OCA - Oceania Group - retirement villages

[SailorRob]

And why does any of this matter if capital is added pro rata.

We can draw long bows about all kinds of potential events but need to explore the consequences and how we would be effected as investors.


Why does this matter? Wow!
Why don't all companies just dilute existing shareholders continually.

Put it this way.
Would you rather OCA had debt of circa $500M or raised equity to the current value of the company?

If this company is to perform as you say, which is the more expensive option?


Posted without comment.

[SailorRob]

And why does any of this matter if capital is added pro rata.

We can draw long bows about all kinds of potential events but need to explore the consequences and how we would be effected as investors.


With current debt at around $620M or 61% of equity, let's hope they don't need to utilize the additional $100M available to them.
80% I am sure would really start making the banks uncomfortable.

You better hope I am right on the property market ValueNZ so debt levels only go in one direction.


What is Apple Computers debt to equity?

Yes.

[SailorRob]

And why does any of this matter if capital is added pro rata.

We can draw long bows about all kinds of potential events but need to explore the consequences and how we would be effected as investors.


OK, here are the details on the latest cash raising by OCA that I have got wind of, that will be announced to the market tomorrow.

1/ Latest reporting period being HY2024, as reported in November 2023 shows net assets of $1.017.3m on the balance sheet.
2/ On 6th December 2023 there were 724.155m OCA shares on issue.
3/ So NTA at the most recent balance date was $1,017.3m/724.155m = $1.40.
4/ At the end of business on 5th February 2024, the OCA share price closed at 70c.
5/ So the market was valuing OCA shares at half their asset backing: 70c/$1.40 = 1/2. Or put another way, the discount to asset backing was 50%.

6/ Now suppose on Wednesday 8th February 2024, OCA announced a 1:4 cash issue at a price of 60c.
7/ That would raise (724.255m/4) x $0.6 = $108,623m in new capital for the company,.
8/ The number of shares on issue once the capital raise was completed would rise to: 724.255m + (724.255m)/4 = 905.319m
9/ The net assets of the company would rise from $1,017.3m to $1,017.3m+$108.6m= $1,125.9m
10/ So the net asset backing of the company following the capital raise would fall to: $1,125m/905.318m = $1.24.
11/ Now let's say the company share price settles at say 65cps, after the capital raise is completed (this is an assumption albeit not an unrealistic one for the purposes of this example).

Now we have to consider what has happened from the point of view from the perspective of two different shareholders.

Shareholder A - The long termer: For every share they held prior to the capital raising, shares that the market valued at 70c, Shareholder A has to shell out an additional 15c to take up the 1:4 cash issue at 60c. (4x15c=60c). From a post capital raising perspective, they would have 5 shares for every 4 they used to own before the capital raise. But the price paid for the assets, as measured by asset backing, has increased from 50c in the dollar to 50c+15c = 65cps in the dollar for the same underlying assets (this is assuming the purpose of the cash issue was to pay down debt, not buy more assets). Note that 65c/$1.24= 52.4%. So 'Shareholder A' has had to lay out more cash to own the same assets which they previously owned before the capital raise.

Shareholder B - The opportunist: This shareholder, on hearing of the capital raising, buys OCA shares on the market at 65c after they fall from the 70c pre-capital raising announcement price. At the time these shares are bought by Shareholder B, they are trading at 65c/140 = 46% of asset backing. So in net asset backing terms, Shareholder B is already four percentage point ahead of Shareholder A, as they have bought those underlying assets for only 46c in the dollar, not 50c. After having taken up the 1:4 cash issue, Shareholder B has paid 46c+15c = 61cps in the dollar for the same underlying assets. Note that 61c/$1.24 = 49.2%. So 'Shareholder B' has also had to fork out more cash to own those same assets.

Conclusion

'Shareholder B' is better off, because they have only had to fork out 49.2c in the dollar overall to own OCA assets, whereas 'Shareholder A' has had to fork out 52.4c in the dollar to own those same assets. And how was it that Shareholder B became better off? Because some of the wealth that was in the company prior to the 'cash issue capital raising' ended up being transferred from 'Shareholder A' to 'Shareholder B'. This was a real transfer of wealth of 52.4c - 49.2c = 3.2cps from 'Shareholder A' to 'Shareholder B'. These are the numerical workings behind my comment in post 18467:

"Under a 'new capital raising scenario', existing shareholders (as represented by Shareholder A) will have their capital diluted more than shareholders who 'come on board' after a capital raising is announced (as represented by Shareholder B)."

SNOOPY

Everything hinges on the SP falling on the news of the raise... This is your entire thesis.

Well what if the raise was due to a great opportunity to put capital to work at 20% CAGR or some other positive reason and the SP was up on the news.

[SailorRob]

Interesting Snoop, well we will find out tomorrow how good your source is.
Pity they didn't do the capital raise when the stock was double what it is now.

Whoever let it slip may not appreciate your post though if a certain office came a knocking.


Are you playing?

They did the god damned raise at twice the price. Do you know nothing at all about this company?

[SailorRob]

I think the most important thing about any investment is knowing what could happen, rather than what is certain to happen. No-one knows with absolute certainty what is going to happen. But if you are aware of what could happen, then you are a much better informed investor in evaluating a particular investment risk. If you go into a investment blissfully unaware of bad things that 'could happen', but nothing negative happens, that doesn't make you an investment hero. It just means you are a lucky gambler.

I hasten to add that I am not suggesting that investing in OCA is a bad thing to do. What I do know is that the retirement industry is extremely complex from an investment perspective. So many balls to juggle at once: government funding, the care business relationship with the independent living business, staffing issues, the construction cycle, affordability of village entry and its relationship to the housing market, etc, etc. Truly, I believe it is the most difficult sector of all in the investment market to understand. And hats off to those who have a much better understanding of the retirement sector than me, because of all the time you have put into studying it. I respect you all for the work you have done, I really do .....BUT........

I don't think it is in investors interest for a thread to become a self congratulatory love fest. If there are things that come up that I do not believe 'fit the narrative' I am going to call them out. I may be right in my thoughts, or it may be my opinions and fears are groundless. But this what this forum is about - debate of ideas. One thing I have learned over the years is that, particularly with the constituents of the NZX50, Mr Market is more often right than not. If all of the major retirement sector shares are trading well below fair value 'in your opinion', then to me that is a signal that maybe you should look a little deeper. Just to see if Mr Market knows something that you haven't considered.

SNOOPY

discl: Not invested in the retirement sector. Too difficult for me to analyse in a satisfactory way for now.


Yes, like what could happen if you try investing your own capital.

You are likely to get far better results just indexing.

Why put all the effort in if you dramatically underperform for a very long period of time?

[SailorRob]

Nice post Snoop and I agree re your last point as it underlines to me that you shouldn't ignore the macro as some have suggested on here.


Strongly agree.

If you ignore the Macro then the fruit will be far harder to pick for me and ValueNZ, Baa-Baa, Mav etc etc.

Equity premium will shrink.

DO

NOT

IGNORE

THE

MACRO

and dont stop trading global markets off the phone, shorting gold to hedge the long or any of that.

I love it.

[SailorRob]

Just in case anyone thinks Snoopy was serious about a capital raising - he cleverly did that to provide some inertia to his argument. He meant for us to know that it was a joke in order to make his following calculations 'real world'

No chance he would be stupid enough to admit to inside knowledge on a public forum.

[SailorRob]

One thing I have learned over the years is that, particularly with the constituents of the NZX50, Mr Market is more often right than not. If all of the major retirement sector shares are trading well below fair value 'in your opinion', then to me that is a signal that maybe you should look a little deeper. Just to see if Mr Market knows something that you haven't considered.




Bow wow wow yippie yo yippie yay

Is it just all the listed retirement companies, or do the share prices of these retirement companies match the share price trends of other property companies so closely that one line is obscured by the others?

Given the difference in how the assets are funded does this prove Mr Market isn't quite as onto it as you're led to believe?

[Snoopy]

Hmmm do the existing shareholders get to own any of the cash the new shareholders inject?

Asking for a friend.


The injection of the new cash is neutral for legacy shareholders and 'johnny come lately' shareholders, because old shareholders and new shareholders subscribe for new shares on exactly the same terms and cash demands. It is the price of the old cash which leads to the entitlement to submit new cash that makes the difference.

SNOOPY

[Snoopy]

Everything hinges on the SP falling on the news of the raise... This is your entire thesis.


Have you ever heard of a company announcing a cash issue and the share price rising as a result? I can't think of one. But the share price falling on news of a capital raise is not the whole thesis. There is a second necessary ingredient. That being that the share is trading at a discount to NTA. If new shares are trading at a premium to NTA then the net cash benefit flows the other way, from the 'johnny come lately' shareholders to the 'legacy shareholders'.




Well what if the raise was due to a great opportunity to put capital to work at 20% CAGR or some other positive reason and the SP was up on the news.


Different situation. I made it clear that I was talking about the case of cash being raised to pay down debt while retaining the same asset base.

SNOOPY

[SailorRob]

Have you ever heard of a company announcing a cash issue and the share price rising as a result? I can't think of one. But the share price falling on news of a capital raise is not the whole thesis. There is a second necessary ingredient. That being that the share is trading at a discount to NTA. If new shares are trading at a premium to NTA then the net cash benefit flows the other way, from the 'johnny come lately' shareholders to the 'legacy shareholders'.




Different situation. I made it clear that I was talking about the case of cash being raised to pay down debt while retaining the same asset base.

SNOOPY

As I've taught you before NTA means nothing.

Check out Apple computers.

Forget about NTA

All that matters is intrinsic value when thinking about buy backs or capital raising.

When I get time I'll go line by line through your thesis and show you exactly where you went wrong

But today we have a OCA capital raising.

[Snoopy]

Yes, like what could happen if you try investing your own capital.

You are likely to get far better results just indexing.


Your idea of putting everything into a US index tracker fund is not indexing in a New Zealand context. IMV much of the 'investment' in an index that is driven by the 'magnificent seven' or whatever they call then since NVIDIA joined in, is just speculation. I have absolutely zero interest in joining such a party.



Why put all the effort in if you dramatically underperform for a very long period of time?


If you look back over the NZX contests I have entered, which are representative of my actual NZX portfolio, you will see that I slightly underperform the index in good years (down a couple of percentage points maybe) and dramatically outperform it in bad years. This is largely because I tend to invest in defensive dividend paying shares as I appreciate the steady income and the optionality that income gives me. Over the business cycle if I can outperform all the brokers, and beat the index by a couple of percentage points each year, I am happy. So far it seems to be working out, even if I do 'cheat' by holding some NZX investments outside of the NZX50. Small caps tend to perform better over time, with the downside that liquidity is worse. So I am very careful in selecting my small caps such that I would be happy to hold them if the market closed for five years.

SNOOPY

[Snoopy]

Just in case anyone thinks Snoopy was serious about a capital raising - he cleverly did that to provide some inertia to his argument. He meant for us to know that it was a joke in order to make his following calculations 'real world'

No chance he would be stupid enough to admit to inside knowledge on a public forum.


As I said, it is not what actually happens that matters (from an investor perspective it is too late to react by then). It is what could happen. Another capital raise would be helpful in sorting out those bankers fears. It might not happen today. It might not happen next week. Or it might not happen at all. But that doesn't remove the possibility of a capital raise happening at OCA. And if there is a possibility of something happening in the future, then that will be reflected in the share price today. It is up to us as investors to judge how likely such interventions are and act accordingly. And because we all come from different backgrounds we may all react slightly differently to the prospects of each possible significant future event.

In fact, somewhere in the multiverse, a capital raising at OCA is happening today. Just be thankful that if you are reading this post, you are not on that particular capital raising time and space line.

SNOOPY

[winner69]

As long as capital raises are eps (value) accretive who cares

[winner69]

Interesting that Tomlinson didn’t taken up the DRP last couple of times ……putting the cash aside for the cap raise?

[ValueNZ]

As I said, it is not what actually happens that matters (from an investor perspective it is too late to react by then). It is what could happen. Another capital raise would be helpful in sorting out those bankers fears. It might not happen today. It might not happen next week. Or it might not happen at all. But that doesn't remove the possibility of a capital raise happening at OCA. And if there is a possibility of something happening in the future, then that will be reflected in the share price today. It is up to us as investors to judge how likely such interventions are and act accordingly. And because we all come from different backgrounds we may all react slightly differently to the prospects of each possible significant future event.

In fact, somewhere in the multiverse, a capital raising at OCA is happening today. Just be thankful that if you are reading this post, you are not on that particular capital raising time and space line.

SNOOPY
I think I asked this twice on this thread already, but so long as the loan is uncallable unless the covenants are breached or OCA is unable to meet its repayment obligations, why should we care what the banks may or may not think?

I think you're fear mongering for the hell of it.

[ValueNZ]

Refinancing isn't due for another 4 years if anyone was wondering.

[Ferg]

OK, here are the details on the latest cash raising by OCA that I have got wind of, that will be announced to the market tomorrow.

SNOOPY



In fact, somewhere in the multiverse, a capital raising at OCA is happening today. Just be thankful that if you are reading this post, you are not on that particular capital raising time and space line.

SNOOPY

This sort of crap needs to be called out for what it is. I never thought of you as a ramper but there we have it. In black and white. A disgraceful first post put up with supposed authority. Bad bad dog.

[Snoopy]

As I've taught you before NTA means nothing.

Check out Apple computers.

Forget about NTA

All that matters is intrinsic value when thinking about buy backs or capital raising.


NTA means something when the assets being valued have an alternative use. In general, this does apply to property companies. You could turn an office tower into a block of downtown flats. You could turn a retirement village into an pandemic quarantine camp (in fact some would say that is exactly what happened when Covid-19 arrived). So I respectfully disagree. With property companies NTA does mean something, even if I would put more emphasis on the 'income stream' myself.

However, when a business is more dependent on intangibles, like Apple computer's user friendly image and ease of use of their products, then I agree that NTA is not a very useful business valuation metric.

SNOOPY

[Ggcc]

Interesting that Tomlinson didn’t taken up the DRP last couple of times ……putting the cash aside for the cap raise?
For HGH or OCA??

[Snoopy]

I think I asked this twice on this thread already, but so long as the loan is uncallable unless the covenants are breached or OCA is unable to meet its repayment obligations, why should we care what the banks may or may not think?

I think you're fear mongering for the hell of it.


ValueNZ, I can see you are a smart guy because you have identified the same two weaknesses in 'the float', (which is ramping up villa building on the upside), that I have (in bold above) on the downside as a leveraging device. I am not saying that these are imminent risks that should have OCA shareholders running for the hills. But if the above two things happen then 'the float' is no longer a zero interest perpetual loan. It must be repaid.

Much more likely than those two doomsday scenarios is that new share capital may need to be raised at a discount. But by 'more likely' I am not saying a capital raising is imminent. It is up to individual investors to decide the likelihood of such events and price the shares accordingly. Currently that market pricing equates to valuing OCA at about 70cps.

SNOOPY

[Habits]

Could a retirement village be turned into emergency housing. At $200 per night its a go-er for weekly cashflow

[Daytr]

What is Apple Computers debt to equity?

Yes.

Do tell. What is it?
And yes I do no what it is buy I would you like to confirm what it is & why you think it's relevant to OCA.

