. NOT Berkshire or Markel, but most.

The model you have explained above is truly exceptional as anyone who has studied businesses in great detail over a long period of time will understand.

The pushback is always from those for which it is a vast intellectual stretch to be able to understand it (imagine trying to explain insurance to them)

No question that analyst that Jigger goes on about understands the 'interest free loan' aspect but they don't truly appreciate it for what it is, and how rare this is.

As I have said the discount to true NTA isn't 50% its more like 75%, this float is such an asset that it would make Buffett blush.

[SailorRob]

dekker is better at analysis than those in this thread


And it is very important for us to be able to do what we do, that people believe this.

While no serious investor would ever read an analysts report or give them a second thought, it's important that most retail investors hang off their every word.

Otherwise the game would be much tougher, I have to buy 11 screens and learn the lines.

[ValueNZ]

dekker is better at analysis than those in this thread
OCA could have a positive FCF but then they would have to stop their expansion (CapEX). As a shareholder I want Oceania to continue growing it's ORA debt which means keeping their CapEX high.

[winner69]

As I have said the discount to true NTA isn't 50% its more like 75%, this float is such an asset that it would make Buffett blush.

Next time you are having a chat with Warren don’t mention this Oceania float …he might want to buy it on the cheap

[bull....]

OCA could have a positive FCF but then they would have to stop their expansion (CapEX). As a shareholder I want Oceania to continue growing it's ORA debt which means keeping their CapEX high.

all RV's are slowing expansion as all have stated
all RV's are conserving cashflow as all have stated

If this free float was the holy grail as why are they doing the above ?

[SailorRob]

Next time you are having a chat with Warren don’t mention this Oceania float …he might want to buy it on the cheap


I have raised it with people who know him personally, obviously far to small for most of them but Ryman is on the radar of some absolutely world class managers, or it was. As was Mainfreight.

You'd be surprised how accessible people are that have personal relationships with Warren.

But no question a younger or smaller Berkshire/Buffett would buy OCA outright, if they could at these prices.

No question.

[SailorRob]

all RV's are slowing expansion as all have stated
all RV's are conserving cashflow as all have stated

If this free float was the holy grail as why are they doing the above ?


It's more that their expansion is being slowed.

[bull....]

And it is very important for us to be able to do what we do, that people believe this.

While no serious investor would ever read an analysts report or give them a second thought, it's important that most retail investors hang off their every word.

Otherwise the game would be much tougher, I have to buy 11 screens and learn the lines.

you can be a brilliant analyst but being able to make money from this in the market is a different game

[SailorRob]

you can be a brilliant analyst but being able to make money from this in the market is a different game


Yes this is also true, but generally they are focused on macro and quarter by quarter crap and don't see the big picture.

Sales

Margins

Multiples

Capital allocation

[bull....]

It's more that their expansion is being slowed.

yes which i have stated before means lower profits.
Free float works best if you can keep growing the size of it forever ..... RV's cannot do this

[SailorRob]

yes which i have stated before means lower profits.
Free float works best if you can keep growing the size of it forever ..... RV's cannot do this


Cyclical yes,

OCA is in the very early stages of float growth, for our purposes they can grow it forever yes of course.

Even if they couldn't, having a balance sheet 50% funded for free and not growing is also acceptable.

With demographics, population growth, inflation and general prosperity this train cannot be derailed.

[bull....]

Cyclical yes,

OCA is in the very early stages of float growth, for our purposes they can grow it forever yes of course.

Even if they couldn't, having a balance sheet 50% funded for free and not growing is also acceptable.

With demographics, population growth, inflation and general prosperity this train cannot be derailed.

of course it can be derailed ie govt regulation which RV's have now acknowledged is a threat this yr. regulation will upset the float
covid thru up another threat any unknown illnesses yet not known could do the same , something better product wise might come along .... no moat in these businesses you know that

free float cannot grow forever if you were inclined you could work it out for max free float vrs demographic timeline to find max float timeframe and then add in build rates etc to see if oca is running ahead of the timeline

[jagger]

OCA could have a positive FCF but then they would have to stop their expansion (CapEX). As a shareholder I want Oceania to continue growing it's ORA debt which means keeping their CapEX high.

That statement makes absolutely no sense.

What in the world makes you think businesses with positive FCF stop expanding?

[jagger]

it's important that most retail investors hang off their every word.



Most retail investors don't have access to any analyst reports.

That's pretty self-evident when you spend 5 minutes reading these forums.

[winner69]

At least one of the RVs is beginning to challenge their demographic assumptions to see how big this so called tsunami of future clients really is

Declining home ownership rates of over 60's, increasing number of retired people with mortgages, life expectancy falling etc etc has a profound effect, maybe not this year but 5 to 10 years out.

[stoploss]

At least one of the RVs is beginning to challenge their demographic assumptions to see how big this so called tsunami of future clients really is

Declining home ownership rates of over 60's, increasing number of retired people with mortgages, life expectancy falling etc etc has a profound effect, maybe not this year but 5 to 10 years out.
Where is the data on "life expectancy falling" , I thought it was still rising ?

[ValueNZ]

That statement makes absolutely no sense.

What in the world makes you think businesses with positive FCF stop expanding?
My point is I want Oceania to spend as much on building property so they are able to expand as much as possible. If Oceania focused on getting their FCF positive it would be at the expense of their expansion.

You're correct I shouldn't have said stop, I should have said slow down. Apologies for that, but my point remains regardless.

[SailorRob]

Most retail investors don't have access to any analyst reports.

That's pretty self-evident when you spend 5 minutes reading these forums.

Yeah probably 80% of people here are like yourself, vastly clueless, but there are a few guns too.

[SailorRob]

Yeah probably 80% of people here are like yourself, vastly clueless, but there are a few guns too.


Vastly clueless and knowing it and willing to learn is a virtue.

[winner69]

Yeah and Berkshire is way too high at $850,000 a share. MEE today at less than 1 cent is much cheaper.


Jeez Rob you a real guru with an army of followers and a market mover ……you say MEE cheap and it shoots to top of leader board …up 17% today

[jagger]

Vastly clueless and knowing it and willing to learn is a virtue.

This is a truly hilarious statement.

IYKYK. I'll leave it at that.

[SailorRob]

Jeez Rob you a real guru with an army of followers and a market mover ……you say MEE cheap and it shoots to top of leader board …up 17% today

There are certainly a few.

[SailorRob]

This is a truly hilarious statement.

IYKYK. I'll leave it at that.

Can you explain what you find amusing about it for me.

Jigger, it ain't what you don't know that will hurt you. It's what you know for sure that just ain't so.

I am vastly clueless about a lot of stuff, I know it and I want to learn so I'm less clueless. This is a good thing sport.

This is the strategy that VNZ is employing at the age of 17 which will see them become extremely successful.

But you don't even understand it.

[Baa_Baa]

ALL of you are WRONG.

but some of you are wronger than others.

Well that's not very helpful, that everyone arguing either side is wrong, or wronger. Ok, maybe this is one of those rare opportunities for you to summon your inner Paper Tiger who used to expertly deconstruct financial arguments and present a fait a compli?

[Habits]

As long as you're doing trump nicknames, what's yours SailorSam

[Poet]

Govt unveils proposed changes to Retirement Villages ActThe government has released a consultation document with proposed changes to the Retirement Villages Act.
It follows a review of the law which was prompted by lobbying from consumer groups and the Retirement Commissioner, the latter of which has argued the current model does not work well for residents.
The proposed changes include stopping fees being charged to residents after a unit has been vacated, replacing the current dispute resolution scheme, requiring operators to cover the costs of maintaining operator-owned chattels/fixtures, and requiring villages to repay outgoing residents’ capital to them within 12 months.
“The proposed changes strike a balance between fairness for consumers and making sure the sector is supported to meet future population demand,” Associate Minister of Housing Barbara Edmonds said.
The consultation period opens today and closes on November 20.

Not a disaster

[Baa_Baa]

https://www.hud.govt.nz/assets/Uploads/Documents/RVA-Consultation/4385-HUD-retirement-document-7_3.pdf

Review of the Retirement Villages Act 2003: Options for change
Discussion paper
August 2023

[ValueNZ]

https://www.hud.govt.nz/assets/Uploads/Documents/RVA-Consultation/4385-HUD-retirement-document-7_3.pdf

Review of the Retirement Villages Act 2003: Options for change
Discussion paper
August 2023




"91. It is not clear whether the remedies under the Fair Trading Act 1986 in respect of ‘unfair contract terms’ are sufficient for retirement village ORAs. Accordingly, we are seeking feedback on whether a specific power to declare a term unfair should be included in the Act or regulations. This power could be held by the Court or a regulatory body with relevant expertise, such as the improved dispute scheme (discussed in Part C). A term could be considered unfair where it:

a. causes a significant imbalance in the parties’ rights and obligations under an ORA
b. is not reasonably necessary to protect the legitimate interests of the party that would be favoured by the term
c. would cause detriment to a party if it were applied.

92. Terms declared unfair would be void and unenforceable. This power would be over and above any remedies in the Fair Trading Act 1986"


Does anyone on here know which terms in an ORA could be deemed unfair?