[Daytr]

Are you playing?

They did the god damned raise at twice the price. Do you know nothing at all about this company?

Yet still have $620M of debt.
Obviously didn't raise enough.

[Snoopy]

OK, here are the details on the latest cash raising by OCA that I have got wind of, that will be announced to the market tomorrow.

1/......


This sort of crap needs to be called out for what it is. I never thought of you as a ramper but there we have it. In black and white. A disgraceful first post put up with supposed authority. Bad bad dog.

That post you referred to Ferg, was introduced by me in that way to give it poignancy. If there was no possibility of a capital raising then no-one would have believed the post, would they? For those that read on, my post 18496 was meant to give that first referred post more context, just in case anyone did believe I had insider knowledge.



I think the most important thing about any investment is knowing what could happen, rather than what is certain to happen. No-one knows with absolute certainty what is going to happen. But if you are aware of what could happen, then you are a much better informed investor in evaluating a particular investment risk. If you go into a investment blissfully unaware of bad things that 'could happen', but nothing negative happens, that doesn't make you an investment hero. It just means you are a lucky gambler.


Perhaps that was a bit cryptic for some, but I notice SailorRob got the message.



Just in case anyone thinks Snoopy was serious about a capital raising - he cleverly did that to provide some inertia to his argument. He meant for us to know that it was a joke in order to make his following calculations 'real world'

No chance he would be stupid enough to admit to inside knowledge on a public forum.


And for the record I was not ramping. I do not have any OCA shares to sell. And I have no intention of buying any at this time either.

SNOOPY

[Ferg]

Weasel words Snoopy. I shouldn't have to trawl through dozens of posts to find your 'context'. You know better than to post rubbish like that. If not a ramper, then certainly an alarmist given there was no such qualification within that post. Bad dog.

[Balance]

Sp threatening to break below 69c?

Looking ominous! :eek2:

[ValueNZ]

ValueNZ, I can see you are a smart guy because you have identified the same two weaknesses in 'the float', (which is ramping up villa building on the upside), that I have (in bold above) on the downside as a leveraging device. I am not saying that these are imminent risks that should have OCA shareholders running for the hills. But if the above two things happen then 'the float' is no longer a zero interest perpetual loan. It must be repaid.

Much more likely than those two doomsday scenarios is that new share capital may need to be raised at a discount. But by 'more likely' I am not saying a capital raising is imminent. It is up to individual investors to decide the likelihood of such events and price the shares accordingly. Currently that market pricing equates to valuing OCA at about 70cps.

SNOOPY
I'm not so concerned about OCA breaching the covenants, I see it as quite unlikely at this point. Same with the repayment obligations.

The main concern for the float in my mind is they spend all these years building it up, just to make a loss on it. Because even small losses on assets will create major losses of equity. Still that would take some serious mismanagement to do, so it's not much of a concern as well.

OCA is a safer investment than most I'd say.

[Greekwatchdog]

Sp threatening to break below 69c?

Looking ominous! :eek2:

Ominous for what exactly?

[Snoopy]

Weasel words Snoopy. I shouldn't have to trawl through dozens of posts to find your 'context'. You know better than to post rubbish like that. If not a ramper, then certainly an alarmist given there was no such qualification within that post. Bad dog.


You didn't have to trawl through dozens of posts. It was the very next post I made, my immediate follow up. Also the post that angered you was not rubbish. Just because such a capital raising is not being announced today, does not mean that such a capital raising scenario is not realistic. I put it to you that my example was entirely realistic, and still is. My post was actually an answer to a question put up by ValueNZ to provide a numerical example of a point I was making. But it looks like you missed that context.

SNOOPY

[Snoopy]

I'm not so concerned about OCA breaching the covenants, I see it as quite unlikely at this point. Same with the repayment obligations.

The main concern for the float in my mind is they spend all these years building it up, just to make a loss on it. Because even small losses on assets will create major losses of equity. Still that would take some serious mismanagement to do, so it's not much of a concern as well.

OCA is a safer investment than most I'd say.


That seems a fairly balanced view of looking at the situation. One of the points I was making was that people should acknowledge the potential downside of the float as well as the upside. Since you have a least considered this and are still happy with your investment I wish you all the best with it. I don't disagree with anything you have said in your post.

SNOOPY

[Ferg]

You didn't have to trawl through dozens of posts. It was the very next post I made, my immediate follow up. Also the post that angered you was not rubbish. Just because such a capital raising is not being announced today, does not mean that such a capital raising scenario is not realistic. I put it to you that my example was entirely realistic, and still is. My post was actually an answer to a question put up by ValueNZ to provide a numerical example of a point I was making. But it looks like you missed that context.

SNOOPY

Don't assume I am angry Snoopy because I am not. I am disappointed and surprised in your alarmist posting. You should know better. I saw that later post and it contained no qualification or retraction directly referencing your alarmist sentence. My interpretation of your other posts was that your beloved and all knowing 'Mr Market' operates using inside information given you said "Just to see if Mr Market knows something that you haven't considered". I didn't think you would purposely self-immolate by posting what appeared to be inside information, so that puts the introductory line in that post into the 'incredibly stupid and irresponsible' category. Words matter. Especially given your following.

[Balance]

Ominous for what exactly?

On the chart, OCA really does not want to break below 69c.

Uncharted territory after that.

[SailorRob]

Sp threatening to break below 69c?

Looking ominous! :eek2:

Looking awesome.

Balance do you know that insurance and hedging cost money?

[SailorRob]

Your idea of putting everything into a US index tracker fund is not indexing in a New Zealand context. IMV much of the 'investment' in an index that is driven by the 'magnificent seven' or whatever they call then since NVIDIA joined in, is just speculation. I have absolutely zero interest in joining such a party.



If you look back over the NZX contests I have entered, which are representative of my actual NZX portfolio, you will see that I slightly underperform the index in good years (down a couple of percentage points maybe) and dramatically outperform it in bad years. This is largely because I tend to invest in defensive dividend paying shares as I appreciate the steady income and the optionality that income gives me. Over the business cycle if I can outperform all the brokers, and beat the index by a couple of percentage points each year, I am happy. So far it seems to be working out, even if I do 'cheat' by holding some NZX investments outside of the NZX50. Small caps tend to perform better over time, with the downside that liquidity is worse. So I am very careful in selecting my small caps such that I would be happy to hold them if the market closed for five years.

SNOOPY

Does the NZ mens rowing team try to beat other Kiwis, or try to be a bit better than that.

[Rawz]

So no capital raise then? Very confusing

[SailorRob]

Have you ever heard of a company announcing a cash issue and the share price rising as a result? I can't think of one.
SNOOPY

Isn't this what an IPO is?

[Rawz]

Have you ever heard of a company announcing a cash issue and the share price rising as a result? I can't think of one.

SNOOPY

Xero raised heaps of cash over and over and the SP only went up up up

[winner69]

Maybe Snoops heard about the Fletcher equity raise …


But

Fletcher Building Limited is aware of a news media report stating that it is weighing up an equity raise. This is inaccurate and Fletcher Building is seeking to have the story removed.

[Snoopy]

Does the NZ mens rowing team try to beat other Kiwis, or try to be a bit better than that.


I would say local knowledge counts and the NZ mens rowing team would stand the best chance of taking on their world in their own backyard. Likewise I would back you as the more likely person to make your fortune from OCA, as opposed to Buffett based in the United States.

SNOOPY

[Snoopy]

Xero raised heaps of cash over and over and the SP only went up up up


Xero raised equity to fund growth - not to pay back debt. But I am not talking about what happens to the share price long term after the capital raise. I am talking about the share price during the capital raising period.

SNOOPY

[Snoopy]

Isn't this what an IPO is?


Yes, technically, and ideally, an IPO is about raising capital at a price greater than the equity put into the business by the then current business operators (so the people floating the company get some cash out at a premium, or get others to fund the growth of their vision at a premium). But a capital raising for an already listed company, like OCA, is not analogous to that situation.

SNOOPY

[Snoopy]

My interpretation of your other posts was that your beloved and all knowing 'Mr Market' operates using inside information given you said "Just to see if Mr Market knows something that you haven't considered".


Looking at the share price chart it is apparent that the OCA share price has been floating around the 70c-75c range for a year. Maybe Mr Market does get wind of inside information at times. But I would doubt that he could hold onto such insider information to himself for as long as a year without some beans being spilled. Your interpretation of what I said was not what I meant to convey. What I meant was that Mr Market was looking at the same information that we all have, but in a different way to the OCA enthusiasts on this thread.

SNOOPY

[ronaldson]

Lot of views expressed on this thread, and a focus on sales and resales of apartments and villas, including by reference to other operators such as RYM and SUM in particular, and correlation with the wider real estate market.

Stock on hand has tended to be above what could be thought to be desireable levels but build programs are not reduced despite cashflow concerns and the potential for capital raises. OCA has even passed on its most recent dividend.

I don't recall mention of the escalating competition faced by the listed RV operators from nonlisted entities or new entrants intent upon building premier retirement villages in sought after locations. Sanderson Group, Generus Living Group and even Winton and Fletchers are obvious examples of entities cherrypicking locations and building product at the higher end which will be one factor driving the seemingly ever increasing advertising spend being incurred within this industry apparently necessary to attract new occupiers.

Is there an optimum scale/size for an operator? Declining rates of homeownership, which surely underpins the ability to transition into a village, are already manifested. And the maori and pacifica component of our population exhibit cultural headwinds to entering a village environment. Some operators have clearly pivoted way from owning/managing standard rest home/aged care facilities to building and operating more upmarket retirement facilities using the "float" concept and the momentum for that is strong particularly with the ''Boomer" generation now 75+ but 20/30% DMF will not ever be for everyone. And reverse mortgages and other products/solutions will continue to be evolved. Staffing issues will dog the sector, especially on the healthcare side.

So has any Board reviewed and announced its goal here, rather than just focussing on green and brown field development pipelines? What is the vision to optimise value for shareholders?

Anyone have any thoughts on this?

[SailorRob]

Bow wow wow yippie yo yippie yay

Is it just all the listed retirement companies, or do the share prices of these retirement companies match the share price trends of other property companies so closely that one line is obscured by the others?

Given the difference in how the assets are funded does this prove Mr Market isn't quite as onto it as you're led to believe?

Snoopy, I don't believe you had an answer?

[bottomfeeder]

Big numbers went through at 69 today. Sellers now number 800 k at 69. I hope this us not insider trading.

Maybe an effort to scare everyone into selling cheap. Any news?.

Would have thought with 31 March coming up and liklihood of dividend resumption, the price would be firming up very soon.

[winner69]

Big numbers went through at 69 today. Sellers now number 800 k at 69. I hope this us not insider trading.

Maybe an effort to scare everyone into selling cheap. Any news?.

Would have thought with 31 March coming up and liklihood of dividend resumption, the price would be firming up very soon.

Maybe selling before the capital raise …buy them back cheaper at the discounted price

[bull....]

bull warned you pages back 66c was directors value but that was there view ​, not the market.

anyway i see nzx offer stock lending facilities. wonder how many are SHORTING against OCA ?

[SailorRob]

bull warned you pages back 66c was directors value but that was there view ​, not the market.

anyway i see nzx offer stock lending facilities. wonder how many are SHORTING against OCA ?

Exactly right, and bull$hit also explained why the directors all put capital in at $1.30 as well.

You all need to listen to him.

[Baa_Baa]

Exactly right, and bull$hit also explained why the directors all put capital in at $1.30 as well.

You all need to listen to him.

And participated in DRP's, even though some of them have heaps already.

[bull....]

Exactly right, and bull$hit also explained why the directors all put capital in at $1.30 as well.

You all need to listen to him.

obviously they are very happy to see a lower stock price lol
just like you they will be able to keep buying more because the float is bullet proof lol

[SailorRob]

obviously they are very happy to see a lower stock price lol
just like you they will be able to keep buying more because the float is bullet proof lol

LOL lol but the 'directors price' is 66c but they bought heaps at $1.30.

Good work bull, keep it up.

One step ahead of the herd.

Any chart

Any where

Any time

[Snoopy]

Is it just all the listed retirement companies, or do the share prices of these retirement companies match the share price trends of other property companies so closely that one line is obscured by the others?

Given the difference in how the assets are funded does this prove Mr Market isn't quite as onto it as you're led to believe?


I am not sure where you are going with this post. Since 2021 and those ultra low interest rates starting to rise, neither retirement village operators, nor property owning listed PIEs have been great repositories for your investment money. And I guess you can blame rising interest rates for both situations.

The property owning PIEs are more focussed on gentle ownership development of their existing assets. So it is really the straight comparative yardstick of much higher bank term deposit rates as alternative investments that have contributed the most to striking their share prices down.

By contrast, the Retirement Villages such as OCA, are really 'property development companies', focussed on building new stock, be they green field or brown field developments. Dividends have reduced, and in the case of OCA disappeared for the immediate future. So you might gather from this that the reduction in OCA share price is due to the higher discount rate applied to those future development returns, and is not related to the loss of dividends. The OCA dividends never compared well to the dividends available from a typical property PIE anyway. Yet being a very different business model I would not expect them to.

Both RVs and the listed property PIEs are funded by bank funding, although I do acknowledge that the RVs have that extra funding source on which they pay 0% interest that, everything going well, and which does not have to be paid back by the company - ever: 'the float'. Added to that are the deferred management fees that are paid up front, even if nominally they are spent on 'running the village' over time. However, very little net cash comes out of the RV listed companies for shareholders, as what cash that is generated is largely reinvested alongside the up until now 'ever expanding equity offset' - due to inflation- of the company asset base.

If you are insinuating that Mr Market does not really understand the listed RV model and has marked down the listed RV providers, particularly OCA, in an irrational way, with the PIEs, because they are 'property companies', then I am not seeing it. Sure both classes of property investment entities have been marked lower, but that is for two different reasons. Not a 'broad brush swipe' at all property owning entities assuming they are all the same.

SNOOPY

[SailorRob]

I am not sure where you are going with this post. Since 2021 and those ultra low interest rates starting to rise, neither retirement village operators, nor property owning listed PIEs have been great repositories for your investment money. And I guess you can blame rising interest rates for both situations.

The property owning PIEs are more focussed on gentle ownership development of their existing assets. So it is really the straight comparative yardstick of much higher bank term deposit rates as alternative investments that have contributed the most to striking their share prices down.

By contrast, the Retirement Villages such as OCA, are really 'property development companies', focussed on building new stock, be they green field or brown field developments. Dividends have reduced, and in the case of OCA disappeared for the immediate future. So you might gather from this that the reduction in OCA share price is due to the higher discount rate applied to those future development returns, and is not related to the loss of dividends. The OCA dividends never compared well to the dividends available from a typical property PIE anyway. Yet being a very different business model I would not expect them to.

Both RVs and the listed property PIEs are funded by bank funding, although I do acknowledge that the RVs have that extra funding source on which they pay 0% interest that, everything going well, and does not have to be paid back by the company - ever: 'the float'. Added to that are the deferred management fees that are paid up front, even if nominally they are spent on 'running the village' over time. However, very little net cash comes out of the RV listed companies for shareholders, as what cash that is generated is largely reinvested alongside the up until now 'ever expanding equity' - due to inflation- of the company asset base.

If you are insinuating that Mr Market does not really understand the listed RV model and has marked down the listed RV providers, particularly OCA, in an irrational way because they are 'property companies', then I am not seeing it. Sure both classes of property investment entities have been marked lower, but that is for two different reasons, not a 'broad brush swipe' at all property owning entities assuming they are all the same.

SNOOPY

I see.

But by coincidence, they are marked down exactly the same at the same time.

[SailorRob]

I am not sure where you are going with this post. Since 2021 and those ultra low interest rates starting to rise, neither retirement village operators, nor property owning listed PIEs have been great repositories for your investment money. And I guess you can blame rising interest rates for both situations.

The property owning PIEs are more focussed on gentle ownership development of their existing assets. So it is really the straight comparative yardstick of much higher bank term deposit rates as alternative investments that have contributed the most to striking their share prices down.

By contrast, the Retirement Villages such as OCA, are really 'property development companies', focussed on building new stock, be they green field or brown field developments. Dividends have reduced, and in the case of OCA disappeared for the immediate future. So you might gather from this that the reduction in OCA share price is due to the higher discount rate applied to those future development returns, and is not related to the loss of dividends. The OCA dividends never compared well to the dividends available from a typical property PIE anyway. Yet being a very different business model I would not expect them to.

Both RVs and the listed property PIEs are funded by bank funding, although I do acknowledge that the RVs have that extra funding source on which they pay 0% interest that, everything going well, and does not have to be paid back by the company - ever: 'the float'. Added to that are the deferred management fees that are paid up front, even if nominally they are spent on 'running the village' over time. However, very little net cash comes out of the RV listed companies for shareholders, as what cash that is generated is largely reinvested alongside the up until now 'ever expanding equity' - due to inflation- of the company asset base.

If you are insinuating that Mr Market does not really understand the listed RV model and has marked down the listed RV providers, particularly OCA, in an irrational way because they are 'property companies', then I am not seeing it. Sure both classes of property investment entities have been marked lower, but that is for two different reasons. Not a 'broad brush swipe' at all property owning entities assuming they are all the same.

SNOOPY

Reading this, you are beginning to understand the company.

We as shareholders DO NOT want cash coming to us when instead it can be reinvested at extreme rates of return as well as providing more float.

The cash flows are insane.

[winner69]

Hi all. Hi all. My latest column published this morning on my Substack, Just the Business, looks at how Jarden's Arie Dekker is at last seeing fruits of his campaign to persuade the listed retirement village operators to improve their disclosure. Under the headline: Aiming for transparency from listed retirement village operators, it concludes with a piece of Charlie Munger's wisdom. You can read it here: https://justthebusinessjennyruth.substack.com/p/aiming-for-transparency-from-listed

Remember this back in November

Oceania Healthcare says its bankers won't let it tell the market what its banking covenants are, and the interest coverage ratio (ICR) one in particular.

An ICR is a measure of how many times operating earnings cover the company's interest bill, and the rapid increase in interest rates globally has made breaches of such covenants much more likely.

She went to say Oceania weren’t being very transparent

I said at time it seems that Oceania doing everything possible to avoid a capital raise …which no doubt they see as embarrassing and a sign of failure.

Value seems to know more than the market!

[Snoopy]

I see.

But by coincidence, they are marked down exactly the same at the same time.

They are marked down at the same time for different reasons. Both reasons connected to interest rate rises. But it is not the same reason, nor a co-incidence, that both classes of property owning companies have fallen.

SNOOPY

[SailorRob]

They are marked down at the same time for different reasons. Both reasons connected to interest rate rises. But it is not the same reason, nor a co-incidence, that both classes of property owning companies have fallen.

SNOOPY

Same time and by the same amount for different reasons.

Okay

[Snoopy]

Reading this, you are beginning to understand the company.

We as shareholders DO NOT want cash coming to us when instead it can be reinvested at extreme rates of return as well as providing more float.

The cash flows are insane.


The issue is these 'extreme rates' of return are largely within the company. In order for a shareholder to get their money out they have to sell their shares 'on market'. And currently a nice villa completed for $600,000 in real dollar costs in 2021, is valued by NZX investors at just $300k (because OCA shares are trading at half their asset backing). For those investors who participated in the capital raise in 2021, every dollar of real cash they subscribed can now be withdrawn by them via the NZX at a rate of just 50c. They have exchanged real cash for stake in a villa that has halved in value, at the valuation hand of Mr Market.

Now that villa is still owned by OCA and would probably cost more than $600k to build today. But there is no way for shareholders to recover that invested money to that degree. Even if the villa was now worth $660k as an equivalent new build, by selling OCA shares today, shareholders will only get $330k of value. By any measure, putting $600k in to get $330k out is not good business. I fear OCA investors are mesmerized by the glory days of 2021 and are just waiting for their shares to return to their former glory price at net asset backing. Hence they will realise the full value of their investment in OCA with all development property fully reflected in the share price. I put it to those investors that OCA selling at net asset backing was an aberration, due to the impossibly low interest rates engineered by the reserve bank at the time. Those interest rates will never be seen again. So our hapless investors who took part in that capital raise will have to wait another 20 years for construction costs to double from 2021 costings. And in twenty years time they will at last, via selling shares on the NZX, be able to get their capital back from all those years ago previously, when they subscribed for that 2021 OCA share issue.

SNOOPY

[bull....]

liz buying again ?

[winner69]

liz buying again ?

And sent the memo to Alan and Kerry and Sally and Rob do the same ….like show their confidence in the company

[bottomfeeder]

Market doesnt know where to go. 68 to 71 in one day.

[Curly]

Who is not buying at sub .70? Two bagger by Christmas maybe.

[Daytr]

Strongly agree.

If you ignore the Macro then the fruit will be far harder to pick for me and ValueNZ, Baa-Baa, Mav etc etc.

Equity premium will shrink.

DO

NOT

IGNORE

THE

MACRO

and dont stop trading global markets off the phone, shorting gold to hedge the long or any of that.

I love it.

Well if you hadn't ignored the macro you may have sold OCA at $1.50.
It was obvious where property market based businesses were heading once interest rates were signaled to rise.
Sent from the phone.
Unbelievable technology really.

[Daytr]

Everything hinges on the SP falling on the news of the raise... This is your entire thesis.

Well what if the raise was due to a great opportunity to put capital to work at 20% CAGR or some other positive reason and the SP was up on the news.

That's a big what if.
What if my godmother was the fairy godmother?
Far more likely it's raised to pay off debt.
Just say they paid of all debt with a capital raise at 60c, then your CAGR halved, SP is then likely to reduce further as EPS is through the floor.

[SailorRob]

Well if you hadn't ignored the macro you may have sold OCA at $1.50.
It was obvious where property market based businesses were heading once interest rates were signaled to rise.
Sent from the phone.
Unbelievable technology really.

Sold shares I didn't have?

[Daytr]

Sold shares I didn't have?

Didn't you say your average buy in was well below your recent purchase of 68c?
When did you manage to buy the stock at such good levels?

[SailorRob]

Didn't you say your average buy in was well below your recent purchase of 68c?
When did you manage to buy the stock at such good levels?

Bought during Covid at 39c sold few months later at 86.

Bought again on way down and average now just under 80c for most recent lot.

So never owned when it was up at $1.50, sold way early with hindsight but had better opportunities

[Curly]

Over double daily average sold today. Plenty selling, lots buying.

[SailorRob]

Over double daily average sold today. Plenty selling, lots buying.

Yep if there is tons of selling then by definition there must be equivalent tons of buying.

[winner69]

Only 5,006 volume on ASX …huge v daily average

But then they first trade since mid-Jan

[ValueNZ]

The issue is these 'extreme rates' of return are largely within the company. In order for a shareholder to get their money out they have to sell their shares 'on market'. And currently a nice villa completed for $600,000 in real dollar costs in 2021, is valued by NZX investors at just $300k (because OCA shares are trading at half their asset backing). For those investors who participated in the capital raise in 2021, every dollar of real cash they subscribed can now be withdrawn by them via the NZX at a rate of just 50c. They have exchanged real cash for stake in a villa that has halved in value, at the valuation hand of Mr Market.

Now that villa is still owned by OCA and would probably cost more than $600k to build today. But there is no way for shareholders to recover that invested money to that degree. Even if the villa was now worth $660k as an equivalent new build, by selling OCA shares today, shareholders will only get $330k of value. By any measure, putting $600k in to get $330k out is not good business. I fear OCA investors are mesmerized by the glory days of 2021 and are just waiting for their shares to return to their former glory price at net asset backing. Hence they will realise the full value of their investment in OCA with all development property fully reflected in the share price. I put it to those investors that OCA selling at net asset backing was an aberration, due to the impossibly low interest rates engineered by the reserve bank at the time. Those interest rates will never be seen again. So our hapless investors who took part in that capital raise will have to wait another 20 years for construction costs to double from 2021 costings. And in twenty years time they will at last, via selling shares on the NZX, be able to get their capital back from all those years ago previously, when they subscribed for that 2021 OCA share issue.

SNOOPY
You do understand Mr Market as an analogy right?

"Let us close this section with something in the nature of a parable. Imagine that in some private business you own a small share that cost you $1,000. One of your partners, named Mr. Market, is very obliging indeed. Every day he tells you what he thinks your interest is worth and furthermore offers either to buy you out or to sell you an additional interest on that basis. Sometimes his idea of value appears plausible and justified by business developments and prospects as you know them. Often, on the other hand, Mr. Market lets his enthusiasm or his fears run away with him, and the value he proposes seems to you a little short of silly.

If you are a prudent investor or a sensible businessman, will you let Mr. Market’s daily communication determine your view of the value of a $1,000 interest in the enterprise? Only in case you agree with him, or in case you want to trade with him. You may be happy to sell out to him when he quotes you a ridiculously high price, and equally happy to buy from him when his price is low. But the rest of the time you will be wiser to form your own ideas of the value of your holdings, based on full reports from the company about its operations and financial position"


I ask you SNOOPY are you letting Mr Market's daily communication determine your value of OCA? Because it sure seems that way.

"Putting $600k in to get $330k out is not good business", yeah well no kidding. But that's only if you bought in 2021 and are selling shares today. However, equally you can buy that equity ownership off shareholders at a discount to what was put into the business recently, which following the same logic is good business.

The reality is it's only good business if you've bought the shares for less than their discounted cash flows. It has nothing to do with the discount to NTA.

[Baa_Baa]

With Snoopy you think you're dealing with someone clever and thoughtful who does lots of careful analysis but in reality it's all just wide of the mark short circuited logic that goes nowhere.

I agree that Snoopy is very clever and thoughtful, very much so, perhaps the most respected fundamental analyst here on Sharetrader, undeniably, unashamedly and with uncommon humility and tolerance, exceptionally well versed in his analysis of the company's that he is invested in, and that combined with a knack for the numbers and statistics.

Not so much though for the occasional times he strays into the unknown company's, but still kudos as it means he is either interested to know more, or just wants to temper the enthusiasm of the proponents, perhaps both.

What he has done here is though is wind up the value investors with a very tight scenario that is highly unlikely and eloquently argued his point within the bounds of that tight scenario, such that it is almost impossible to disagree with, except that the scenario is so tight and so unlikely, that it is almost implausible.

[mistaTea]

Bow wow wow yippie yo yippie yay

Is it just all the listed retirement companies, or do the share prices of these retirement companies match the share price trends of other property companies so closely that one line is obscured by the others?

Given the difference in how the assets are funded does this prove Mr Market isn't quite as onto it as you're led to believe?

Just want to clarify something.

Does this post make you ‘Lil Bow Wow?

Snoopy must be The Dogfather.

I could live with that.

[mistaTea]

Just want to clarify something.

Does this post make you ‘Lil Bow Wow?

Snoopy must be The Dogfather.

I could live with that.

And I am just teasing before you throw a haymaker at me.

That post was funny but I have had snoops damn song in my head ever since.

[Lego_Man]

The prospects of interest rate cuts in short order is getting increasingly diminished. Bad data today, from the RBNZ's point of view.

All things equal domestic asset prices will stay under pressure for longer.

[mistaTea]

The prospects of interest rate cuts in short order is getting increasingly diminished. Bad data today, from the RBNZ's point of view.

All things equal domestic asset prices will stay under pressure for longer.

Aye, and with a bunch more developers going bust or on the verge of…

Just so expensive to build now, and high interest rates acting like gravity on asset prices, reducing demand etc.

You can get a sense of why retirement villages are priced in a way that may appear statistically low.

[Lego_Man]

Yep the current squeeze is sowing the seeds of the future boom, as it always has. The strong hands will survive but tough times in the interim.

[Snoopy]

You do understand Mr Market as an analogy right?

"Let us close this section with something in the nature of a parable. Imagine that in some private business you own a small share that cost you $1,000. One of your partners, named Mr. Market, is very obliging indeed. Every day he tells you what he thinks your interest is worth and furthermore offers either to buy you out or to sell you an additional interest on that basis. Sometimes his idea of value appears plausible and justified by business developments and prospects as you know them. Often, on the other hand, Mr. Market lets his enthusiasm or his fears run away with him, and the value he proposes seems to you a little short of silly.

If you are a prudent investor or a sensible businessman, will you let Mr. Market’s daily communication determine your view of the value of a $1,000 interest in the enterprise? Only in case you agree with him, or in case you want to trade with him. You may be happy to sell out to him when he quotes you a ridiculously high price, and equally happy to buy from him when his price is low. But the rest of the time you will be wiser to form your own ideas of the value of your holdings, based on full reports from the company about its operations and financial position"


Excellent. You have gone back to the original text. Such rigour will serve you well. But I think the downstream fall out from that Mr Market parable is that most of the time Mr Market is pretty accurate with his valuations. You really have to hunt for situations where Mr Market has got it wrong. I think Buffett is on record as saying that he is happy if he only gets one or two great opportunities a year where he can take advantage of Mr Market.



I ask you SNOOPY are you letting Mr Market's daily communication determine your value of OCA? Because it sure seems that way.


Truth be told I have really only become interested in the wider property sector for the last couple of years, since those share prices have come under pressure. Given the RV shares and OCA in particular have been bobbling long an imagined bottom on the share price graph for a year now, I was wondering how such a great investment opportunity could remain available to so many investors for so long. It seems to me, however unpalatable this may seem to those up to their eyeballs in OCA shares, that one explanation is that what we have now is 'the new normal'. There certainly seems to have been a change in the attitude of the banks as to what capital ratios and cashflow ratios are deemed acceptable, even though in the case of OCA, the banks do not want OCA to disclose to shareholders what these new updated bank covenants are. I hasten to add that if what we see today from Mr Market is the new normal, this doesn't necessarily torpedo OCA as a good investment prospect. It just means that some of the hoped for recovery returns, based on future multiple expansion, may be less than existing investors think.