[Bjauck]

https://www.hud.govt.nz/assets/Uploads/Documents/RVA-Consultation/4385-HUD-retirement-document-7_3.pdf

Review of the Retirement Villages Act 2003: Options for change
Discussion paper
August 2023




I have skimmed through the document but could not see if the review recommended that any changes would be applied retrospectively to existing occupation ORA contracts. I think the Residents Association President was seeking retrospective change.

[bottomfeeder]

Bit worried about the costs of maintaining operator owned fixtures and fittings. If villages have to pay for refurbishment costs, of fixtures and fittings, the costs of maintenance, charged to residents would have to increase. After all chattels depreciate in real terms and have a limited life. If villages have to cover these costs, they have to charge a rental cost as a reimbursement. Or have I got that wrong.

[Baa_Baa]

Bit worried about the costs of maintaining operator owned fixtures and fittings. If villages have to pay for refurbishment costs, of fixtures and fittings, the costs of maintenance, charged to residents would have to increase. After all chattels depreciate in real terms and have a limited life. If villages have to cover these costs, they have to charge a rental cost as a reimbursement. Or have I got that wrong.No I don't think you've got that wrong, I would expect that if this became part of the contract, the operator would amortise the estimated total costs of maintenance and replacements across all dwellings and recover that cost through the 'rental' price.

[bottomfeeder]

So it becomes a rose by another name. I remember when the government wanted to remove the discount for prompt payment on your power bill because the poor couldnt benefit and it looked like a penalty for the poor. Well the power companies jumped on that one and removed it. All that meant was my power went up and the poor were no better off. The result of unintended consequences. The same will happen here. The government cant tell you what to charge, So as I see it these extra costs will have to be recovered in other ways. Cant they see what their meddling is going to do. All residents will have more to pay.

Its not as if shareholders are making money hand over fist with the current SP. Well anyway its only a consultative document at this stage. There will be submissions.

[SailorRob]

So it becomes a rose by another name.


100%

Otherwise the business model would not work and the industry would collapse.

[Baa_Baa]

100%

Otherwise the business model would not work and the industry would collapse.

The business model won't collapse, because listed RV's will imo just pass on to residents, the maintenance costs from unintended consequences of revisions to the Act, which would be cost neutral. It might be more significant to non-listed RV's if they can't or don't pass on those costs.

Nor will it be overly affected by having to pay back the 'loan' within 12 months, less 20-30% margin, when the retiree 'leaves', as most are already paid back well before that 12 months proposed limit.

Both of these though, are rounding errors financially in the scheme of things.

From a quick review, the listed RV's are largely already doing what the proposed legislation amendments suggest. I can't speak for the non-listed privately owned RV's as I don't know.

I didn't see a retrospective application of the proposed legislation amendments, which is a bit surprising as it then would only advantage new comers contracts, and all existing contracts would remain unchanged. That seems to be a disparity. I need to review that again, might have missed something.

The business model of the listed RV's are not overly affected by the proposed legislative amendments as they are deeply founded in interest free 'loans' from residents (the float) and how that is leveraged by them for growth, which does not appear to be in scope of the proposed amendments. Another thing I need to deep dive into.

I'll read the discussion paper again in detail when I have some time, but on face value it appears to be insignificant to the listed RV's who are already doing most of it.

At least now we have some insight into the proposed amendments, which if it turns out to be insignificant or less than significant to the listed RV's, the risk premium discount imposed by the share market on listed RV's SP's to-date, might just dissipate, ergo a re-rate could be coming. I estimate the uncertainty leading up to this has been a 30-50% risk premium loss on the share price.

And if so, it will be across all listed RV's who have suffered this burden of previously unknown regulatory change hanging over them. I suspect these massive discounts to NTA and other measures will in time be reversed. Perhaps sooner than later.

[SailorRob]

The business model won't collapse, because listed RV's will imo just pass on to residents, the maintenance costs from unintended consequences of revisions to the Act, which would be cost neutral. It might be more significant to non-listed RV's if they can't or don't pass on those costs.

Nor will it be overly affected by having to pay back the 'loan' within 12 months, less 20-30% margin, when the retiree 'leaves', as most are already paid back well before that 12 months proposed limit.

Both of these though, are rounding errors financially in the scheme of things.

From a quick review, the listed RV's are largely already doing what the proposed legislation amendments suggest. I can't speak for the non-listed privately owned RV's as I don't know.

I didn't see a retrospective application of the proposed legislation amendments, which is a bit surprising as it then would only advantage new comers contracts, and all existing contracts would remain unchanged. That seems to be a disparity. I need to review that again, might have missed something.

The business model of the listed RV's are not overly affected by the proposed legislative amendments as they are deeply founded in interest free 'loans' from residents (the float) and how that is leveraged by them for growth, which does not appear to be in scope of the proposed amendments. Another thing I need to deep dive into.

I'll read the discussion paper again in detail when I have some time, but on face value it appears to be insignificant to the listed RV's who are already doing most of it.

At least now we have some insight into the proposed amendments, which if it turns out to be insignificant or less than significant to the listed RV's, the risk premium discount imposed by the share market on listed RV's SP's to-date, might just dissipate, ergo a re-rate could be coming. I estimate the uncertainty leading up to this has been a 30-50% risk premium loss on the share price.

And if so, it will be across all listed RV's who have suffered this burden of previously unknown regulatory change hanging over them. I suspect these massive discounts to NTA and other measures will in time be reversed. Perhaps sooner than later.

Yes, that was my point. Good post.

[Poet]

If it were done when ’tis done, then ’twere well
It were done quickly - Macbeth

We don't want a situation where people delay their move to a retirement village pending the implementation of more favourable terms and conditions.

Maybe listed companies need to pledge to backdate any changes for new contracts (or even for all contracts)

[bull....]

looks like they want to test 74c again ? 74 - 79 is da range

anyway been trading in the range for a while now we did indeed test 74c a bit back again and now we are back to re-testing 79c again ..... lets see what happens

[winner69]

anyway been trading in the range for a while now we did indeed test 74c a bit back again and now we are back to re-testing 79c again ..... lets see what happens

…well into the 80’s pre very solid first half results announcent

[Maverick]

I believe a significant piece of new information has recently come to light that is rather technical to explain so I'll post several concurrent posts as I don't know how much digital stuff fits into one share trader post.

Part 1 , Craig's measurement of Govt underfunding trend relative to NZ minimum wage.

Thanks to the friends here who sent me the ARV report from Craig's, very much appreciated.

There's a small graph of theirs in there that they've put together of significant importance to both ARV but especially OCA, being more care heavy. This is a rather brilliant idea that Craigs have put together that would be easily overlooked by many not understanding the magnitude or how to quantify it, as it applies to OCA. BTW Craig's are saying ARV will have a good result due to this factor.
Craig's have created the chart below as a tool to quantify the weekly DHB funding to rest homes in relation to the NZ minimum wage.
The blue line is the NZ minimum wage and the orange is the maximum weekly DHB rate. They have referenced them to an indexed start point of 100 starting 2012.

It clearly shows that the latest round of July funding increases goes quite some way to rectifying the accumulating govt underfunding of the last 5 years ( which is coincidentally OCAs whole publicly listed life) .
This substantial increase happened mid 2023 so won't be captured until OCA FY24.

https://lh3.googleusercontent.com/jGdf9QON9cqT_smgDhKMIznpD86akWhwi4ZK7iAumW490LVBeG yzx873cXKkB9VppQgq9LiTTlfp957-P_pO5Guuf5FO8Su2Mi4AD7bCCRhTrs7UKSFd7lualuwSwKiEOh 75e8nsjK5i5j4tLZO0W9E

[Maverick]

Part 2. Measuring the annual DHB underfunding as a percentage

So I have taken Craigs graph and made a new chart from it to measure the difference between the NZ minimum wage and DHB max weekly funding as a percentage.
The higher the percentage means the greater the DHB gap is of underfunding
To simplify things I`ll call this “ DHB underfunding” from here on.

On a technical note . I have advanced the DHB increases by 1 year as that's when they are captured by OCA. they actually start 3 months into the OCA FY so the HY1 coming up will only capture half the new increased rates. …again… It's technical so don't get hung up on it.

What we clearly see here is the DHB have progressively increased the underfunding from FY19 right up to FY23 , the one OCA just reported. But now the GOVT have made a significant jump that just this one increase ( FY24 on the graph) 2 months ago, they have undone the underfunding back to the levels of 5 years ago - when OCA listed. This is MASSIVE news
https://lh4.googleusercontent.com/hvxXGYmegrJ510nF-BuHiWBVViSk1djYMrIRuyMUaCIS5PZ9oTTe_GdvVzR4rfvFEdF BvLuW75l46V0mybgCkLzJTMJlws4maDk_EZfR9aIDx9BDapqUb zvSzLR22aRwhgk3bwQLHQW-P5S5TE3HPzg

[Maverick]

Part 3 . Measuring OCAs care profit from the DHBs revenue

The trick now is working out how this materially affects OCA on the bottom line.
Initially working out care profits was incredibly complex with multi components such as how many care units were being demolished ( sometimes 400 p/a) , cold start deliveries , pay rate changes , covid…blah blah …too time consuming for anybody with a real job. Luckily now after 5 years of accounts it has become apparent there is a simple formula that works well.