The lightbulb moment for me came when I read Lyall Taylor's piece on property, which I paraphrased into the New Zealand context here.
https://www.sharetrader.co.nz/showthread.php?9856-OCA-Oceania-Group-retirement-villages&p=1036433&viewfull=1#post1036433

Ferg replied at the time that the likes OCA is using 'discount rates' to measure the values of future cashflows, where as those other property companies that were using 'capitalisation rates'. So Lyall's spiel is not applicable to retirement villages. I am afraid I do not fully buy that argument. All of these valuations come down to cashflows anyway. So whether you choose to:

a/ discount the cashflows to get a representative present day earnings stream or
b/ capitalise them to get a representative present day asset value,

These two techniques are really two sides of the same cashflow coin (is how I see things anyway). I think Lyall's argument makes sense and is a good explanation as to why Mr Market, outside of the near zero interest rates artificially impose d on us because of Covid-19, will never again value these RV assets at what some see as a 'Covid normal' which was a once in a generation aberration.



"Putting $600k in to get $330k out is not good business", yeah well no kidding. But that's only if you bought in 2021 and are selling shares today.


Agreed



However, equally you can buy that equity ownership off shareholders at a discount to what was put into the business recently, which following the same logic is good business.


Yes, except you are assuming that we are in a transitionary state, that will see interest rates fall, back to a new normal based on 2020/2021 interest rates and that in turn will lead to a significant market re-rating of the likes of OCA's share price. I agree that interest rates will likely fall. But what if the 'new normal' sees interest rates fall from 6% to 5%, not 6% to 3%?

SNOOPY

[Snoopy]

I agree that Snoopy is very clever and thoughtful, very much so, perhaps the most respected fundamental analyst here on Sharetrader, undeniably, unashamedly and with uncommon humility and tolerance, exceptionally well versed in his analysis of the company's that he is invested in, and that combined with a knack for the numbers and statistics.

Not so much though for the occasional times he strays into the unknown company's, but still kudos as it means he is either interested to know more, or just wants to temper the enthusiasm of the proponents, perhaps both.

What he has done here is though is wind up the value investors with a very tight scenario that is highly unlikely and eloquently argued his point within the bounds of that tight scenario, such that it is almost impossible to disagree with, except that the scenario is so tight and so unlikely, that it is almost implausible.


What is so implausible about a small cash issue at OCA though? I mean dividends have already been stopped. Surely a small cash issue is only one step away?

SNOOPY

[Ferg]

Ferg replied at the time that the likes OCA is using 'discount rates' to measure the values of future cashflows, where as those other property companies that were using 'capitalisation rates'. So Lyall's spiel is not applicable to retirement villages. I am afraid I do not fully buy that argument. All of these valuations come down to cashflows anyway. So whether you choose to:

a/ discount the cashflows to get a representative present day earnings stream or
b/ capitalise them to get a representative present day asset value,

These two techniques are really two sides of the same cashflow coin (is how I see things anyway).

I thought I gave you this link at the time:
https://propertymetrics.com/blog/difference-between-cap-rate-and-discount-rate/
If you still think a cap rate and a discount rate are the same thing, then you are barking up the wrong tree.

[ronaldson]

The prospects of interest rate cuts in short order is getting increasingly diminished. Bad data today, from the RBNZ's point of view.

All things equal domestic asset prices will stay under pressure for longer.

The problem for both the RBNZ and the new Government is that turning the "ship" around takes longer than the proverbial 100 days, and the real achievement of then travelling in the new intended direction takes significantly longer than that. It is human nature to underestimate the timeline and effort involved in the implementation of better policy, and the "lag" effect inherent.

So I agree the likelihood of near term interest rate reduction is much slimmer than the optimists calculation. The media are guilty here of misjudgement, raising expectations of early relief on behalf of borrowers under stress, when the evidence is less than compelling and the narrative is actually counterproductive.

[winner69]

I thought I gave you this link at the time:
https://propertymetrics.com/blog/difference-between-cap-rate-and-discount-rate/
If you still think a cap rate and a discount rate are the same thing, then you are barking up the wrong tree.

I think Snoops knows full well what the difference …..if he appears confused it’s probable because Oceania themselves confuse the issue by not being that clear in their reporting ….one gets the impression that ‘discount rate’ and ‘capitalisation rate’ are interchangeable

[Daytr]

Aye, and with a bunch more developers going bust or on the verge of…

Just so expensive to build now, and high interest rates acting like gravity on asset prices, reducing demand etc.

You can get a sense of why retirement villages are priced in a way that may appear statistically low.

The more developers go bust, the less supply, which will see houses prices rise more than they would of.

[bull....]

OCA would use a discount rate

[winner69]

OCA would use a discount rate

You’d think so but it appears as if care suites are on cap rates

They not very clear when explaining things

[Balance]

The more developers go bust, the less supply, which will see houses prices rise more than they would of.

Not that simplistic.

Developers go broke because of the weak state of the market (poor sales and low demand) and/or they have overpaid (like OCA) for land & development costs are too high.

Land becomes cheaper as is already happening out there. Next lot of developers take over.

Many tradesmen out there now desperately looking work on the next project so they are starting to reduce their rates.

[mistaTea]

Not that simplistic.

Developers go broke because of the weak state of the market (poor sales and low demand) and/or they have overpaid (like OCA) for land & development costs are too high.

Many tradesmen out there now desperately looking work on the next project so they are starting to reduce their rates.

Yeah, the reduction in supply ‘should’ over time sort itself when it hits an equilibrium with demand.

But none of this happens over night. And right now development costs are only going up and up.

Nobody knows how long the pain will last for, which is probably why Mr Market has set the market caps of companies like OCA the way it has.

Doesn’t mean OCA is a bad investment. But it does mean that you are likely paying a fair price for any shares you buy now, given the macro environment and the amount of uncertainty.

[Snoopy]

I thought I gave you this link at the time:
https://propertymetrics.com/blog/difference-between-cap-rate-and-discount-rate/
If you still think a cap rate and a discount rate are the same thing, then you are barking up the wrong tree.


Thanks for the link Ferg. I may have been a bit loose with my terms in some posts. So, just to make sure everyone is on the same page here, I will expand a bit on how I use these terms

The 'capitalisation rate' is defined as the current year's yield on investment in that reference article. It is implicit in that definition that 'capitalisation rate' is a no growth earnings assumption, because you are only including earnings for one year. But what happens when the rent income goes up (or down)? That means the capitalisation rate goes up (or down) in sympathy with the rent income being adjusted. To me this means the 'capitalisation rate' as defined in that article is not that useful..Because I want to know how a property will perform over a business cycle, not just over one year. A one year snapshot could be a freak event or it could be typical. It is always dangerous taking a sample of 1. You just don't know. I would prefer to use the term 'current yield' over 'capitalisation rate'. But that is a side argument to my point.

I am much more interested in the 'business cycle yield', which incorporates a sample of 'capitalisation rates' over many years. Thus when I work out a capitalisation rate I still use a single number. But it is an average number, typically worked out over five years in my case. I realise playing loose with the definition of 'capitalisation rate' in this article will irk some people. But I am much more interested in a definition that is useful for business valuation purposes, rather than pandering to some textbook scholar. I am still using essentially the same concept though: Assuming a fixed income that does not change. All I am doing is picking a different (and I would say more realistic) fixed income number.

Right, so we have established I am using a fixed income number. How valuable that income is to me is a judgement call. Again I tend to look across the business cycle when making these judgements. For I good quality commercial property with a stable tenancy my 'happy yield' number is 7.5%. I need to emphasise I am not making out that this 7.5% is some kind of grand key number that I expect everyone else to accept. Whether readers agree or disagree with me, that is fine. We can all choose our own return rate that we find is acceptable. But for me if I can find a high quality property company that gives me a gross yield of 7.5%, then that ticks the box. So if we have a representative dollar income in dollars, and an acceptable yield in percentage terms, then we can 'capitalise' that income to calculate a price we would be prepared to pay to acquire that yield, thus:

(Representative single year income) / 0.075 = 'Capitalised Property Value'

'Capital', to me, has the connotation of a fixed asset and the 'Capitalised Property Value' is the number measuring the value of that fixed property asset. However the term 'Capitalisation Rate' is, according to the definition in the article, a term for income, which I think is confusing in this context. So why call it 'Capitalisation Rate'? Just call the number 'Current Yield', then everyone knows what we are talking about.

SNOOPY

[winner69]

Yeah, the reduction in supply ‘should’ over time sort itself when it hits an equilibrium with demand.

But none of this happens over night. And right now development costs are only going up and up.

Nobody knows how long the pain will last for, which is probably why Mr Market has set the market caps of companies like OCA the way it has.

Doesn’t mean OCA is a bad investment. But it does mean that you are likely paying a fair price for any shares you buy now, given the macro environment and the amount of uncertainty.

And banks now worried about the reckless lending they did a few years ago when rates were low

[bull....]

You’d think so but it appears as if care suites are on cap rates

They not very clear when explaining things

it doesnt really matter how they value them.
i being part of the market would say if the product involves future cashflows then they should be valued using a discount rate

[Balance]

And banks now worried about the reckless lending they did a few years ago when rates were low

Fingers in the dyke.

The bankers are nursing many problem and defaulting loans out there, receivership and liquidation being last resort.

But to be fair to them this time, many of the problem loans of developers are from second tier lenders who typically charge interest rates of 5% or more than the banks.

[Snoopy]

I thought I gave you this link at the time:
https://propertymetrics.com/blog/difference-between-cap-rate-and-discount-rate/
If you still think a cap rate and a discount rate are the same thing, then you are barking up the wrong tree.


The 'discount rate' is a much more sophisticated concept that the 'capitalisation rate'. There are sophisticated and less sophisticated ways of calculating it and I notice that the reference article says:
"Typically, the investor’s required rate of return is used as a discount rate, or in the case of an institutional investor, the weighted average cost of capital (WACC)."

Now as you are aware the 'weighted average cost of capital' can become quite a complex calculation involving a balance between the 'cost of equity capital' and the 'cost of fixed interest capital' that also involves historical share price volatility over a time period. Despite all that sophistication, such a calculation becomes nonsensical as a predictive tool if interest rates suddenly change or the volatility of the underlying share investment changes relative to how the market behaves. Because of these limitations, I don't use the WACC calculations myself. I would much rather use my own judgement to 'pick a number'. Yes I realise this technique will sound crude to some readers. But I put it to those readers that doing a whole lot of sophisticated calculations using questionable input assumptions is just another version of crude, hiding under a blanket of haughty mathematics.

With a no growth assumption, often the discount rate number I pick is my sought after yield.

So while you are correct to say that the 'capitalisation rate' and 'discount rate' are not the same thing, I do need to point out that for some investors in some circumstances they can be the same number. And that is why in some contexts investors use these terms seemingly interchangeably. Technically they are wrong to do this of course. But in a practical sense, looking at the return calculation at the end of the day it doesn't affect the calculated present value valuation result.

SNOOPY

[bull....]

The 'discount rate' is a much more sophisticated concept that the 'capitalisation rate'. There are sophisticated and less sophisticated ways of calculating it and I notice that the reference article says:
"Typically, the investor’s required rate of return is used as a discount rate, or in the case of an institutional investor, the weighted average cost of capital (WACC)."

Now as you are aware the 'weighted average cost of capital' can become quite a complex calculation involving a balance between the 'cost of equity capital' and the 'cost of fixed interest capital' that also involves historical share price volatility over a time period. Despite all that sophistication, such a calculation becomes nonsensical as a predictive tool if interest rates suddenly change or the volatility of the underlying share investment changes relative to how the market behaves. Because of these limitations, I don't use the WACC calculations myself. I would much rather use my own judgement to 'pick a number'. Yes I realise this technique will sound crude to some readers. But I put it to those readers that doing a whole lot of sophisticated calculations using questionable input assumptions is just another version of crude, hiding under a blanket of haughty mathematics.

With a no growth assumption, often the discount rate number I pick is my sought after yield.

So while you are correct to say that the 'capitalisation rate' and 'discount rate' are not the same thing, I do need to point out that for some investors in some circumstances they can be the same number. And that is why in some contexts investors use these terms seemingly interchangeably. Technically they are wrong to do this of course. But in a practical sense, looking at the return calculation at the end of the day it doesn't affect the calculated present value valuation result.

SNOOPY

the discount rate used when the property market was humming would have been a lot larger number than what should be used now. Also a softer number should be applied to take account of the lumpy ness of rollover cashflows

[Snoopy]

Therein lies the issue. Per Lyall's amended quote from Snoopy it assumes the properties were valued using cap rates, whereas OCA properties were valued using discount rates. I see Snoops has edited his post, but using a different metric in an amended quote from a different country etc is not the criteria I would use to eliminate a potential investment per the original post.

The author (Snoopy speaking through Lyall) acknowledges the varying metrics:

real estate prices ...[snip]... are valued on the books ... at cap rates

versus

the assets that underlie OCA are priced [on public markets] with a cost of capital reflective of NZ equities in general, which is a cost of capital that bears no relation to the cost of capital private buyers of prime A-grade real estate are subject to


Just to bring this discussion back into context....

The issue of using 'capitalisation rates' (current yield) or 'discount rates' (a sum of all future cashflows discounted back to a present value) is at the heart of the discussion on valuing OCA. At this point I think it is worth pointing out that implicit in the 'discount rate' argument is that cashflows at OCA will grow significantly in future years. I say this because if cashflows were not to grow, this means the earnings yield becomes 'steady state'. And if you pick the discount rate to match the steady state yield, then that means that result of your discounted cashflow future accumulation calculation should exactly match the present day 'capitalisation rate'. IOW whichever method you use you will get the same answer. So whether you are working on a 'capitalisation rate' calculation or a 'discount rate' calculation, it does not matter.

The problem with valuing a property developer (and I am thinking about OCA as such) is that you can look at such a company from more than one perspective. For example:

'Vision a' / Focus on the present day where you have a growing business with an impressive pipeline of future cashflows, that will be valued on a multiple to reflect the future prospects OR
'Vision b' / Focus on a steady state vision, where all the development pipeline is complete and the massive future income base is discounted back to a present day value using an appropriate discount rate.

The issue is that in 'vision a' you have a lower cashflow and a higher valuation multiple (because of the company growth prospects) but in 'vision b' you have a much higher cashflow but a lower multiple (because all of the growth in building out the properties has finished). But 'vision a' and 'vision b' are actually different ways of looking at the same property development company. Once you realise this, it becomes clear that the answer (valuation of OCA) must be the same whichever vision, a or b, you choose.

Pre the retirement village valuation price correction, the sharemarket was pricing some of these RV operators on an unlimited growth path. But with higher interest rates, uncertain development costs, some discretionary timing for villa residents to enter the RVs fed by a volatile property market, and high company debt levels -based on previous unlimited runway of growth assumptions-, the banks have cried 'enough' on the unlimited growth model. Thus the new way of valuing an RV operator is either 'Vision A' or 'Vision B'. Yet some shareholders are still wedded to the old ways and want to have the cashflows of 'Vision B' valued on the multiples of 'Vision A'. IMV this is no longer possible and this is why some investors expectations on the future value of the likes of OCA are unrealistic in today's market. You can value your investment as either a 'vision A' or a 'vision B'. But you cannot mix and match your assumptions between the two visions.

The next point to clarify is the difference between value (what the sharemarket is prepared to pay for your assets) and cost. 'Vision B' will always be valued by the market at a discount to asset backing. This is because completed housing can never provide an income return that is satisfactory for sharemarket income investors based on house building costs. This means that the further along the development path to completion these retirement villages get, the greater the discount to asset backing Mr Market will give such listed assets. Long term, I would expect this discount to settle at 50% (which means a 3% property rental yield on cost translates to a 6% market yield for sharemarket investors). The great news for OCA shareholders is that we are already there. So I do not predict more long term pain. However, the counterfactual to this is that I predict little long term gain either. Sure share values will tick up as the long term development pipeline continues to roll out. But those investors in the retirement sector that do best, IMV, will be those investors that have to put the least cash, either via cash issues or a DRP, or the compulsory DRP (when a company decides not a pay a dividend at all), back into the company. The problem as I see it: Any 'real cash' put back into the company will be immediately revalued to 50c in the dollar by Mr Market. And there is no quick mechanism for shareholders to get their cash back at dollar for dollar rates.

So now I complete the long circle by returning to the subject of this post. If a company is growing, as OCA is, then using a discounted cashflow valuation will produce a higher share price valuation than using present day earnings yield - this is true. But if the cash reinvested, either by retained earnings or via a cash issue, is immediately discounted to 50c in the dollar by Mr Market (as it must be to retain a competitive earnings yield with other outside of the industry sharemarket participants), then the benefits of that higher cashflow being recognised largely evaporate - from the point of view of the OCA shareholder.

SNOOPY

[Daytr]

Not that simplistic.

Developers go broke because of the weak state of the market (poor sales and low demand) and/or they have overpaid (like OCA) for land & development costs are too high.

Land becomes cheaper as is already happening out there. Next lot of developers take over.

Many tradesmen out there now desperately looking work on the next project so they are starting to reduce their rates.

What you suggest takes time, a lot of time.
We have a big shortage of housing, less houses being built will see prices rise.
It is that simple.

[Ggcc]

What you suggest takes time, a lot of time.
We have a big shortage of housing, less houses being built will see prices rise.
It is that simple.
The big difference is the the majority of houses getting purchased now are entry level first home buyers. These might go up quickly, but the average 1.5 million plus houses around NZ will take a while to increase. That was mentioned by an article I read about 1 month ago by a mortgage broker. Of course it is one persons opinion, but it made sense to me. I am amazed at the amount of people who are cashed up loaded individuals looking at buying 2 million plus houses in Napier.

[mike2020]

Ggcc, do you think that is anything to do with insurance payouts?

[X-men]

Stop discussing this dog. 2 years downtrend....no news from the sheet management....what a depressing 🐶

[Snoopy]

Stop discussing this dog. 2 years downtrend....no news from the sheet management....what a depressing ��


On the contrary. If you want to learn, you will learn a lot more from share buys that do not go to plan than those that do. Now is exactly the right time to be discussing OCA.

SNOOPY

[Balance]

Closed at 68c today.

Buy side getting thinner while seller(s) allow bids to build up and then, sell down.

Institutions getting out while retail investors/punters buying.

[Rawz]

Free money as Sailor would say lol

[Balance]

Free money as Sailor would say lol

He has been very quiet today. Think he has woken up to cap rate vs discount rate? :D

[ValueNZ]

He has been very quiet today. Think he has woken up to cap rate vs discount rate? :D
He got banned.

[Balance]

He got banned.

Now why would he get banned? Such a nice fellow who offers bets which guarantees real ‘free money’!

[Ggcc]

Ggcc, do you think that is anything to do with insurance payouts?
Could have something to do with that yes. I know of a couple who had a $2 million dollar property and bought a $900,000 house as they were given just under 1 million for their property

[mistaTea]

Now why would he get banned? Such a nice fellow who offers bets which guarantees real ‘free money’!

The forum just is not the same. I always loved how he was so open to other perspectives.

[Balance]

The forum just is not the same. I always loved how he was so open to other perspectives.

Absolutely. Not that I would know well as he has been on my ignore list for a while. :D

[Leemsip]

I actually like how the mod bans people on this website. Otherwise a couple of people just ruin the discussion.
SR had some good advice and some great points.. but the fighting and one up man ship was getting super tedious.

[Daytr]

I actually like how the mod bans people on this website. Otherwise a couple of people just ruin the discussion.
SR had some good advice and some great points.. but the fighting and one up man ship was getting super tedious.

Agreed, obviously a smart guy, but had little respect for others & his ego got in the way of accepting he wasn't always right.
Down was up with SailorBoy.

[Balance]

Agreed, obviously a smart guy, but had little respect for others & his ego got in the way of accepting he wasn't always right.
Down was up with SailorBoy.

Let me share with you all the rationale behind why I was so keen and confident to take the bet he wanted to make with you, Daytr :

The bet with SailorRob is a no brainer - subject to one buying $50,000 worth of OCA stock as a hedge.

Why there is no downside and only upside with the bet :

1. SR bets OCA will be at least $3.22 in 2040. So he is betting that OCA (sp now 70c) will put on at least 360% in the next 16 years.

2. He has underwritten any downside for you by betting the $50k - so worse case scenario, you get your $50k back if OCA goes belly up.

3. In the event of OCA hitting $3.22 or more in 2040, your return will still be 260% or 16.25% a year (non-compounding).

4. In the event of OCA being less than $3.22, he is guaranteeing you an additional 100% return ($50k) on top of any return you make on your $50k of OCA hedge.

It was so obvious how ever that SR had no intention of going ahead with the bet - all bluff and bluster.

[ValueNZ]

Let me share with you all the rationale behind why I was so keen and confident to take the bet he wanted to make with you, Daytr :

The bet with SailorRob is a no brainer - subject to one buying $50,000 worth of OCA stock as a hedge.

Why there is no downside and only upside with the bet :

1. SR bets OCA will be at least $3.22 in 2040. So he is betting that OCA (sp now 70c) will put on at least 360% in the next 16 years.

2. He has underwritten any downside for you by betting the $50k - so worse case scenario, you get your $50k back if OCA goes belly up.

3. In the event of OCA hitting $3.22 or more in 2040, your return will still be 260% or 16.25% a year (non-compounding).

4. In the event of OCA being less than $3.22, he is guaranteeing you an additional 100% return ($50k) on top of any return you make on your $50k of OCA hedge.

It was so obvious how ever that SR had no intention of going ahead with the bet - all bluff and bluster.
Are you still keen for that bet? I can get you in contact with SailorRob if that's the case.

[Balance]

Are you still keen for that bet? I can get you in contact with SailorRob if that's the case.

LOL - you know he is a compete time waster. Why bother?

Suffer a fool long enough and you will be the fool.

Do you want to make the bet with me?

[ValueNZ]

LOL - you know he is a compete time waster. Why bother?

Suffer a fool long enough and you will be the fool.

Do you want to make the bet with me?
I genuinely believe he will make that bet with you. I think you're acting as if he wouldn't because he's now banned, when it's you that wouldn't go through with the bet.

[Balance]

I genuinely believe he will make that bet with you. I think you're acting as if he wouldn't because he's now banned, when it's you that wouldn't go through with the bet.

You could not be more wrong but then, you know him best having re-sent the infor to him in the first place. LOL.

He will be unbanned in 3 weeks so I will be waiting. Tell him I am locked and loaded to go.

[Rawz]

I genuinely believe he will make that bet with you. I think you're acting as if he wouldn't because he's now banned, when it's you that wouldn't go through with the bet.

I know you love Sailor but he has a history of talking crap. Once bet LEK that KPG couldnt pay the dividend out of cash, think it was $200k or something. Then he backed down when Snoopy came in and broke down the numbers to prove they could.

[Balance]

I know you love Sailor but he has a history of talking crap. Once bet LEK that KPG couldnt pay the dividend out of cash, think it was $200k or something. Then he backed down when Snoopy came in and broke down the numbers to prove they could.

He was already trying to change the bet when I posted that I was happy to accept the bet - he was anything but accept the bet. LOL.

But hi, ValueNZ knows him well so let's wait for him to be unbanned. I will take him off my Ignore list in keen anticipation that he is there for the bet.

The $50k bet was (for the record) - that OCA sp would be at least $3.22 in 2040. No ifs or buts.

ValueNZ - please convey to him. Thanks and cheers!

[Rawz]

He was already trying to change the bet when I posted that I was happy to accept the bet - he was anything but accept the bet. LOL.

But hi, ValueNZ knows him well so let's wait for him to be unbanned. I will take him off my Ignore list in keen anticipation that he is there for the bet.

The $50k bet was (for the record) - that OCA sp would be at least $3.22 in 2040. No ifs or buts.

ValueNZ - please convey to him. Thanks and cheers!

Literally free money for you lol

[ValueNZ]

I know you love Sailor but he has a history of talking crap. Once bet LEK that KPG couldnt pay the dividend out of cash, think it was $200k or something. Then he backed down when Snoopy came in and broke down the numbers to prove they could.
Not sure when he backed down from that bet. Maybe you can show us the exact post.

[mike2020]

Lol. No SailorRob so what do we talk about? 🤔

[ValueNZ]

He was already trying to change the bet when I posted that I was happy to accept the bet - he was anything but accept the bet. LOL.

But hi, ValueNZ knows him well so let's wait for him to be unbanned. I will take him off my Ignore list in keen anticipation that he is there for the bet.

The $50k bet was (for the record) - that OCA sp would be at least $3.22 in 2040. No ifs or buts.

ValueNZ - please convey to him. Thanks and cheers!
He is banned for three months, why don't you just get in contact with him directly so you don't need to wait that long. I can check if that's okay with him if you actually are wanting to go through with the bet.

[Balance]

He is banned for three months, why don't you just get in contact with him directly so you don't need to wait that long. I can check if that's okay with him if you actually are wanting to go through with the bet.

You really have swallowed his BS hook, line and sinker!

Good on him!

[ValueNZ]

You really have swallowed his BS hook, line and sinker!

Good on him!
Huh. Guessing that's a no then?

Clearly you never actually intended on making that bet. But prove me wrong, please.

[Daytr]

Let me share with you all the rationale behind why I was so keen and confident to take the bet he wanted to make with you, Daytr :

The bet with SailorRob is a no brainer - subject to one buying $50,000 worth of OCA stock as a hedge.

Why there is no downside and only upside with the bet :

1. SR bets OCA will be at least $3.22 in 2040. So he is betting that OCA (sp now 70c) will put on at least 360% in the next 16 years.

2. He has underwritten any downside for you by betting the $50k - so worse case scenario, you get your $50k back if OCA goes belly up.

3. In the event of OCA hitting $3.22 or more in 2040, your return will still be 260% or 16.25% a year (non-compounding).

4. In the event of OCA being less than $3.22, he is guaranteeing you an additional 100% return ($50k) on top of any return you make on your $50k of OCA hedge.

It was so obvious how ever that SR had no intention of going ahead with the bet - all bluff and bluster.

I didn't even see the offer of the bet until well after you had responded.
Smart move by you!
Yeah SailorBoy full of hot air when it comes to these bets.
I have tried to accept on a friendly basis bets before but he wasn't interested.
All bravado.

[bull....]

yep tried to lay a bet on me too , new was just bravado. anyway never took the bait would have bankrupted him as he's still waiting for the float to make him rich

In the heart of the storm, where waves clash and roar,Stood Sailor Rob, a gambler to the core.With a glint in his eye and a swaggering stride,He'd bet on the wind, on the tide.
His voice boomed loud as the ship cut through spray,"Come one, come all, let's play the game today!I'll wager my gold on the roll of the dice,Or the turn of a card, whatever entices."
With a laugh and a grin, he'd take on the odds,Challenging fate with his bold, daring nods.For Rob knew no fear, not of loss or of debt,He'd risk it all, with no hint of regret.
Through tempests and tempts, he sailed undeterred,Each wager a tale, each outcome was heard.His bravery matched only by his daring bet,A legend at sea, no gambler could forget.
For in the heart of a sailor, there beats a thrill,A longing for risk, a desire to fulfill.And Sailor Rob, with his bravado so grand,Embraced every gamble, with cards in his hand.
So here's to the sailor who never shies away,Who faces the odds, come what may.In the dance of chance, he'll always be found,Sailor Rob, with bravado unbound.

[Snoopy]

He was already trying to change the bet when I posted that I was happy to accept the bet - he was anything but accept the bet. LOL.

But hi, ValueNZ knows him well so let's wait for him to be unbanned. I will take him off my Ignore list in keen anticipation that he is there for the bet.


If people were prepared to put the same amount of time into analysis of OCA rather than putting time into drafting and then trying to make money off each other via these 'bets', I am sure OCA investors on the forum would be better off. Let's work together people, rather than trying to out-bluff each other with these bets.

I am offering up no prize for anyone who can answer this question, bar the basking in the knowledge that you have helped a lot of people better understand their OCA investment. I set the scene of my question like this.

1/ OCA take a deferred management fee (DMF) into the accounts when they sell a villa. This fee is 30% of the capital the resident pays over when they take up their licence to occupy.
2/ The DMF is recurring for each new ORA signed on as the villa licence to occupy changes hands. Thus the incoming resident refills the DMF coffers, when moving in, which means, barring a management disaster, the DMF never has to be paid back by OCA.
3/ The 30% DMF becomes a kind of 'extra defacto equity' for OCA, which allows OCA to be able to build 30% more villas in their growth plan than they would have, had the DMF not existed.
4/ The villas are built with 'real cash', retained earnings from OCA added to the float, that must be handed over to the builders on completion of each new construction contract.
5/ /Mr Market' values any retained earnings, and the float at 50c in the dollar, as that is the only way that a villa equity return of 3% can be increased to 6%, which is a satisfactory borderline acceptable return from a share investor perspective.
6/ The only way an OCA share investor can get their capital out of OCA is to sell their shares on market, at a price determined by Mr Market (a rate of 50c per dollar of the assets on the balance sheet).

Let the equity of an ordinary property development company, without a float, be 'E' (not the case with OCA because their 'E' is enhanced by the float).

The equation for an investor in 'cents in the dollar' to recover their share of the company's retained equity, by selling OCA shares -enhanced by the float- comes down to: 0.5 x 1.3 x E = 0.65E

So for every dollar generated within OCA, our shareholder investor can get back 65c of that by selling their OCA shares on market. Alternatively, our investor might want the money generated within the company paid out as an unimputed dividend (OCA do not have imputation credits to pay out) . Assuming our shareholder were on a 33% marginal tax rate they would receive 67c in the dollar, which is 2c in the dollar more than if the company retained their money! So (drum roll, here is the question) "How is OCA developing a retirement village along these funding lines a good deal for OCA shareholders?" Who can answer that one? I genuinely want to know the answer!

SNOOPY

discl: do not hold OCA

Addendum: I have just realised I have made a mistake in that final calculation. It is not $1 supporting 30c of float value. It is 70c supporting 30c of float value. 30/70 = 0.4286

The equation for an investor in 'cents in the dollar' to recover their share of the company's retained equity, by selling OCA shares -enhanced by the float- comes down to: 0.5 x 1.4286 x E = 0.7143E

So for every dollar generated within OCA, our shareholder investor can get back 71.4c of that by selling their OCA shares on market. And that is a few cents better than paying an unimputed dividend.

[Mrbuyit]

Great thought provoking post Snoopy.

I had rightly or wrongly assumed that shareholders don't really make any money until OCA cut back on the second part of point 4, as there will be costs aplenty exceeding that of just the blokes swinging the hammers, and buying jib board and nails, then potentially there is a dividend worth discussing, as the company throttles back on growth?