Basically I now just take the care revenue , remove the premium stuff ( PAC and DMFs) and deduct all care expenses. This leaves the basic care profit that can then be used as a percentage of profit from the DHB revenue… Boom …it really is that simple and it works well.

It's then easy to separately work out the premium care profits elsewhere but I'm not interested in that juggernaut part for this exercise today. I am only talking today about profit directly derived from DHB fees as in the good old fashioned rest home type model.Govt money in , expenses out which leaves the care profit.

So from the stuff above we get a percentage of profit of the DHB contribution without the premium contribution.

Here's the chart of those percentages. It clearly demonstrates the increasing underfunding of DHB rates over the last 5 years.

This is a simple but accurate account of the annual basic care profit as a percentage of DHB fees.
We can see that profit has reduced over 5 years from 13.5% to zero in FY23 https://lh3.googleusercontent.com/-z23SDEiiP9gwAuCYXZgxVZnaWzb4pw2wC4Q6TwMMN1tIRidX5c de8nJnyxOyOXQFEGrOMKNg3vBN74-9ba5UjyJ9eS_pfMg-auC58WgRLwp3X4v6N-j4pYWoj5Nmrqw5IkvEfSZxT8w_LxPFtBQBo8

[Maverick]

Part 4 putting it all together

Lets overlay the DHB underfunding and OCA`s care profit %. I'm simply marrying the 2 charts above together.
I`ve also added my forecast for FY24 based on the 5 years of historical evidence- this part is partially subjective. The yellow line but I'm really happy to hear from others here if this part is disagreeable.

It is clear and logical that the increase in underfunding is inversely proportional to care profit percentage . Therefore making the FY24 margin reasonably predictable.

I'm picking we should comfortably get a 4% return for FY24 ( up from zero last year).
Personally I “feel” it could be even better than this now , maybe even as high as 6% , as covid costs and nursing shortages of the last 3 years dissipate.
That doesn't seem too socially unreasonable given that rest homes do actually have to make a profit to stay in business. It is cruel that the govt has expected rest homes to operate on nil profit recently. ( however , I have digressed)
https://lh5.googleusercontent.com/CoV5t79LCpNX5b8J1rjU5eNFFqpZjznYwLeZGQx92mVhIGtw5i ib6xXLPHGmyCFX1pB_JVElh6EmvJuinGjK2sKNXWwBQmWZKMDl 8uQsvW19yllg5ucAZxfMQ_XInlHJCZloenvPjVw4RW9C40PDOx Y

[Maverick]

Part 6 - Summary and quantifying the bottom line for "care".

So the rest is really simple….

It is child's play to anticipate that the DHB fees FY 23 is going to be around $190m. Take whatever yellow line forecast you want to work out the INCREASE of care profit.
I.e. I have used 4% therefore my expectations is $190m x 4% = $7.6m extra profit.

That's on top of the extra care PAC+ DMFs that are also certainly coming ( my expectations for FY24 is that those will be about an extra $3.4m ) .
So I'm saying OCA should easily get a care profit jump from FY23 of $20.3m to FY24 of $31.5m
That's 1.5cps. This sounds too good to be true but all the Govt is doing is mostly correcting the funding starvation we have gotten used to over the 5 years. They certainly are not being generous.

There are other positive smaller contributors also to dream about which will also contribute to the care profit over and above this funding increase.
Reduced covid expenses and also the loosening of staffing shortages.

I have always said 2024 is going to be OCAs awakening with Helier and numerous other deliveries gaining critical mass.
This care boost was expected at some point by most of us here following - and in - the industry ( before the care industry eventually dissolved) . I think we can confidently say that it's finally here.
OCA which has the largest care offering will appear to greatly benefit after the 5 years of struggling with the care component. I find it a little odd the Craigs are extolling this profit boost onto ARV when OCA is by far the biggest benefactor. But I do accept they don't like OCA much. In fact at .80c share price I think it's fair to say nobody else out there likes OCA either.

To conclude , I am thrilled that this funding boost has finally arrived in a meaningful way. The effect it will materially have on the bottom line will be significant.
Coupled with Helier now selling down, Chch nearly finished with significant market interest down there , and the timing of so many other components currently in play I can see a very- very positive year or 2 ahead. I cannot see how this overwhelmingly negative market sentiment can continue should OCA post a 40% uNPAT rise as I believe it will in FY24. Then I've got an even higher rise in FY25.

Finally , I want to really acknowledge Craigs excellent idea and work to correlate DHB funding to minimum wage as a measure. This has enabled me to quantify this expected outcome.

[winner69]

Good stuff Maverick

Please correct me or point me in right direction but the Annual Report notes said DHB subsidies were $110.7m but you are applying the increase to $190m

[Maverick]

Good stuff Maverick

Please correct me or point me in right direction but the Annual Report notes said DHB subsidies were $110.7m but you are applying the increase to $190m
Have a look at the FY23 investor presentation 2023 pg. 19.
Care operation revenue = $195.1m

I then take out the PAC , DMF , "other" income which leaves the about $175 FY23.

So the trend of increases puts FY24 around the $190 I have used.

2 points about this Winner is that because profit is such a small percentage on such a big number , the big number doesn't have to be too accurate to matter.
The second point is that OCA use so many numbers all over the place that it seems you can use what ever numbers you like. But when observing trends like I am doing here is what really matters is that the numbers one chooses to use must be the ones consistently employed.

BTW , your smaller number most likely doesn't include the extra dementia fees and all that extra DHB stuff. Also resident payments. All of these will be subject to similar charge increases.

[winner69]

Have a look at the FY23 investor presentation 2023 pg. 19.
Care operation revenue = $195.1m

I then take out the PAC , DMF , "other" income which leaves the about $175 FY23.

So the trend of increases puts FY24 around the $190 I have used.

2 points about this Winner is that because profit is such a small percentage on such a big number , the big number doesn't have to be too accurate to matter.
The second point is that OCA use so many numbers all over the place that it seems you can use what ever numbers you like. But when observing trends like I am doing here is what really matters is that the numbers one chooses to use must be the ones consistently employed.

BTW , your smaller number most likely doesn't include the extra dementia fees and all that extra DHB stuff. Also resident payments. All of these will be subject to similar charge increases.

I took that number from Note 2.2 Accounting Policies

Aged care subsidies received from the Ministry of Health, included in rest home, hospital and dementia fee revenue within the care segment, for the year ended March 2023 amounted to $110.7m (March 2022: $99.7m).

But then I’ve never really understood how they count stuff

[Grimy]

Many thanks for all your work Maverick. Always appreciated.

[Maverick]

I took that number from Note 2.2 Accounting Policies

Aged care subsidies received from the Ministry of Health, included in rest home, hospital and dementia fee revenue within the care segment, for the year ended March 2023 amounted to $110.7m (March 2022: $99.7m).

But then I’ve never really understood how they count stuff
On further thinking Winner , the difference surely has to be private payments by residence outside of the means tested subsidy. This will be set at the same rates as DHB payments so one and the same for this exercise.
Thats one of the 2 draw cards of Helier going independent of the DHB framework that these shackles don’t apply.
( thanks Grimy, I appreciate that)

[ronaldson]

How much does this change as a result of the nurses pay settlement now agreed, given the increases are quite major? Even if it doesn't apply to those in the aged care sector surely it will ramp up the differential again so that staffing continues to be an issue going forward? And if some NZX listed players are already "meeting the market" won't it escalate their cost base significantly, with the next subsidy review still some time away?

So it's still a rort against the private providers, as are most circumstances where one party is dependent upon public funding. That isn't going to change in the current environment of financial restraint, and we all know the current settlements for nurses and teachers are (at least in part) to clear the decks for the election. Inflation remains significant and just keeping up requires sizeable ongoing adjustments without any rectification of past inequity.

If you follow the aged care situation in Australia we are not alone in this country. The RV model is workable but rest home style aged care provision is not. So the only adequate solution for those already in that sector of the industry is to pivot away. And that is increasingly what is happening.

But thanks for your work Maverick.

[Maverick]

yep, excellent response and question.
So the gist of what you are saying, as I understand it, is that aggregate care providers wages are always behind the eight ball and in a never ending catch up mode. This wage rise will simple be swallowed up by rising expenses. Am I getting your point Ronaldson right?

If so. that's why I am so taken by the brilliant simple concept by Craig`s of correlating the change of the funding rate as compared to the changing minimum wage rate ( the key is that we are talking rates of change in comparison to each other , not nominal values.)
It is my understanding that the nursing proportion of the wages bill is about 25% , the rest are primarily care workers etc .
My mum is in RYM dementia care so I know first hand the non monetary value of these these " angels" ....but there pay rates , that's a different story.

Then the back testing of those graphs provided above are very compelling. It works almost perfectly so far as a predictor.

The Govt had to address this funding shortfall in a meaningful way and to my eye on these graphs , they are finally taking it seriously to fix.

[ronaldson]

Yes, we should ask Brent for some comment on subsidy rates and the impact of the nurses pay rise now announced, at the ASM on Friday 25 August (2.00pm at the Park Hyatt, 99 Halsey Street, Auckland).