What I don't know if this happens before or after the share price becomes $3.22 :)

[Greekwatchdog]

Hey Snoopy, Your analysis is more than welcoming as is all other contributors, however the personal dribble is not.

Anyway have you ever looked at Arvida (ARV) the same way you have been getting your snout into OCA.

For mine ARV is way more likely to require a CR than OCA.

I am a holder in OCA, ARV and SUM.

[ValueNZ]

If people were prepared to put the same amount of time into analysis of OCA rather than putting time into drafting and then trying to make money off each other via these 'bets', I am sure OCA investors on the forum would be better off. Let's work together people, rather than trying to out-bluff each other with these bets.

I am offering up no prize for anyone who can answer this question, bar the basking in the knowledge that you have helped a lot of people better understand their OCA investment. I set the scene of my question like this.

1/ OCA take a deferred management fee (DMF) into the accounts when they sell a villa. This fee is 30% of the capital the resident pays over when they take up their licence to occupy.
2/ The DMF is recurring for each new ORA signed on as the villa licence to occupy changes hands. Thus the incoming resident refills the DMF coffers, when moving in, which means, barring a management disaster, the DMF never has to be paid back by OCA.
3/ The 30% DMF becomes a kind of 'extra defacto equity' for OCA, which allows OCA to be able to build 30% more villas in their growth plan than they would have, had the DMF not existed.
4/ The villas are built with 'real cash', retained earnings from OCA added to the float, that must be handed over to the builders on completion of each new construction contract.
5/ /Mr Market' values any retained earnings, and the float at 50c in the dollar, as that is the only way that a villa equity return of 3% can be increased to 6%, which is a satisfactory borderline acceptable return from a share investor perspective.
6/ The only way an OCA share investor can get their capital out of OCA is to sell their shares on market, at a price determined by Mr Market (a rate of 50c per dollar of the assets on the balance sheet).

Let the equity of an ordinary property development company, without a float, be 'E'.

The equation for an investor in 'cents in the dollar' to recover their share of the company's retained equity, by selling OCA shares -enhanced by the float- comes down to: 0.5 x 1.3 x E = 0.65E

So for every dollar generated within OCA, our shareholder investor can get back 65c of that by selling their OCA shares on market. Alternatively, our investor might want the money generated within the company paid out as an unimputed dividend (OCA do not have imputation credits to pay out) . Assuming our shareholder were on a 33% marginal tax rate they would receive 67c in the dollar, which is 2c in the dollar more than if the company retained their money! So (drum roll, here is the question) "How is OCA developing a retirement village along these funding lines a good deal for OCA shareholders?" Who can answer that one? I genuinely want to know the answer!

SNOOPY

discl: do not hold OCA
Dude, your argument is "Mr Market is discounting OCA shares, therefore this is bad for shareholders as if they sell their shares they only recieve x% back."

But dude, that's exactly why I am a shareholder, I only bought in because of the discount to intrinsic value...

The answer to your question is because it generates float, "free money" and a sh1t ton of it. OCA could make zero EPS for a decade and continue their float growth at 15-20% and shareholders will still do very well out of it by earning say 5% ROA from that point on.

[bull....]

Dude, your argument is "Mr Market is discounting OCA shares, therefore this is bad for shareholders as if they sell their shares they only recieve x% back."

But dude, that's exactly why I am a shareholder, I only bought in because of the discount to intrinsic value...

The answer to your question is because it generates float, "free money" and a sh1t ton of it. OCA could make zero EPS for a decade and continue their float growth at 15-20% and shareholders will still do very well out of it by earning say 5% ROA from that point on.

Rubbish I already have proved your float is only worth < 66c. but i do agree if they dont muck it up it will be worth more over time.

[ValueNZ]

Dude, your argument is "Mr Market is discounting OCA shares, therefore this is bad for shareholders as if they sell their shares they only recieve x% back."

But dude, that's exactly why I am a shareholder, I only bought in because of the discount to intrinsic value...

The answer to your question is because it generates float, "free money" and a sh1t ton of it. OCA could make zero EPS for a decade and continue their float growth at 15-20% and shareholders will still do very well out of it by earning say 5% ROA from that point on.
Snoopy imagine this is a private business - No market quotation. What would you pay for the whole company?

[ValueNZ]

Rubbish I already have proved your float is only worth < 66c. but i do agree if they dont muck it up it will be worth more over time.
Show us the math bull.

[bull....]

Show us the math bull.

the correct way to price it is embedded value which is the PV OF THE FUTURE PROFITS and the directors say it is worth 66c ( they say cashflows from DMF and re-sale gains ) , i being the market say its worth less based on my DCF

embedded value right up your alley being an insurance term for float

some of the things snoopy says are correct , just like maverick and winner and sailor rob but i dis-agree with some of what they all say as well

[winner69]

the correct way to price it is embedded value which is the PV OF THE FUTURE PROFITS and the directors say it is worth 66c ( they say cashflows from DMF and re-sale gains ) , i being the market say its worth less based on my DCF

embedded value right up your alley being an insurance term for float

some of the things snoopy says are correct , just like maverick and winner and sailor rob but i dis-agree with some of what they all say as well

You’re right about that embedded value …66 cents it is

[bull....]

You’re right about that embedded value …66 cents it is

yep and thats where the market can dis-agree on the value. esp when you adjust the discount rate or the escalation factor and the lumpyness of re-sale forecasts into the FV of cashflows

[winner69]

yep and thats where the market can dis-agree on the value. esp when you adjust the discount rate or the escalation factor and the lumpyness of re-sale forecasts into the FV of cashflows

Wonder why this embedded value not discussed more often

[bull....]

Wonder why this embedded value not discussed more often

you all have to a degree just not the DCF value. except sailor's made up figure in 2040 lol

[Baa_Baa]

Wonder why this embedded value not discussed more often

Maybe just didn't join up the dots ... "sales sales sales", there is a very large amount of unsold stock that as it sells down goes directly into embedded value. Who reads those reports anyway, lol, you lot have made a meal of how difficult the financials are to understand. Personally I think they lay it all out in easily understood terms, with the exception of recognising the whole float minus DMF as a liability.

[ValueNZ]

the correct way to price it is embedded value which is the PV OF THE FUTURE PROFITS and the directors say it is worth 66c ( they say cashflows from DMF and re-sale gains ) , i being the market say its worth less based on my DCF

embedded value right up your alley being an insurance term for float

some of the things snoopy says are correct , just like maverick and winner and sailor rob but i dis-agree with some of what they all say as well
I asked you to prove that the float was worth <66c, not bring up an embedded value calculation...

Do you know the difference?

[Snoopy]

Snoopy imagine this is a private business - No market quotation. What would you pay for the whole company?


If I owned a private retirement village business I would pay a lot more than the current share price, closer to something approaching net asset backing. That way I could buy the villa assets for a small discount to cost, sack the existing management and bring all those new assets under the umbrella of my own management team. Operate the now combined entity under my existing lean management structure and watch those profits roll in.

I think this was what the Suedes did when the took over Metlife. They are using Metlife as a vehicle to mop up smaller church and privately owned RVs and rest homes. BUT and this is a big BUT......

This story only plays out this way if there is a private overlord involved. It is precisely because OCA is a listed entity that this cannot happen. The projected return for a sharemarket investor does not add up when you take into account today's building costs. So OCA will always trade at a hefty discount to asset backing. The higher the building costs go, the heftier the discount will become. Because OCA has to trade at a level that reflects an acceptable market yield for investors regardless of the underlying cost base.

So sure, if someone decides to launch a takeover offer and take OCA private, then that is when things change. But I can imagine all of those well heeled RV barons looking at the government subsidies available for the inmates, looking at the issues of securing and retaining staff, and thinking: "Hmmm this might be a bit hard" and leaving OCA on the NZX table.

So by all means ValueNZ hold this. And if you paid anywhere near 70c for your shares I don't think you have overpaid. But I think the share price trajectory for OCA will be a slow grind up from here, in line with rising asset values and the increase in government payments to the inmates. Not a sudden "Aha why did we overlook this." leap. Of course you are allowed to hope for better. While we are on the subject of 'accretive vegetables' I can see you lying in wait with Linus in the pumpkin patch waiting for the 'Great Pumpkin' to rise up in all his grandeur and make you an irresistible offer. But I believe such dreams my be end up being 'squashed' if you will pardon the pun. You may find yourself lying in that pumpkin patch for a very long time.

SNOOPY

[ValueNZ]

You may find yourself lying in that pumpkin patch for a very long time.
I want to lie in that pumpkin patch for as long as possible, granted they continue growing their ORA at a 15-20% CAGR.

Much of Buffett's success can be attributed to his understanding of how valuable float is.

[nztx]

Prices are crazy. Top earners can’t afford to buy a nice house in a good area. The promised recession will sort it out I hope


Gez .. things are getting tough .. all the boys & girls might have to quit their 30 year guaranteed store of future OCA
untold wealth & windfalls just to get some bricks & mortar on not even the best dressed street soon ;)

Then the Banks are forecasting Adrian Awesome may be playing another two rounds of whipping Interest rates further north on top .. to make life even more interesting :)

Probably underpinned by those stacked up long on heightened Term Deposit rates .. of course that will take some unwinding ..

The big problem with all this is that the Discount rate applied to OCA & the likes in advance of the huge future wealth on the distant horizon means mark down to a mere 69c today .. as everyone seems to want the alleged forecast wealth OCA may produce 30 years ahead out right now ;)

[Snoopy]

I want to lie in that pumpkin patch for as long as possible, granted they continue growing their ORA at a 15-20% CAGR.


ValueNZ, aka Linus, waits in the pumpkin patch for the Great Pumpkin to give him deliverance on his OCA investment. He encounters a stupid beagle instead.


https://www.youtube.com/watch?v=xiSIQzwIPzQ

SNOOPY

[winner69]

Maybe just didn't join up the dots ... "sales sales sales", there is a very large amount of unsold stock that as it sells down goes directly into embedded value. Who reads those reports anyway, lol, you lot have made a meal of how difficult the financials are to understand. Personally I think they lay it all out in easily understood terms, with the exception of recognising the whole float minus DMF as a liability.

Yep it's all about "sales, sales, sales" and we need to remind ourselves that selling those $461m of unsold stock adds another $150m to the float....on top of the gains made on resales this period

This is our year ......Up the Wahs

[Cupsy]

Today, 01:42 PM#18626 (https://www.sharetrader.co.nz/showthread.php?9856-OCA-Oceania-Group-retirement-villages&p=1040061&viewfull=1#post1040061)
Snoopy (https://www.sharetrader.co.nz/member.php?5716-Snoopy)
file:///C:/Users/jshun/AppData/Local/Temp/msohtmlclip1/01/clip_image001.png

An OCA development funding conundrum



If people were prepared to put the same amount of time into analysis of OCA rather than putting time into drafting and then trying to make money off each other via these 'bets', I am sure OCA investors on the forum would be better off. Let's work together people, rather than trying to out-bluff each other with these bets.

I am offering up no prize for anyone who can answer this question, bar the basking in the knowledge that you have helped a lot of people better understand their OCA investment. I set the scene of my question like this.

1/ OCA take a deferred management fee (DMF) into the accounts when they sell a villa. This fee is 30% of the capital the resident pays over when they take up their licence to occupy.
2/ The DMF is recurring for each new ORA signed on as the villa licence to occupy changes hands. Thus the incoming resident refills the DMF coffers, when moving in, which means, barring a management disaster, the DMF never has to be paid back by OCA.
3/ The 30% DMF becomes a kind of 'extra defacto equity' for OCA, which allows OCA to be able to build 30% more villas in their growth plan than they would have, had the DMF not existed.
4/ The villas are built with 'real cash', retained earnings from OCA added to the float, that must be handed over to the builders on completion of each new construction contract.
5/ /Mr Market' values any retained earnings, and the float at 50c in the dollar, as that is the only way that a villa equity return of 3% can be increased to 6%, which is a satisfactory borderline acceptable return from a share investor perspective.
6/ The only way an OCA share investor can get their capital out of OCA is to sell their shares on market, at a price determined by Mr Market (a rate of 50c per dollar of the assets on the balance sheet).

Let the equity of an ordinary property development company, without a float, be 'E' (not the case with OCA because their 'E' is enhanced by the float).

The equation for an investor in 'cents in the dollar' to recover their share of the company's retained equity, by selling OCA shares -enhanced by the float- comes down to: 0.5 x 1.3 x E = 0.65E

So for every dollar generated within OCA, our shareholder investor can get back 65c of that by selling their OCA shares on market. Alternatively, our investor might want the money generated within the company paid out as an unimputed dividend (OCA do not have imputation credits to pay out) . Assuming our shareholder were on a 33% marginal tax rate they would receive 67c in the dollar, which is 2c in the dollar more than if the company retained their money! So (drum roll, here is the question) "How is OCA developing a retirement village along these funding lines a good deal for OCA shareholders?" Who can answer that one? I genuinely want to know the answer!

SNOOPY

discl: do not hold OCA

Addendum: I have just realised I have made a mistake in that final calculation. It is not $1 supporting 30c of float value. It is 70c supporting 30c of float value. 30/70 = 0.4286

The equation for an investor in 'cents in the dollar' to recover their share of the company's retained equity, by selling OCA shares -enhanced by the float- comes down to: 0.5 x 1.4286 x E = 0.7143E

So for every dollar generated within OCA, our shareholder investor can get back 71.4c of that by selling their OCA shares on market. And that is a few cents better than paying an unimputed dividend.



Hi Snoopy,

Thanks again for the work you are putting in here, really interesting as learning exercise and something to get the brain ticking over.
Some questions that come to mind when thinking about this post is;

(And please, lets be clear, this post is totally for my personal learning, and is a work of pure fiction for my learning benefit (and is more than likely completely wrong)).

my question
1-The time frames in which you are talking about? and are you considering any growth in assets over that time frame?(and if so what growth rate?).

“6/ The only way an OCA share investor can get their capital out of OCA is to sell their shares on market, at a price determined by Mr Market (a rate of 50c per dollar of the assets on the balance sheet).”

WRT the above quote, I am assuming you are talking about the average life span of the punter in the unit or villa, for arguments sake lets call this "7" years.

I am making the "7" year time frame assumption because, if you are talking shorter time frames would it be correct to use the full DMF value of 30 percent in your calculations?, as this is spread across the “7” years?.

You are talking about the shareholder getting their capital at a rate of 50cents on the dollar value of the assets on the balance sheet over presumably this time frame ("7" years), should you not account for any growth in the ORA?(as this presumably must be coming from a growing asset base?). I’m not entirely sure how this may be done, but would it not essentially mean the dollar that is worth 50 cents down the "7" year track, is actually more than the dollar at the beginning of the 7 year ORA period?, therefore does it stand to reason that essentially your 50 cents on the dollar will be more than 50 cents?(with-out taking into account the calculations you are doing with regard to the DMF).