The main driver in the healthcare sector are really wage rates in Australia, given the disparity and the ease of relocating, at least for those with qualifications. The same can be said about Teachers. Then you have Police, Corrections, Defense staff et al. And this Government have raised the minimum wage rates quite sharply too (I don't begrudge that) and in a labour intensive industry such as aged/dementia care, with round the clock requirements, it all adds up. I believe in Australia, where superannuation is compulsory and balances are far higher than here, it is being mooted that these be exhausted before any subsidy is provided, as no other solution is tenable.

I don't agree that our Government are "finally taking it seriously to fix" the previous funding shortfall. In fact I believe the recent messaging from the sector was likely somewhat menacing, and it was just too hard for those responsible to contemplate a possible wave of closures. Already the reset of pay rates and ongoing inflation will have significantly mitigated the benefit just granted. And the pivot continues, as already this year OCA has closed down the two leasehold facilities it operated in Auckland, and onsold two freehold facilities with settlement this month and has 8 more listed/held for sale. These will be rest-homes rather than facilities with suites/ILUs and no doubt that both reduces the ratio of staff to residents/bed occupants and recycles capital. That said, I have wondered why an operator committed to high standards of care would wish to invest in these facilities in the circumstances which prevail.

We live in interesting times.

[Maverick]

Thats all well said and hard not to agree with. I’m not saying the govt has fixed the underfunding but am saying it’s taking it seriously and has just given a really meaningful correction.
I do acknowledge my expectations seem “too good to be true” but the facts and history are there. Also Craigs believe there is something significant about this too in their ARV write up.

For me the idea of govt paying the absolute mimuum to keep the doors open is logical and expected. That they have cut operator returns to zero is too far and “allowing” profits (increasing funding”)of 4% just might stop too many closures…hardly unreasonable and certainly not generous , also not too expensive to do. Ferg and I used to discuss this concept privately quite a bit, it is one of the many areas of his expertise.

The % of profit for FY24 as per my chart at the top of the previous page, post 16661 has to be somewhere . I’ve guessed 4%.
Given the sharp reduction 2 months ago of the disparity between minimum wage and rest home weekly rates, what number do you think is more appropriate Ronaldson? I value your posts and opinion as top notch so welcome your guess and others too if anyone want to put forward a considered value.I’m being genuine , this is not sarcasm.

It might seem nit picky to disagree over a few percent here or there but even 1% means a $2m difference to the bottom line.
I guess why this event has got me so excited, the smallest change causes a material change to OCAs profits .

[winner69]

BlackRock SSH at 11%

Some 84 million shares …..mainly from in specie distributions

Interesting

http://nzx-prod-s7fsd7f98s.s3-website-ap-southeast-2.amazonaws.com/attachments/OCA/416077/400064.pdf

[RTM]

They been reading Sailor Boy's posts eh Winner ?


BlackRock SSH at 11%

Some 84 million shares …..mainly from in specie distributions

Interesting

http://nzx-prod-s7fsd7f98s.s3-website-ap-southeast-2.amazonaws.com/attachments/OCA/416077/400064.pdf

[winner69]

They been reading Sailor Boy's posts eh Winner ?

Maybe we’ll see a SSH ceasing to be a shareholder from Rob soon

[SailorRob]

Maybe we’ll see a SSH ceasing to be a shareholder from Rob soon


Why you reckon Blackrock have invested in OCA winner?

[RTM]

Why you reckon Blackrock have invested in OCA winner?

And VHP SailorBoy,

http://nzx-prod-s7fsd7f98s.s3-website-ap-southeast-2.amazonaws.com/attachments/VHP/416076/400063.pdf

[winner69]

BlackRock man in NZ this week doing that deal with Government so maybe just doing some housework on the NZ portfolio ….seeing notices for lots of other stocks as well

[winner69]

And VHP SailorBoy,

http://nzx-prod-s7fsd7f98s.s3-website-ap-southeast-2.amazonaws.com/attachments/VHP/416076/400063.pdf

And SUM

Those floats just too tempting to ignore

[Poet]

BlackRock SSH at 11%

Some 84 million shares …..mainly from in specie distributions

Interesting

http://nzx-prod-s7fsd7f98s.s3-website-ap-southeast-2.amazonaws.com/attachments/OCA/416077/400064.pdf


Winner, can you help out with what 'in specie' means in this context. Is this just some entity transferring ownership of the shares with no consideration payable?

[winner69]

Winner, can you help out with what 'in specie' means in this context. Is this just some entity transferring ownership of the shares with no consideration payable?

That’s often the case …although some consideration is generally part of the transfer

But who knows …..we could see the other side of the transaction soon.


But there will be some who will think just part of the plan for BlackRock taking over NZ …..if not the world

[Baa_Baa]

Why you reckon Blackrock have invested in OCA winner?

And now second largest holding after NZ Custodial, so quite possibly the largest shareholder of OCA at 11%.

[ronaldson]

Hi Mav - Thanks for your comment above.

I haven't been able to access the Craig's report you reference, nor a recent report on ARV which has been done by Forsyth Barr, but I can say there seem to me to be two recent Government funding adjustments that affect OCA.

Firstly, the initiative to support a move towards pay parity in healthcare by allocating budget funding for allocation to providers to reduce pay disparity for nurses and caregivers, with the providers responsible for passing on pay increases. We know OCA are eligible to receive this support because the AR presentation for FY to 31 March 2023 contains the following statement, namely " Disappointingly the expected pay parity funding for the sector did not eventuate in FY23. Oceania received a payment of $1.4m on 31 March 2023 for the first quarter of FY24. Though this package was lower than anticipated and the substantial gap in pay parity remains this still moves us a step closer to fair funding for our healthcare staff". I believe that payment was excluded from the Financial Statements for FY23 but will have been applied subsequently.

It isn't clear to me how much will be received by OCA from this source going forward (the Government has budgeted $200m annually but that will be spread widely, and not just to aged care providers either but to other healthcare sector participants) but the point is it can't be taken to the bottom line but must be used to increase pay rates. So it is required to be expensed, albeit it will help recruitment.

Secondly the Rest Home Care Subsidy weekly payment, which as you know has been increased from 1 July 2023 (so only 9 months benefit in OCA's current financial year). The increment on this occasion is quite significant but the calculation to determine it is done "in arrear" and is not forward looking to address the ongoing inflation rate and/or recent pay settlements.

The RCS as it is known is not constant throughout NZ but varies according to location. By way of example, rates have been set as follows:-

[thegreatestben]

That’s a fair increase from what simply Wall Street ist showing for black rock reported as of July

BlackRock, Inc.
1.59%
Shares 11,526,076
Value NZ$9.1m
Change % 76.92%
Portfolio % 0%
Last Reported 31 Jul 23

[Forrestdun]

They potentially took over management of some funds that hold OCA.

[Baa_Baa]

And SUM

Those floats just too tempting to ignore

There's a swag of Blackrock SPH's today, interestingly many of them are property related companies. https://www.nzx.com/markets/NZSX/announcements

[ronaldson]

Continuing post #16682 :-

Maximum weekly contribution (GST inclusive):- 1 July 2022 1 September 2022 1 July 2023

Auckland City $1298 $1349 $1464
North Shore $1294 $1344 $1459
Waitakere $1267 $1317 $1430
Waikato $1208 $1255 $1365
Hamilton $1239 $1288 $1400
Wellington City $1267 $1317 $1430
Timaru $1208 $1255 $1365
Dunedin $1221 $1269 $1380

So the point to note is that in FY23 OCA had the benefit (for 6 months) of the amended rate paid from 1 September 2022, so the rate of increase now applied from 1 July 2023 is not as sharp a rise as could be anticipated, being about 9% above the former rate. Of course GST is included in the subsidy figure paid so the net receipt is adjusted down. So there has been an element of catch up as you say Mav but just how much will reach the bottom line at year end is somewhat moot. I have been interested in your calculations and agree OCA will benefit but given other cost escalations it's hard to figure the end result. For example, financing costs went from $9.3m in FY22 to 12.6m in FY23 and likely will continue on up in FY24.

One final statistic I gleaned from Cabinet papers since released is that around 21200 people were receiving the RCS in 2021 and that number reduced to around 20000 in 2023, I guess reflecting that increases in asset values caused a reduction in folk eligible?

The listed entities in the retirement sector offer a lot of opportunity for comparatives. For example staff ratios to residents/occupants, given the impact of the wage bill, would be a topic that could be investigated.

[SailorRob]

[QUOTE=winner69;1015540
But there will be some who will think just part of the plan for BlackRock taking over NZ …..if not the world[/QUOTE]


This is what I was baiting you into.

Most people don't realise that blackrocks ownership of everything is in fact themselves (teacher pensions etc)

[Aaron]

Most people don't realise that blackrocks ownership of everything is in fact themselves (teacher pensions etc)

American teachers etc, not Kiwis. At least I don't think they run any NZ pension funds or kiwisaver funds.

[ronaldson]

All the Blackrock SPH announcements released to NZX today (about 10 of them, including one for OCA) have been retracted and have disappeared from the NZX website. Someone has stuffed up big time!

[Louloubell]

I'm far from a conspiracy theorist, but do find this strange.

[Maverick]

OMG Ronaldson… I am in awe of your willingness to actually do proper research. I love it!

That's ultimately why I still stay on the forum, to get other intelligent people's perspectives.
“It ain't what you know that kills you…it's what you know, that just ain't so...”

So let's unpack just a little bit of your handful of excellent points.
Here's the graph again from Craig's

https://lh6.googleusercontent.com/AT4JzjmE40AX3QRcdy2DShpb2BE30Yzjm98G1CaEi2n1IPG0L5 f93Nfk9mD1xCu4XPZBD9Y0izzdSvaEQAbbwzig1gm5GDP4XPNO GgVSVmmlFQoI9olwc9RxMspU7lf0MiMSM51O-tAMnIXL5FXlNok
The problem with OCA is that it's sooo multifaceted. Almost no one knows what to do with any new information and its relevance to the bottom line. So general analysis retreats to “Black Rock is buying so OCA must be good" or "the share price is still 80c so OCA must be bad"…. Given the short term horizons of most investors including the fund managers, that way of thinking is probably sufficient anyway- but just for the short term.

Due to OCA`s complexity, here, I am only talking about the rest home type basic care profit part of OCA as per my recent run of posts.

IMO the graph above is brilliant. You correctly analyze DHB fee rates going up c.9% recently, then we know somewhere in there is the promised - but not fully delivered - pay parity, then we also know a lump some was promised by GOVT last November ( was that part of pay parity?)but delivered 31 march FY23 but probably not included until 1 day later into FY24. Then nurses get a whopper pay catch up.( I have not mentioned factors like smashing down existing care beds and cold starting new care suite blocks) …Get my point…it's impossible to figure out - God knows I've tried.

That's why I'm enamored by Craig's rather brilliant idea of encapsulating the aggregate staff cost component into their graph above relative to current GOVT funding.
Tying down the funding to the minimum wage works perfectly as that is the base rate of all regular wages. i.e. An electrician's wage for example is set to the minimum wage + plus $5/hr etc.
So the graph isn't saying all rest home staff are paid the minimum rate . It is using that wage setting cornerstone to measure rates of “ wage change” for ordinary people.
Sure, the execs of OCA`s aren't tied to this base rate but their salaries will come into other areas of OCAs accounts corporate or village development . (as an aside also like interest costs that you mentioned which wont effect any of the extra care profit increase ).

Then Craig's starts off their graph as indexed to a zero start point. So no one gives a rats-arse what that nominal number might be other than its the neutral start point to see any divergence there after. We can see from 2018 the underfunding from this moving below this wage baseline ( representing the aggregate of all ordinary peoples wages) starts to get well underway to its chronic level in CY 2022. ( that's equivalent of OCA FY23).


In my mind , this graph condenses the impossible into a simple picture , all the tech stuff we both can dig infinitely deeper on and never arrive.

I seriously believe this simple comparison works beautifully when coupled with the known ratios I have previously tabled ( of OCAs profit margin on the DHB fees) is simple, reliable and logical. The proof of its accuracy will be FY24 when this idea will prove correct or nonsense.
As the direction of GOVT underfunding changes direction for the very first time in OCAs NXZ listed life span. And a significant change too.

If I and Craig's analysts are right my maths say that's a meaningful windfall of about $8m-, if I'm wrong then nothing is lost as we are only talking about EXTRA care profit on top of all the other simultaneous profit increases I see coming.

That's why you and I invest, we - and all on Share Trader bothering to read to the end of this - try to make sense and see what will happen before it happens.

You would have heard the old story about market efficiency - where 2 people walk past a $20 note in a bush( let's make that $100 to modernize the story) and one says ..oh look $100 in the bush , the other replies …no it isn't , if it was someone else would have noticed it.

Love your work Ronaldson, thanks for your most excellent posts.

[GTM 3442]

I think it's probably a case where some sort of administrative b*gger-up has seen the transfer of shares between various Blackrock funds as actual on-market transactions.

Sure would be nice to know what, how, and why. . . . . NZX are you listening?

[ThaiJohn]

Doesn't want to break thru that .79 mark.

[X-men]

So is the black rock investment on OCA real or not?

The news said they withdrew all the 11 announcements... including OCA

[ronaldson]

Thank you again Mav. I agree that the graph is enlightening. What is most shocking, to me, is that the under subsidisation demonstrated is clearly willful and there has been a failure to act despite the ongoing media reporting of even non-profit care facilities closing.

I recall clearly some reported comments attributed to Andrew Little which indicated he was no friend of the sector. The ideologies driving this Government have not been helpful at all.

[bull....]

Continuing post #16682 :-

Maximum weekly contribution (GST inclusive):- 1 July 2022 1 September 2022 1 July 2023

Auckland City $1298 $1349 $1464
North Shore $1294 $1344 $1459
Waitakere $1267 $1317 $1430
Waikato $1208 $1255 $1365
Hamilton $1239 $1288 $1400
Wellington City $1267 $1317 $1430
Timaru $1208 $1255 $1365
Dunedin $1221 $1269 $1380

So the point to note is that in FY23 OCA had the benefit (for 6 months) of the amended rate paid from 1 September 2022, so the rate of increase now applied from 1 July 2023 is not as sharp a rise as could be anticipated, being about 9% above the former rate. Of course GST is included in the subsidy figure paid so the net receipt is adjusted down. So there has been an element of catch up as you say Mav but just how much will reach the bottom line at year end is somewhat moot. I have been interested in your calculations and agree OCA will benefit but given other cost escalations it's hard to figure the end result. For example, financing costs went from $9.3m in FY22 to 12.6m in FY23 and likely will continue on up in FY24.

One final statistic I gleaned from Cabinet papers since released is that around 21200 people were receiving the RCS in 2021 and that number reduced to around 20000 in 2023, I guess reflecting that increases in asset values caused a reduction in folk eligible?

The listed entities in the retirement sector offer a lot of opportunity for comparatives. For example staff ratios to residents/occupants, given the impact of the wage bill, would be a topic that could be investigated.

not very much to hit bottom line .... most of the increase in funding would get eaten up by inflationary cost inputs far exceeding the increase

anyway we are trading at the wall of 79/80c top of the trading range will we rinse and repeat for another test of 74 or break thru ?

[X-men]

Going to rinse and repeat bull ... definitely...it is a dog stock...lol

[mike2020]

Look at the domino effect campaign. They are trying to highlight the underfunding. Talking to a private rest/care home owner it is chronic. They have gone to the community for help with some essentials and have more volunteer staff than I would have thought.

[winner69]

Ryman were the creator of this thing called Underlying Earnings (and Underlying EBITDA)

They have said “We are looking closely at how we measure our success. Underlying profit has been too prominent in driving some of our decisions. It needs to sit alongside other metrics which more closely align with cash flow.”

Maybe Underlying Earnings will die a natural death

Wonder if Oceania make comment on this at thevASM …after all they keep changing the methodology of how it’s calculated which has made it hard to track things …..and like Ryman then the focus away from cash flows

[Bjauck]

Thank you again Mav. I agree that the graph is enlightening. What is most shocking, to me, is that the under subsidisation demonstrated is clearly willful and there has been a failure to act despite the ongoing media reporting of even non-profit care facilities closing.

I recall clearly some reported comments attributed to Andrew Little which indicated he was no friend of the sector. The ideologies driving this Government have not been helpful at all.
It does seem premeditated. I am not sure what the Labour Party ideology is these days. However their traditional left wing ideology does seem scrambled though with respect to this sector. Labour have been happy to rule out a CGT, which benefits those who make long term gains from leveraged investment in real estate, while underfunding care. So the take-out message seems to be that investing to provide care and welfare should be discouraged.

[winner69]

Hopefully at ASM we’ll get an update on the assets worth $100m held for sale

I do note that $47m of proceeds need to be refunded to clients

[Baa_Baa]

Hopefully at ASM we’ll get an update on the assets worth $100m held for sale

I do note that $47m of proceeds need to be refunded to clients

May be needed to be refunded, but not if they've been moved to another OCA property.

[SailorRob]

“It ain't what you know that kills you…it's what you know, that just ain't so...”


Not often get a chance to correct you Mav..

'It ain't what you don't know that kills you, it's what you know for sure that just ain't so'.

[Maverick]

Not often get a chance to correct you Mav..

'It ain't what you don't know that kills you, it's what you know for sure that just ain't so'.
Haha .... ain't it a great quote. Wasn't it off some astronaut movie?

[SailorRob]

Haha .... ain't it a great quote. Wasn't it off some astronaut movie?

Widely attributed to Mark Twain.

Yes it is so true, I see it all the time on Sharetrader, people absolutely convinced of things that just ain't so.

What you don't know, if you know you don't know it, you can learn it.

[SailorRob]

American teachers etc, not Kiwis. At least I don't think they run any NZ pension funds or kiwisaver funds.


You'd be surprised as a lot of NZ kiwisaver funds that hold other funds (for example a SP500 index fund) will be managed by Blackrock.

The Superfund had a massive portion indexed and a lot of this one way or another will find itself in Blackrock.

[SailorRob]

not very much to hit bottom line .... most of the increase in funding would get eaten up by inflationary cost inputs far exceeding the increase

anyway we are trading at the wall of 79/80c top of the trading range will we rinse and repeat for another test of 74 or break thru ?