As a totally fictional example, if we were assuming a growing asset base of 10% (10% totally picked from random, i would not presume to guess what this value might be) , in this fictional example could we call our future 50cents in the dollar as follows


100 cents x1.1(year1)x1.1(year2)x1.1(year3)x1.1(year4)x1.1(y ear5)x1.1(year6)x1.1(year7)
=194 cents

194 cents x 0.5 = 97 cents
(I am totally lost at how to incorporate your 70cents supporting 30cents float into this)
Taking a stab in the dark as follows
3/7*194=83cents
0.5*1.83*E=91.5*E??????

second attempt (stab in the dark no2)
3/7*100cents=42.8cents
(1.94+0.428)*0.5*E=1.184*E

Forgive my ignorance if I am totally missing the mark of the point you are trying to make, but instinctively I am struggling to ignore any asset growth completely in the way you are doing you calc (if i am infact understanding your calcs in the first place).
But I’m here to learn, so please… any corrections anyone can give me would be greatly appreciated.

[bull....]

I asked you to prove that the float was worth <66c, not bring up an embedded value calculation...

Do you know the difference?

do you know the difference ? I thought float was made up of DMF AND RE-SALE GAINS. DMF is not 30%

can you show the maths.

It would be nice if you could show your DCF valuation of OCA

[Daytr]

Yep it's all about "sales, sales, sales" and we need to remind ourselves that selling those $461m of unsold stock adds another $150m to the float....on top of the gains made on resales this period

This is our year ......Up the Wahs

How does it add $150M to the float?
In 7 years on resale it will, not now. Refurbishment costs also need to come out of the 30%.

If they sell the stock & stop building others then they may pay off $500M of debt assuming they make a profit on those sales.

[bull....]

How does it add $150M to the float?
In 7 years on resale it will, not now. Refurbishment costs also need to come out of the 30%.

If they sell the stock & stop building others then they may pay off $500M of debt assuming they make a profit on those sales.

exactly the sell down of the large pile of un-sold stock is used to pay down debt not add to the float. what all the RV's are doing to a degree at the moment which is debt reduction and increasing cash flow by reducing expansion.

jeepers some of these bag holders will spin any story to make it sound good

[winner69]

exactly the sell down of the large pile of un-sold stock is used to pay down debt not add to the float.

But doesn’t it at time of sale create a liability for a resident loan to be repaid in the future

That liability is the float isn’t it?

Let’s get Value in Rob’s absence to clarify eh

[bull....]

Gez .. things are getting tough .. all the boys & girls might have to quit their 30 year guaranteed store of future OCA
untold wealth & windfalls just to get some bricks & mortar on not even the best dressed street soon ;)

Then the Banks are forecasting Adrian Awesome may be playing another two rounds of whipping Interest rates further north on top .. to make life even more interesting :)

Probably underpinned by those stacked up long on heightened Term Deposit rates .. of course that will take some unwinding ..

The big problem with all this is that the Discount rate applied to OCA & the likes in advance of the huge future wealth on the distant horizon means mark down to a mere 69c today .. as everyone seems to want the alleged forecast wealth OCA may produce 30 years ahead out right now ;)

yep and the slowdown of new brownfield developments by all RV'S now means your DCF will push the cashflows even further out now.

[bull....]

But doesn’t it at time of sale create a liability for a resident loan to be repaid in the future

That liability is the float isn’t it?

Let’s get Value in Rob’s absence to clarify eh

yea but the real cashflows dont come from that for yrs in the future. on rollover's ( re- sales ) which is what mav said sum's boss alluded too.

[ValueNZ]

do you know the difference ? I thought float was made up of DMF AND RE-SALE GAINS. DMF is not 30%

can you show the maths.

It would be nice if you could show your DCF valuation of OCA
Float is DMF (found on balance sheet not income statement) + Refundable ORA's.

That comes to just under a billion.

The valuation of OCA depends on growth assumptions made plus whatever return on asset might be. But at a absolute minimum discounted (10%) to NPV I'd say OCA is worth $2.50 per share.

I might share some math later tonight as I'm busy today. But I'd definitely be keen on reading other peoples intrinsic value calculations, so consider this an invitation to all to give it a go.

[ValueNZ]

But doesn’t it at time of sale create a liability for a resident loan to be repaid in the future

That liability is the float isn’t it?

Let’s get Value in Rob’s absence to clarify eh
You're correct.

[ValueNZ]

Hi Snoopy,

Thanks again for the work you are putting in here, really interesting as learning exercise and something to get the brain ticking over.
Some questions that come to mind when thinking about this post is;

(And please, lets be clear, this post is totally for my personal learning, and is a work of pure fiction for my learning benefit (and is more than likely completely wrong)).

my question
1-The time frames in which you are talking about? and are you considering any growth in assets over that time frame?(and if so what growth rate?).

“6/ The only way an OCA share investor can get their capital out of OCA is to sell their shares on market, at a price determined by Mr Market (a rate of 50c per dollar of the assets on the balance sheet).”

WRT the above quote, I am assuming you are talking about the average life span of the punter in the unit or villa, for arguments sake lets call this "7" years.

I am making the "7" year time frame assumption because, if you are talking shorter time frames would it be correct to use the full DMF value of 30 percent in your calculations?, as this is spread across the “7” years?.

You are talking about the shareholder getting their capital at a rate of 50cents on the dollar value of the assets on the balance sheet over presumably this time frame ("7" years), should you not account for any growth in the ORA?(as this presumably must be coming from a growing asset base?). I’m not entirely sure how this may be done, but would it not essentially mean the dollar that is worth 50 cents down the "7" year track, is actually more than the dollar at the beginning of the 7 year ORA period?, therefore does it stand to reason that essentially your 50 cents on the dollar will be more than 50 cents?(with-out taking into account the calculations you are doing with regard to the DMF).

As a totally fictional example, if we were assuming a growing asset base of 10% (10% totally picked from random, i would not presume to guess what this value might be) , in this fictional example could we call our future 50cents in the dollar as follows


100 cents x1.1(year1)x1.1(year2)x1.1(year3)x1.1(year4)x1.1(y ear5)x1.1(year6)x1.1(year7)
=194 cents

194 cents x 0.5 = 97 cents
(I am totally lost at how to incorporate your 70cents supporting 30cents float into this)
Taking a stab in the dark as follows
3/7*194=83cents
0.5*1.83*E=91.5*E??????

second attempt (stab in the dark no2)
3/7*100cents=42.8cents
(1.94+0.428)*0.5*E=1.184*E

Forgive my ignorance if I am totally missing the mark of the point you are trying to make, but instinctively I am struggling to ignore any asset growth completely in the way you are doing you calc (if i am infact understanding your calcs in the first place).
But I’m here to learn, so please… any corrections anyone can give me would be greatly appreciated.

The problem with what SNOOPY writes is that it's built on the premise that Mr Market will always value OCA at 50% of NTA instead of the discounted cashflows it can produce for shareholders. This is despite the massive fluctuations in share price seen over the last few years.

Cupsy, I'm very interested in what you think about Oceania's balance sheet, and what that might mean for valuation of Oceania.

[Snoopy]

my question
1-The time frames in which you are talking about? and are you considering any growth in assets over that time frame?(and if so what growth rate?).

“6/ The only way an OCA share investor can get their capital out of OCA is to sell their shares on market, at a price determined by Mr Market (a rate of 50c per dollar of the assets on the balance sheet).”

WRT the above quote, I am assuming you are talking about the average life span of the punter in the unit or villa, for arguments sake lets call this "7" years.


I am making the "7" year time frame assumption because, if you are talking shorter time frames would it be correct to use the full DMF value of 30 percent in your calculations?, as this is spread across the “7” years?.

You are talking about the shareholder getting their capital at a rate of 50cents on the dollar value of the assets on the balance sheet over presumably this time frame ("7" years), should you not account for any growth in the ORA?(as this presumably must be coming from a growing asset base?).


When I say our investor gets back 50c in the dollar, I am not talking about any particular time frame. That statement applies to any time frame you care to choose. However that 50c in the dollar applies to the current net value of assets at any particular present moment. Not to the value of dollars that were in the pot the day you started your investment. So in this way I am accounting for the growth in the ORA over time.

Likewise with the DMF figure and valuing the float balance, that will apply at any time. This isn't obvious when you are looking at just one villa. As you rightly point out, if a resident has occupational rights for seven years, then the DMF remains the same gross amount in the OCA accounts (even though it is being whittled away each year as the prepayments become actual payments).

IMPORTANT EXPLANATORY POINT It has to be remembered that these annual DMF 'payments' each year, received by OCA, once the resident has moved in are non cash. The cash position of OCA is not affected by the DMF balance reducing over the years as an accounting entry. The cash balance only changes when a new ORA is signed and sealed. When our resident eventually moves out, the DMF cash bucket is filled up again 'for real' with real cash by the incoming resident, and the process of whittling away the DMF balance annually starts again.

At this point I want you to stop thinking about the 'one villa' we are discussing and think instead about all of the villas that OCA owns at once. Yes for any particular villa, we get this lumpy increase in value of the ORA every seven years. But that seven year average renewal date for each villa does not fall on the same date for each villa. If you think of the big picture of all the villas rolling over, the model changes from a discrete event every seven years to something approaching a continuous process with ORA agreements, somewhere in all of the villages, rolling over every week. If you think of the ORA agreements rolling over in this way, then the question of 'when' the asset leveraging on any particular villa applies becomes unimportant. Collectively you can think of the DMF leveraging the asset base to the tune of 30c for present value of the underlying equity all the time or at any time you choose to look . The 70c of equity supporting $1 worth of asset ratio never changes when you think this way. But the underlying equity does go up with time, as you suggest Cupsey, I expect with the ability of the residents to pay, which will equate to the rate of inflation, or the rate the government entitlement payments increase.



I’m not entirely sure how this may be done, but would it not essentially mean the dollar that is worth 50 cents down the "7" year track, is actually more than the dollar at the beginning of the 7 year ORA period?, therefore does it stand to reason that essentially your 50 cents on the dollar will be more than 50 cents?(with-out taking into account the calculations you are doing with regard to the DMF).


Yes quite right, you have got it with the value of 'your' dollar going up every year, most likely with the value of the residents income streams (although there may be a time delay on this).

The DMF OTOH is a fixed ratio multiplying up the effective equity within the company. It is there all the time multiplying up the effective equity value of the company (from a development perspective at least). When you buy in, you are buying the enhanced DMF value. When you sell out you are selling the enhanced DMF value. So talking about your DMF 'gains' is in effect muddying the waters in my view. Becasue what you 'gain' when you buy into OCA with equity enhanced with the DMF, you 'lose' when you sell out. You can't take the DMF with you when you sell. The one exception being that any incremental gain in the DMF values that comes as the ORA agreements roll over (as the villas increase in value with inflation). Then you do gain the incremental increase in value attached to the DMF from that.



As a totally fictional example, if we were assuming a growing asset base of 10% (10% totally picked from random, i would not presume to guess what this value might be) , in this fictional example could we call our future 50cents in the dollar as follows

100 cents x1.1(year1)x1.1(year2)x1.1(year3)x1.1(year4)x1.1(y ear5)x1.1(year6)x1.1(year7)
=194 cents

194 cents x 0.5 = 97 cents


OK, with you so far. If the money you put into OCA was part of a cash issue, then it would take approximately seven years, as per your calculations, to get your money back. But of course if you buy OCA on market you are buying at 50c in the dollar, and when you sell you are selling at 50c in the dollar. So in that case you don't need to wait seven years to get your money back. You can get your money back at any time.



(I am totally lost at how to incorporate your 70cents supporting 30cents float into this)
Taking a stab in the dark as follows
3/7*194=83cents
0.5*1.83*E=91.5*E??????

second attempt (stab in the dark no2)
3/7*100cents=42.8cents
(1.94+0.428)*0.5*E=1.184*E

Forgive my ignorance if I am totally missing the mark of the point you are trying to make, but instinctively I am struggling to ignore any asset growth completely in the way you are doing you calc (if i am infact understanding your calcs in the first place).
But I’m here to learn, so please… any corrections anyone can give me would be greatly appreciated.

First thing I need to mention is about the 70c of equity supporting the 30c of 'free float' that you get. The multiplying factor is actually 100/70 = 1.4286, as the equity value you get is $1 from each 70c of value the company has put in. Or put another way, if you think of the total equity in the company adding up to a 100% figure, then of that figure, the company 'owns' 70% of the equity and the float 'owns' 30% of the equity, the sum of the equity owned by the company and owned by the float summing to 100%, as you would expect.

Now using your example of 94cps (total) of inflation gain over seven years, this represents the 'total gain' over all assets. Without the float each dollar that he company put in would have gained 94c. But remember in order to gain this 94c, the company would have had to have put in $1 on day one. Because of the float, the company did not have to do this.

With the float, the company owns 70% of that gain 0.7x94c= 65.8c and the float, (which the company effectively holds in trust at zero cost and can take advantage of, but which it does not own) owns 0.3x94c = 28.2c of that gain. This 28.2c 'extra' gained represents a gain that occurred purely because the float existed, and this is the extra bit you as a shareholder get because of the float, and holding those shares over the seven year inflationary period. However, this gain is not cash. It exists on paper but it is purely within the villa stock that sits inside OCA balance sheet. You cannot 'cash out' this 28.2c. Instead the Mr Market exchange rate on OCA assets is only 50c in the dollar. So when you 'cash out' the actual cash you gain is only half that amount: 14.1c. So 14.1cps after 7 years of 10% inflation is the cashed up shareholder benefit of the float - the 'extra you get'. That's how I see it anyway.

SNOOPY

[Daytr]

But doesn’t it at time of sale create a liability for a resident loan to be repaid in the future

That liability is the float isn’t it?

Let’s get Value in Rob’s absence to clarify eh

It creates a liability from an accounting perspective I.e 70% of the original purchase price to be paid back to the occupier + OCA need to pay for refurbishment costs.
What the accounts don't reflect is that unit will then be resold quite likely at a significantly higher price than they just bought it back at and only paid 70% for.

I have assumed a 3% p.a. capilital gain on resales & $100K refurbishment costs.

The DMF isn't a liability in the real world beyond the accounts, its a significant money generator over time.

My back of the envelope current valuation for OCA is around $715M. This is assuming they can break even operationally, no more, no less, but it doesn't account for the additional DMF from the new units once they sell as on average they won't start to generate DMF for another 7 years.
So imo $715M is a conservative valuation or 99c per share.

[Cupsy]

When I say our investor gets back 50c in the dollar, I am not talking about any particular time frame. That statement applies to any time frame you care to choose. However that 50c in the dollar applies to the current net value of assets at any particular present moment. Not to the value of dollars that were in the pot the day you started your investment. So in this way I am accounting for the growth in the ORA over time.

Likewise with the DMF figure and valuing the float balance, that will apply at any time. This isn't obvious when you are looking at just one villa. As you rightly point out, if a resident has occupational rights for seven years, then the DMF remains the same gross amount in the OCA accounts (even though it is being whittled away each year as the prepayments become actual payments).

IMPORTANT EXPLANATORY POINT it has to be remembered that these annual DMF 'payments' each year, received by OCA, once the resident has moved in are non cash. The cash position of OCA is not affected by the DMF balance reducing over the years as an accounting entry. The cash balance only changes when a new ORA is signed and sealed. When our resident eventually moves out, the DMF cash bucket is filled up again 'for real' with real cash by the incoming resident, and the process of whittling away the DMF balance annually starts again.