I was going to post something similar, OCA and all other companies need a huge boost in earnings just to stay flat in real terms.

Net Profit/cash flows rising 8% a year is just zero in reality.

[bull....]

I was going to post something similar, OCA and all other companies need a huge boost in earnings just to stay flat in real terms.

Net Profit/cash flows rising 8% a year is just zero in reality.

might not be a pretty picture for RV's when all these legacy re-sales gains they are printing at the moment run out.
add in the risk people attitudes to RV's is not immune to changing attitudes ie people might one day realize that when you enter a RV your life is on average only 8 yrs to live

[SailorRob]

might not be a pretty picture for RV's when all these legacy re-sales gains they are printing at the moment run out.
add in the risk people attitudes to RV's is not immune to changing attitudes ie people might one day realize that when you enter a RV your life is on average only 8 yrs to live

What's the alternative?

My take is that the more prosperous a country becomes the more popular RV's will become.

You think RV's are lowering people's life expectancy?

[bull....]

What's the alternative?

My take is that the more prosperous a country becomes the more popular RV's will become.

You think RV's are lowering people's life expectancy?

RV's are a business , i have never known a business to give a rat's arse about you only there profits. therefore RV's have an inherant responsibilty to s/h's to ensure people dont live to long

[ValueNZ]

RV's are a business , i have never known a business to give a rat's arse about you only there profits. therefore RV's have an inherant responsibilty to s/h's to ensure people dont live to long
What total BS. RV's must compete with other RV's which means giving the best possible service to the consumer in order to earn a profit.

[bull....]

What total BS. RV's must compete with other RV's which means giving the best possible service to the consumer in order to earn a profit.

rubbish , its not like these people in RV's are repeat customers lol

i would never invest in a business for long term if the business goal was not to maximize my profits as a s/h

[X-men]

Go and tell them all bull!!

[SailorRob]

RV's are a business , i have never known a business to give a rat's arse about you only there profits. therefore RV's have an inherant responsibilty to s/h's to ensure people dont live to long

*their.

Well no surprise here. You have zero idea how a business works.

Learn from ValueNZ

[percy]

Successful businesses operate as follows,
Give customers what they want,and you will get what you want.

[SailorRob]

What total BS. RV's must compete with other RV's which means giving the best possible service to the consumer in order to earn a profit.

At 17, the biggest and most profitable thing you can and will be learning, is the sheer ignorance of your competitors in the market.

It's hard to believe but true.

Having bull$hit on the opposite end of the table is a massive blessing.

How he's managed to retire 25 years ago and live entirely off his investing genius is certainly a mystery.

[SailorRob]

Successful businesses operate as follows,
Give customers what they want,and you will get what you want.

Not quite as eloquent as Friedman but correct.

Sheer idiocy to think that a customer who isn't repeat can be treated awfully because of that.

[thegreatestben]

At 17, the biggest and most profitable thing you can and will be learning, is the sheer ignorance of your competitors in the market.

It's hard to believe but true.


Steve Ballmer's reaction to the Iphone is a great example of this
https://www.youtube.com/watch?v=eywi0h_Y5_U

[ronaldson]

Successful businesses operate as follows,
Give customers what they want,and you will get what you want.

The fact is that the RV business in this country is incredibly competitive so far as attracting new/replacement customers is concerned. Reputation is gold and every Board/CEO knows that to diminish/lose it would be a massive set back.

I live in West Auckland and the amount/regularity of advertising/Open Days being delivered by one or other of the RV listed entities to my household is just crazy. The customer really is King/Queen in this industry.

[bull....]

*their.

Well no surprise here. You have zero idea how a business works.

Learn from ValueNZ

its called marketing

[winner69]

RVs do a great job as God’s waiting room

[thegreatestben]

RVs do a great job as God’s waiting room

I can hear JAK smashing the keys on her keyboard from here...

[SailorRob]

The fact is that the RV business in this country is incredibly competitive so far as attracting new/replacement customers is concerned. Reputation is gold and every Board/CEO knows that to diminish/lose it would be a massive set back.

I live in West Auckland and the amount/regularity of advertising/Open Days being delivered by one or other of the RV listed entities to my household is just crazy. The customer really is King/Queen in this industry.

Absolutely right. Great post.

[Maverick]

OK , Perhaps my banging on about this DHB funding increase being significant is getting a bit tiresome. So I'll give it a rest after this one.


In consideration of what's been said I still can't agree with you Bull and Sailor that this DHB “relative improvement of funding to the minimum wage” ( as per the minimum wage chart already supplied) will just get swallowed into the cost increase spiral. Hence not making it to the bottom line.

Here's one more chart before I leave this bone alone.
This chart is the total OCA care profit and then I've broken that down into the 3 income streams that compose it. Plus my forecast for FY24 tacked on for fun. ($m)

The blue line is the juggernaut of premium care revenue. (does not include resale profit- that falls in the village section of accounts)
The red is “other” income and is mostly from the nursing school they run.
Then there's yellow, the profit on DHB fees after all OCA care costs are subtracted.
https://lh6.googleusercontent.com/7nDuLUXONqvo1ctBgjoRzLpoUN-oU6R7fouKCGLiK6OmZ0x8QLK0GT6cPKsh7gcnYOvr8Np19iVb7 H9y4GGFsQHoz-4lLQR_K9ReG-ladTcR6jJc6fgsWqFoRLBI5TFbFIRyuwpVAw3-ZztXoJDDt98
The point of this graph is to demonstrate the powerful effect on profit from a measly increase in DHB fees that only slightly addresses the growing underfunding we have endured, as per the chart , since 2018.
It seems entirely reasonable to think we can return to the scant profitability of DHB funding we had in 2020 and 2021 . I've entered that same level of profitability for FY24 on this chart, although as per my workings shown over the last few posts , I personally think it will be greater than this.

See the incredible effect it has on the care profit ( green ) . This then goes straight to OCAs bottom line because that's the only place it can go from this chart. There are no more expenses or fees to bite into it on the way.

I'm not trying to convince anyone of anything, we can all disagree and still be friends. FY24 Will come soon enough to tell the story but you might indeed have to pay "a little" more for the shares by then.


Other than my forecast of FY24 these are all facts. I've laid them out here in a straightforward way so that anyone who wants to, can read the earlier posts to easily arrive with their own expectations and come out with their own forecasts.

[Bjauck]

RVs do a great job as God’s waiting roomLife is God’s waiting room.

[Forrestdun]

Love all the work you share Maverick. Would expect there is potential that this will result in higher wages being paid by OCA to their staff. Consider it very plausible that they have stated they can’t pay more as part of negotiations but now the staff know they have received more funding they will be expecting a “catch up” OCA might even agree.
Hopefully it is a well run business and half the new funding does flow to the bottom line.

[Maverick]

.. Would expect there is potential that this will result in higher wages being paid by OCA to their staff. Consider it very plausible that they have stated they can’t pay more as part of negotiations but now the staff know they have received more funding they will be expecting a “catch up” OCA might even agree.
Hopefully it is a well run business and half the new funding does flow to the bottom line.
It is my understanding all providers have to "prove" that some of this tagged funding increase goes directly to their staff.

Great in theory but good luck to the Govt trying to sort that out. I think as long as it is seen to be done in the spirit of staff benefit it will be left alone by GOVT. Perhaps only used as a punitive measure for the dodgy providers.

Most likely this rule is purely set to do the PR spin thing to show the NZ tax payer that it isn't going to end up in shareholder pockets. Fundamentally, surely it is only there to stop rest home closures so ultimately it will be used to run the rest home and stop them closing in whatever spending column it ends up in. That's my take on it.

Firstly , how I see this working for OCA is that those wages levels are already being paid for by OCA set at levels needed to attract and retain staff. As Winner always suggests ," selling villas to subsidy the care." So in effect that cross subsidizing can now reduce proportionally. In OCAs case its the premium charges subsidizing the care.

Secondly , The key to this whole thing for me is not that the DHB rates went up, rather , its that they went up to an extent that the "Relative gap between wages and DHB subsidy" has finally actually narrowed for the first time in since 2018 . As opposed to always increasing. That's the game changer. So rather than more funds each year being sucked from the premium revenue to pay staff, some of that underfunding will now come from DHB. There is still going to be unacceptable returns on basic care but it will be better than it was.

Yes , we all expect pay rises for the staff and so will they but this is the GOVT is stumping up for more of this burden than they were and more than the standard wage inflation. There is a partial long term catch up component in this latest increase that wont all need to be spent on staff.

[ronaldson]

Love all the work you share Maverick. Would expect there is potential that this will result in higher wages being paid by OCA to their staff. Consider it very plausible that they have stated they can’t pay more as part of negotiations but now the staff know they have received more funding they will be expecting a “catch up” OCA might even agree.
Hopefully it is a well run business and half the new funding does flow to the bottom line.

The Government budgeted funding allocated to providers to reduce pay disparity for nurses and caregivers, $200m for year to 30 June 2024, in my understanding must be used for that purpose, so none will "flow to the bottom line" as you put it. We don't know how much OCA will receive from that source and OCA probably don't know either, but we/OCA do know that for the quarter 1 April-30 June OCA received $1.4m for that purpose and I am sure will have not hesitated to raise wages to reflect that.

The other change to revenue is the increase in the weekly sum paid as the Rest Home Care Subsidy, about 9% from 1 July 2023. This is the maximum amount chargeable to bed occupants absent any premium add-on charge for additional amenity, and because it is to cover all overhead costs some portion can be taken to the bottom line as profit/return on capital invested. In many instances even non-profits cannot make ends meet from this payment, which is why we have had media reporting closures in all parts of NZ.

Many operators are pivoting to the RV model and ORA's for care suites, and minimising the traditional care beds component. So in fact, perversely, the solution, as with The Helier, is to go upmarket and deal exclusively with those who can afford to pay outside of the RCS system and whose asset base excludes them from eligibility. Even the significant non-listed private operators, Sanderson Group, Generus Living Group et al know this and most operators are building/developing accommodation and supporting facilities of much higher quality than the early villages that are still on foot and will remain much cheaper to enter. In that respect it is a good result for occupiers who can afford it but nationally the deficit in care beds is increasing because there is no margin for owners/developers. The fact that the listed entities openly say this, albeit discretely still, is proof that the future of aged care in this country (and in Australia) is quite bleak.

[winner69]

Worries me a bit this talk about a chunk of Govt pay increases flowing through to the bottom line instead of going to staff …I might have misinterpreted what some are saying but that’s the impression

Oceania seem a pretty honourable lot ….I recall they repaid the covid wage subsidy they got

[bottomfeeder]

Worries me a bit this talk about a chunk of Govt pay increases flowing through to the bottom line instead of going to staff …I might have misinterpreted what some are saying but that’s the impression

Oceania seem a pretty honourable lot ….I recall they repaid the covid wage subsidy they got

If the DHB funding increase was going to pay for the increased expenses only, OCA would end up being a Government Department or cost recovery only operation. They have to get a margin on top of that, to pay for increased overheads and profit margin. I think everyone understands that.

[Maverick]

Worries me a bit this talk about a chunk of Govt pay increases flowing through to the bottom line instead of going to staff …I might have misinterpreted what some are saying but that’s the impression

Oceania seem a pretty honorable lot ….I recall they repaid the covid wage subsidy they got
Sorry Winner … I`m not seeing what you are.
NZ upcoming elderly needs loads of new elderly accommodation built, this underfunding improvement isn't even close to encouraging that.
Currently , respectable retirement is only available for the rich, that`s you and I ( a long way off yet:))) but definitely not some of my siblings :(.

The foot on our neck as OCA care providing investors has released slightly. No more than that. Yes, material for OCA which has meanwhile learnt to live on fumes but certainly not enough to for anybody else to bother building new stuff.

[Baa_Baa]

Worries me a bit this talk about a chunk of Govt pay increases flowing through to the bottom line instead of going to staff …I might have misinterpreted what some are saying but that’s the impression

I think you're being disingenuous and acting thick, for what reason I wouldn't know as we all know you aren't. As Mav has already explained, OCA (and the others) are already covering the care cost increases, so it stands to reason that increases in govt funding diminish the costs already being paid for, hence the govt increase flows to the bottom line, or if you like, reduces the losses on funding care.

[SailorRob]

OK , Perhaps my banging on about this DHB funding increase being significant is getting a bit tiresome. So I'll give it a rest after this one.


In consideration of what's been said I still can't agree with you Bull and Sailor that this DHB “relative improvement of funding to the minimum wage” ( as per the minimum wage chart already supplied) will just get swallowed into the cost increase spiral. Hence not making it to the bottom line.

Here's one more chart before I leave this bone alone.
This chart is the total OCA care profit and then I've broken that down into the 3 income streams that compose it. Plus my forecast for FY24 tacked on for fun. ($m)

The blue line is the juggernaut of premium care revenue. (does not include resale profit- that falls in the village section of accounts)
The red is “other” income and is mostly from the nursing school they run.
Then there's yellow, the profit on DHB fees after all OCA care costs are subtracted.
https://lh6.googleusercontent.com/7nDuLUXONqvo1ctBgjoRzLpoUN-oU6R7fouKCGLiK6OmZ0x8QLK0GT6cPKsh7gcnYOvr8Np19iVb7 H9y4GGFsQHoz-4lLQR_K9ReG-ladTcR6jJc6fgsWqFoRLBI5TFbFIRyuwpVAw3-ZztXoJDDt98
The point of this graph is to demonstrate the powerful effect on profit from a measly increase in DHB fees that only slightly addresses the growing underfunding we have endured, as per the chart , since 2018.
It seems entirely reasonable to think we can return to the scant profitability of DHB funding we had in 2020 and 2021 . I've entered that same level of profitability for FY24 on this chart, although as per my workings shown over the last few posts , I personally think it will be greater than this.

See the incredible effect it has on the care profit ( green ) . This then goes straight to OCAs bottom line because that's the only place it can go from this chart. There are no more expenses or fees to bite into it on the way.

I'm not trying to convince anyone of anything, we can all disagree and still be friends. FY24 Will come soon enough to tell the story but you might indeed have to pay "a little" more for the shares by then.


Other than my forecast of FY24 these are all facts. I've laid them out here in a straightforward way so that anyone who wants to, can read the earlier posts to easily arrive with their own expectations and come out with their own forecasts.



Sorry, I was not clear.

I agree it will make it to the bottom line.

What I'm saying is if the bottom line is growing at around 7%, it's actually going nowhere. So the bottom line must outpace inflation and by plenty.

Profit growth of 6 or 7% a year is now nothing.

Everyone harping on (and some world class investors too) about Berkshire now earning a decent sum on their cash pile... Missing the point entirely.

[SailorRob]

I think you're being disingenuous and acting thick, for what reason I wouldn't know as we all know you aren't. As Mav has already explained, OCA (and the others) are already covering the care cost increases, so it stands to reason that increases in govt funding diminish the costs already being paid for, hence the govt increase flows to the bottom line, or if you like, reduces the losses on funding care.

Don't include me in 'we all know' as I can honestly tell you, I don't.

[Habits]

Don't include me in 'we all know' as I can honestly tell you, I don't.

Play the ball and not the man sailor. Can we keep it about OCA and not whether or not Winner is smart

[SailorRob]

Play the ball and not the man sailor. Can we keep it about OCA and not whether or not Winner is smart

What's worse, an accusation of acting thick or an admission that one doesn't know whether someone is smart or not.

If you're taking JAK spot as the thread Karen then I'd expect you to do a good job.

[Habits]

What's worse, an accusation of acting thick or an admission that one doesn't know whether someone is smart or not.

If you're taking JAK spot as the thread Karen then I'd expect you to do a good job.

Thanks champ.... your insults are full of holes, much like your hull, though would never admit.

[SailorRob]

Thanks champ.... your insults are full of holes, much like your hull, though would never admit.


Steel mate, I leave glass harbor toys to folks like yourself.

Got a hole to let $hit out and one for bit of water in, though not required as Keel cooled.

Keep it real Habits old boy, if you're calling people out then do it for a reason.

[SailorRob]

As long as you're doing trump nicknames, what's yours SailorSam


The ball the man... whats the idiom/idiot.

The holes/hulls.

[winner69]

Maverick / Ronald …..do you know how many premium care beds there are …say over FY23

Just that I’ve created this ‘jigsaw’ using Mav’s and Ron’s thinking and numbers to see if I can get a picture I can understand of Oceania care revenue and ebitda ,,,,,but that key piece is missing so picture not complete yet

Thanks,

[Maverick]

Maverick / Ronald …..do you know how many premium care beds there are …say over FY23

Just that I’ve created this ‘jigsaw’ using Mav’s and Ron’s thinking and numbers to see if I can get a picture I can understand of Oceania care revenue and ebitda ,,,,,but that key piece is missing so picture not complete yet

Thanks,
1025 at 31. 3.23
if it helps , my estimate of “unsold” is about 330….but we should all know by now these can’t be classified as “sold” until the occupying grandfathered residence moves on to then make it available for its first time sale.

[winner69]

1025 at 31. 3.23
if it helps , my estimate of “unsold” is about 330….but we should all know by now these can’t be classified as “sold” until the occupying grandfathered residence moves on.

Thanks …so would I be sort of right in thinking that these 1,025 premium beds generate the $20.4 of premium income they show …on average $19,900 per premium bed …..and that’s over and above whatever the base rate is

[Snoopy]

Maverick / Ronald …..do you know how many premium care beds there are …say over FY23

Just that I’ve created this ‘jigsaw’ using Mav’s and Ron’s thinking and numbers to see if I can get a picture I can understand of Oceania care revenue and ebitda ,,,,,but that key piece is missing so picture not complete yet

Thanks,

The problem with the 'premium care model' is that while you might be initially able to fill your units with non-subsidized 'pay out of my own resources' residents, there is no guarantee that after those initial residents 'gain their upstairs promotion', there will be others similarly well off to take their place. Thus there is no guarantee that this model will work down the years. Granted it may be that above a certain population level, there will be a large enough cohort for such a model to work. It may be that 'Auckland' is that population base level and Oceana's 'St Heliers' is an example of this. But I can tell you that in Wellington such a model is not perceived to be sustainable (the view of the now retired manager of what is regarded as a top quality Kapiti Coast retirement village for those who are 'wealthy').

Part of the problem of course is that what was seen as premium accommodation in the day is no longer - as time marches on and expectations change. An obvious example of this is the Waterloo Hotel in Wellington, which was celebrated as one of the finest hotels in the city at the height of its popularity in the 1940s and 1950s and is now a backpackers. How long will the like of St Heliers retain their premium halo?

SNOOPY

[winner69]

Snoops ….the Waterloo eh ….never stayed there but frequent visitor lol. Probably had a drink with you once.

When built described just like The Helier …like words used were ‘zenith’ , ‘new standards’, ‘ chrome’, ‘modern appearance’ in this bit of history. (Descriptive language not changed much the other years eh) -

When completed, the hotel overwhelmed the immediate area. It had 102 rooms and accommodation for 125 and it was regarded as the zenith in hotel design. A contemporary account considered that it set "new standards in furnishings and interior decoration as well as in other appointments". The liberal use of chrome in many of the building's fittings was an integral part of the hotel's modern appearance. While the building was still being erected, plans were drawn up by Atkins and Mitchell to lengthen the Waterloo Quay elevation to provide more staff accommodation.

https://wellingtoncityheritage.org.nz/buildings/301-450/338-hotel-waterloo

[ronaldson]

Thanks …so would I be sort of right in thinking that these 1,025 premium beds generate the $20.4 of premium income they show …on average $19,900 per premium bed …..and that’s over and above whatever the base rate is

I thought the $20.4m breaks down to PAC revenue (Premium Accommodation Charges for accommodation provided above the mandated minimum) of $5.5m in FY23, along with $14.9m from care suite DMF collected.

I don't think PAC revenue is necessarily solely income from care suites but can be from occupants of care beds also where there are additional benefits/services provided. Which may be the case at some OCA facilities? My modest knowledge base with regard to Rest Homes is that every effort is made to justify charging at least some minor on-cost above the subsidy whilst still remaining in compliance with Government contract requirements.

[ronaldson]

Thinking about OCA's cash position going forward I note in FY22 $72.5m was spent on acquisitions (rather than development capex) and $61.6m in FY23. So simply ceasing purchases of land/facilities can mitigate cash outgoing significantly.

Additionally, the FY23 Financials show assets held for sale at $101.7m which seem to be 10 existing facilities which are effectively "on the block" and we know two of these have subsequently been on sold with settlement by end August. And most importantly unsold stock (being care suites/ILUs not under contract) as at 31 March 2023 were $409m, which is a much higher figure than the equivalent number at the previous year end. With the property market moving a bit more freely now that figure should be reducing. No doubt Brent will update us at the ASM later this month. Given there was already considerable headroom with cash on hand/banking facilities it doesn't seem there should be a cash problem.

[Maverick]

Thinking about OCA's cash position going forward I note in FY22 $72.5m was spent on acquisitions (rather than development capex) and $61.6m in FY23. So simply ceasing purchases of land/facilities can mitigate cash outgoing significantly.

Additionally, the FY23 Financials show assets held for sale at $101.7m which seem to be 10 existing facilities which are effectively "on the block" and we know two of these have subsequently been on sold with settlement by end August. And most importantly unsold stock (being care suites/ILUs not under contract) as at 31 March 2023 were $409m, which is a much higher figure than the equivalent number at the previous year end. With the property market moving a bit more freely now that figure should be reducing. No doubt Brent will update us at the ASM later this month. Given there was already considerable headroom with cash on hand/banking facilities it doesn't seem there should be a cash problem.

Nicely said as always... that's an excellent segway from the recent focus on care subsidy onto ( far more importantly ) village sales.

While care profit will do its thing, its the new sales turnover that gets this model cranking. We can see on any other days newspaper that nation wide house sales volumes are lifting. The main limiter now seems to be low supply...boom.. our potential residents can help with that... win win.

Anyway, just wanted to say excellent post Ronaldson, your contributions here are top notch.

[davflaws]

Snoops ….the Waterloo eh ….never stayed there but frequent visitor lol. Probably had a drink with you once.

When built described just like The Helier …like words used were ‘zenith’ , ‘new standards’, ‘ chrome’, ‘modern appearance’ in this bit of history. (Descriptive language not changed much the other years eh) -

When completed, the hotel overwhelmed the immediate area. It had 102 rooms and accommodation for 125 and it was regarded as the zenith in hotel design. A contemporary account considered that it set "new standards in furnishings and interior decoration as well as in other appointments". The liberal use of chrome in many of the building's fittings was an integral part of the hotel's modern appearance. While the building was still being erected, plans were drawn up by Atkins and Mitchell to lengthen the Waterloo Quay elevation to provide more staff accommodation.

https://wellingtoncityheritage.org.nz/buildings/301-450/338-hotel-waterloo
It was the epitome of taste and sophistication. As a young child in the late forties, I was promised that when my table manners were good enough, I would be taken to dinner at the "Waterloo Hotel".
I never made it.

[Bjauck]

Worries me a bit this talk about a chunk of Govt pay increases flowing through to the bottom line instead of going to staff …I might have misinterpreted what some are saying but that’s the impression

Oceania seem a pretty honourable lot ….I recall they repaid the covid wage subsidy they got
I disagree that they should have repaid it. Oceania received the subsidy as it was intended. Why shouldn’t those who provide care earn a reasonable profit on their capital invested? It is disgraceful that the gains on investment in real estate, and real estate values surged as a result of Covid measures, cross-subsidise the lack of a reasonable profit on assets used for care. Why shouldn’t it be the other way round? The NZ investment environment, and government revenue raising, has messed up priorities. And it is chronic!

A younger care worker earning double the income would boost NZ’s economy much more than an older real estate investor earning half the capital gains would detract from it. Likewise OCA earning twice the care profit would boost the tax take more than if it earned untaxed capital gains.

[Maverick]

Maverick / Ronald …..do you know how many premium care beds there are …say over FY23

Just that I’ve created this ‘jigsaw’ using Mav’s and Ron’s thinking and numbers to see if I can get a picture I can understand of Oceania care revenue and ebitda ,,,,,but that key piece is missing so picture not complete yet

Thanks,

Hey Winner,
Been thinking about your care quandary yesterday and the best way to answer it in a way that is understandable and within reach of more everyday analysis. I'm talking here now, not about the GOVT fee profits anymore but now solely about OCAs other care profit component , PREMIUM FEES.

Govt fee profit ( discussed last week) + PREMIUM FEES + other ( always flat and about $1.4m) = $total care profit.

I've had a sleep on it and have had an idea which is simple and has incredible back testing results.

I was going to private message you all this as not to further bog down this thread with more graphs and tech stuff. But this is actually really good and some others might find it useful.

Here's how the rule of thumb formula works.
We currently have 1021 premium beds valued at $331k each = total value $338m
This asset base, if 100% full, should yield an average DMF total of 10% p/a .
$338m x 10% = maximum annual premium care profit of $33.8m. ( if they were 100% occupied by paying residents)
We know it was only $20.4m

Let's turn that into a percentage …20.4/33.8= 62%
So for 2023 we only got an actual yield of 62% on the asset base.

It wouldn't be right for one of my posts not to have a graph somewhere so here's the history of that percentage calculated for the last 6 years
https://lh5.googleusercontent.com/vcSpAHTn-534afHGZrjEiMtMgV5K9l43WeqcG3iflkS9396oOb6dKzxcc_8 wnb1YDUB6IH9skjB31d46w3HfJaLnjxjizt0hBoVEXT3yYq4T0 _S4YDWlsrCWhYLm7jtgyx5XERBtSp5ztFVQrsT9DEg
This stacks up nicely with what I said yesterday that about a third of OCAs haven’t been sold which implies a return of just under 66% is about right. These unsold units are either occupied by a grandfathered client or in a delivery still in the sell down phase.

Forecasting from here;
OCA tells us they want to build another 667 caresuits and at their historical build rate of 135 p/a that tells us they should be done by 2028.

We have observed it then takes about 2-3 years to bring a new delivery to maturity and for waiting lists to form.
So 2028 + 3 years = 2031 all these units are all up and running at maturity.

The last steps are to value the asset base and then to anticipate the possible efficiency of the DMF return on it.

1688 units at today's nominal value $324k = $547m
Annual maximum DMF + PAC return is 10% so that's a maximum premium revenue potential of $54.7m.
Logically, occupancy on mature deliveries will rise to OCAs usual rate of 92%.
let's make it 90% instead as the kids might slow the sign up process a little while they balk for a few weeks over the ORA costs. Plus there will be a few grandfathered folk who just have incredible genes.

Therefore premium care revenue in 2031 should be $54.7m x 90% = $49.2m
I would expect this profit growth will be fairly linear which mean extra premium care revenue of $3.6m P/A ( then any inflation adjustment to sale prices on top of)

Here's the unbelievable thing for me , I have very elaborate spreadsheets built over 5 years with every morsel of OCA intel known to man packed into the it. I $hit you not, my complex system has the forecast as $49.1….

Hey Winner …Now that's spooky eh?