At this point I want you to stop thinking about the 'one villa' we are discussing and think instead about all of the villas that OCA owns at once. Yes for any particular villa, we get this lumpy increase in value of the ORA every seven years. But that seven year average renewal date for each villa does not fall on the same date for each villa. If you think of the big picture of all the villas rolling over, the model changes from a discrete event every seven years to something approaching a continuous process with ORA agreements, somewhere in all of the villages, rolling over every week. If you think of the ORA agreements rolling over in this way, then the question of 'when' the asset leveraging on any particular villa applies becomes unimportant. Collectively you can think of the DMF leveraging the asset base to the tune of 30c for present value of the underlying equity all the time or at any time you choose to look . The 70c of equity supporting $1 worth of asset ratio never changes when you think this way. But the underlying equity does go up with time, as you suggest Cupsey, I expect with the ability of the residents to pay, which will equate to the rate of inflation, or the rate the government entitlement payments increase.



Yes quite right, you have got it with the value of 'your' dollar going up every year, most likely with the value of the residents income streams (although there may be a time delay on this).

The DMF OTOH is a fixed ratio multiplying up the effective equity within the company. It is there all the time multiplying up the effective equity value of the company (from a development perspective at least). When you buy in, you are buying the enhanced DMF value. When you sell out you are selling the enhanced DMF value. So talking about your DMF 'gains' is in effect muddying the waters in my view. Becasue what you 'gain' when you buy into OCA with equity enhanced with the DMF, you 'lose' when you sell out. You can't take the DMF with you when you sell. The one exception being that any incremental gain in the DMF values that comes as the ORA agreements roll over (as the villas increase in value with inflation). Then you do gain the incremental increase in value attached to the DMF from that.



OK, with you so far. If the money you put into OCA was part of a cash issue, then it would take approximately seven years, as per your calculations, to get your money back. But of course if you buy OCA on market you are buying at 50c in the dollar, and when you sell you are selling at 50c in the dollar. So in that case you don't need to wait seven years to get your money back. You can get your money back at any time.



First thing I need to mention is about the 70c of equity supporting the 30c of 'free float' that you get. The multiplying factor is actually 100/70 = 1.4286, as the equity value you get is $1 from each 70c of value the company has put in. Or put another way, if you think of the total equity in the company adding up to a 100% figure, then of that figure, the company 'owns' 70% of the equity and the float 'owns' 30% of the equity, the sum of the equity owned by the company and owned by the float summing to 100%, as you would expect.

Now using your example of 94cps (total) of inflation gain over seven years, this represents the 'total gain' over all assets. Without the float each dollar that he company put in would have gained 94c. But remember in order to gain this 94c, the company would have had to have put in $1 on day one. Because of the float, the company did not have to do this.

With the float the company owns 70% of that gain 0.7x94c= 65.8c and the float, (which the company effectively holds in trust at zero coast and can take advantage of, but which it does not own) owns 0.3x94c = 28.2c of that gain. This 28.2c 'extra' gained represents a gain that occurred purely because the float existed, and this is the extra bit you as a shareholder get because of the float, and holding those shares over the seven year inflationary period. However, this gain is not cash. It exists on paper but it is purely within the villa stock that sits inside OCA balance sheet. You cannot 'cash out' this 28.2c. Instead the Mr Market exchange rate on OCA assets is only 50c in the dollar. So when you 'cash out' the actual cash you gain is only half that amount: 14.1c. So 14.1cps after 7 years of 10% inflation is the cashed up shareholder benefit of the float - the 'extra you get'. That's how I see it anyway.

SNOOPY

Hi Snoopy,
Again thank you for the reply, this post is really helped me come to grips with where you are coming from I think, although I'm still struggling a little bit with ignoring the effects of time.


So for every dollar generated within OCA, our shareholder investor can get back 65c of that by selling their OCA shares on market. Alternatively, our investor might want the money generated within the company paid out as an unimputed dividend (OCA do not have imputation credits to pay out) . Assuming our shareholder were on a 33% marginal tax rate they would receive 67c in the dollar, which is 2c in the dollar more than if the company retained their money! So (drum roll, here is the question) "How is OCA developing a retirement village along these funding lines a good deal for OCA shareholders?" Who can answer that one? I genuinely want to know the answer!

Regarding your above quote, does this scenario not change for the investor depending on time?. because from the investors point of view, aren't more dollars able to be generated by OCA as the asset base increases? therefore the 65c(actually 71.4 as you have recalculated) you are speaking of is no longer 65c(actually 71.4 as you have recalculated) further along the timeline of the company, but rather a higher value in relation to an earlier point in time. If this is correct we cannot truly ignore the time factor and this should be taken into consideration?

"How is OCA developing a retirement village along these funding lines a good deal for OCA shareholders?"

Again as a fictional example, purely for my own learning exercise (and more than likely wrong).........

Could I not argue, that it is a good deal for shareholders based on a growing asset base?? and hence growing float?? via ORA growth due to the growing assets??.

Yes you will get 67c out of the dollar today paid out as a dividend from cash (rather than the use of that cash being put toward developing more units).
but having the company continue the development along these funding lines you might get the benefit of;

a)-Selling the the shares you would get (as you have all-ready corrected for) 100/70*0.5=71.4c, 71.4-67/67=6.5% more???.
b)-If i were to use my fictional 10% growth rate from my last post, could I not argue that in this fictional scenario you would get
year1 ((100/70)*1.1)*0.5=78.5cents after one year.
year2 (((100/70)*1.1)*1.1)*0.5=86.4cents after 2 years
and after 7 years 71.4c*1.1*1.1*1.1*1.1*1.1*1.1*1.1=$1.39, 139-67/67=107.4% more??? (remembering this is a completely fictional example for learning purpose only, I have no idea what an appropriate growth rate could be, or indeed even if there should be one in the first place)

[Cupsy]

When I say our investor gets back 50c in the dollar, I am not talking about any particular time frame. That statement applies to any time frame you care to choose. However that 50c in the dollar applies to the current net value of assets at any particular present moment. Not to the value of dollars that were in the pot the day you started your investment. So in this way I am accounting for the growth in the ORA over time.

But for this to be true, wouldn’t the investor have to buy in and buy out in the same time period? Which is unlikely at best and therefore a non-real world way of looking at things?


Likewise with the DMF figure and valuing the float balance, that will apply at any time. This isn't obvious when you are looking at just one villa. As you rightly point out, if a resident has occupational rights for seven years, then the DMF remains the same gross amount in the OCA accounts (even though it is being whittled away each year as the prepayments become actual payments).



IMPORTANT EXPLANATORY POINT it has to be remembered that these annual DMF 'payments' each year, received by OCA, once the resident has moved in are non cash. The cash position of OCA is not affected by the DMF balance reducing over the years as an accounting entry. The cash balance only changes when a new ORA is signed and sealed. When our resident eventually moves out, the DMF cash bucket is filled up again 'for real' with real cash by the incoming resident, and the process of whittling away the DMF balance annually starts again.

At this point I want you to stop thinking about the 'one villa' we are discussing and think instead about all of the villas that OCA owns at once. Yes for any particular villa, we get this lumpy increase in value of the ORA every seven years. But that seven year average renewal date for each villa does not fall on the same date for each villa. If you think of the big picture of all the villas rolling over, the model changes from a discrete event every seven years to something approaching a continuous process with ORA agreements, somewhere in all of the villages, rolling over every week. If you think of the ORA agreements rolling over in this way, then the question of 'when' the asset leveraging on any particular villa applies becomes unimportant. Collectively you can think of the DMF leveraging the asset base to the tune of 30c for present value of the underlying equity all the time or at any time you choose to look . The 70c of equity supporting $1 worth of asset ratio never changes when you think this way.


But the underlying equity does go up with time, as you suggest Cupsey, I expect with the ability of the residents to pay, which will equate to the rate of inflation, or the rate the government entitlement payments increase.

Ok, so on this point, you are saying the equity is going up with a rate of inflation or the residents ability to pay (I would call this the capital gain on the existing assets?, much like a capital gain on your home), but additional to this as time goes by is the equity of new assets as they are developed and come online into the system.?? So the equity growth at least in theory would be at a higher rate than inflation and capital gains (or losses) alone??.


Yes quite right, you have got it with the value of 'your' dollar going up every year, most likely with the value of the residents income streams (although there may be a time delay on this).

Again, as per my comment above.


The DMF OTOH is a fixed ratio multiplying up the effective equity within the company. It is there all the time multiplying up the effective equity value of the company (from a development perspective at least). When you buy in, you are buying the enhanced DMF value. When you sell out you are selling the enhanced DMF value. So talking about your DMF 'gains' is in effect muddying the waters in my view. Becasue what you 'gain' when you buy into OCA with equity enhanced with the DMF, you 'lose' when you sell out. You can't take the DMF with you when you sell. The one exception being that any incremental gain in the DMF values that comes as the ORA agreements roll over (as the villas increase in value with inflation). Then you do gain the incremental increase in value attached to the DMF from that.



OK, with you so far. If the money you put into OCA was part of a cash issue, then it would take approximately seven years, as per your calculations, to get your money back. But of course if you buy OCA on market you are buying at 50c in the dollar, and when you sell you are selling at 50c in the dollar. So in that case you don't need to wait seven years to get your money back. You can get your money back at any time.



First thing I need to mention is about the 70c of equity supporting the 30c of 'free float' that you get. The multiplying factor is actually 100/70 = 1.4286, as the equity value you get is $1 from each 70c of value the company has put in. Or put another way, if you think of the total equity in the company adding up to a 100% figure, then of that figure, the company 'owns' 70% of the equity and the float 'owns' 30% of the equity, the sum of the equity owned by the company and owned by the float summing to 100%, as you would expect.

Now using your example of 94cps (total) of inflation gain over seven years, this represents the 'total gain' over all assets. Without the float each dollar that he company put in would have gained 94c. But remember in order to gain this 94c, the company would have had to have put in $1 on day one. Because of the float, the company did not have to do this. With the float the company owns 70% of that gain 0.7x94c= 65.8c and the float, (which the company effectively holds in trust at zero coast and can take advantage of, but which it does not own)
0.3x94c = 28.2c of that gain. This 28.2c 'extra' gained represents a gain that occurred purely because the float existed, and this is the extra bit you as a shareholder get because of the float, and holding those shares over the seven year inflationary period. However, this gain is not cash. It exists on paper but it is purely within the villa stock that sits inside OCA balance sheet. You cannot 'cash out' this 28.2c. Instead the Mr Market exchange rate on OCA assets is only 50c in the dollar. So when you 'cash out' the actual cash you gain is only half that amount: 14.1c. So 14.1cps after 7 years of 10% inflation is the cashed up shareholder benefit of the float - the 'extra you get'. That's how I see it anyway.

SNOOPY

[winner69]

So much discussion about different things lately but nothing positive in the share price

Come May with full results all I can hope for is the chart below looks a bit (if not a lot) healthier

Since 2016 Oceania have burned through ~$630m of cash …the red line

[Daytr]

So much discussion about different things lately but nothing positive in the share price

Come May with full results all I can hope for is the chart below looks a bit (if not a lot) healthier

Since 2016 Oceania have burned through ~$630m of cash …the red line

How do you arrive at that statement of burning through $630M of cash?

[winner69]

How do you arrive at that statement of burning through $630M of cash?

From their Cash Flow Statements in Reports

[Cupsy]

So much discussion about different things lately but nothing positive in the share price

Come May with full results all I can hope for is the chart below looks a bit (if not a lot) healthier

Since 2016 Oceania have burned through ~$630m of cash …the red line

It would be interesting to see that line red line plotted against asset values over the same period.

[Cupsy]

The problem with what SNOOPY writes is that it's built on the premise that Mr Market will always value OCA at 50% of NTA instead of the discounted cashflows it can produce for shareholders. This is despite the massive fluctuations in share price seen over the last few years.

Cupsy, I'm very interested in what you think about Oceania's balance sheet, and what that might mean for valuation of Oceania.

Hi Value,
I'm not sure i could add anything of value off the top of my head to such a general question. I guess if you asked me something specific regarding the balance sheet i would be willing to have a stab in the dark at answering.

But from memory, reading your posts (unless i have you mixed up with someone else), I am probably in a very similar pattern of thought with regards to investing in general. So any thoughts I might share with you are probably going to be somewhat of positive reinforcement loop for the both of us, which may not gain alot of insights for either of us??

Thus far on here I have been searching for views or points that I don't understand, where i think I am likely to be able to learn alot from the discussion.

[Daytr]

From their Cash Flow Statements in Reports

And how many units have they built using that cash?
It's just a silly and inflammatory statement to say they burnt through that cash, they built units to generate future cashflow.

[bottomfeeder]

From their Cash Flow Statements in Reports

I give up. When someone wants to troll a company they can pick on any facts and manipulate them. Fool on anyone that believes them when the trolling becomes so obvious.

[winner69]

Sorry guys but analysts / commentators have been concerned about ‘cash burn’ in the retirement sector for a while now

They would prefer to see positive cash flows instead of regular negative cash flows (cash burn) and the impact on debt levels etc etc

Just pointing how Oceania have done …..and saying we should be looking to positive cash flows over next year or so…….Mav confident that will happen

[Daytr]

Sorry guys but analysts / commentators have been concerned about ‘cash burn’ in the retirement sector for a while now

They would prefer to see positive cash flows instead of regular negative cash flows (cash burn) and the impact on debt levels etc etc

Just pointing how Oceania have done …..and saying we should be looking to positive cash flows over next year or so.

Winner, with all due respect this is not what you are doing. It's obvious you are down ramping.
I don't own the stock, so I have no axe to grind.
I am overall positive to the shareprice but not nearly as optimistic as some others.

You are losing all credibility & respect with outrageous & knee-jerk statements.
Do better.

[Cupsy]

Winner, with all due respect this is not what you are doing. It's obvious you are down ramping.
I don't own the stock, so I have no axe to grind.
I am overall positive to the shareprice but not nearly as optimistic as some others.

You are losing all credibility & respect with outrageous & knee-jerk statements.
Do better.

I don't think he is doing as you say, and he has qualified his point. It would still be interesting to see a comparison to the asset values though.

[winner69]

I don't think he is doing as you say, and he has qualified his point. It would still be interesting to see a comparison to the asset values though.

I’ll pull out the asset comparison tomorrow …..maybe

But you probably know what it’ll look like but everybody can make their own judgement

[Maverick]

So much discussion about different things lately but nothing positive in the share price

Come May with full results all I can hope for is the chart below looks a bit (if not a lot) healthier

Since 2016 Oceania have burned through ~$630m of cash …the red line
Nice graph Winner ,
Its no coincidence that the one cash positive period on your graph was when they completed and started selling down The Sands. This is precisely where we are now as they sell down the Helier and Christchurch ( but now 3x the scale of the Sands).


Here`s my cashflow historical and projections which also includes the dividend being reinstated FY24 and $80m of capex per HY thereafter.

https://lh7-us.googleusercontent.com/EdjkfDw4n9OTyCG6c2hWU1k0J-WeuEtlAZUB0rUtk_dJ8OcDNW0t1_8_yzD81QwmSJiK1FjU7RKM 5zF7-sErCwLM-kWdQVXoTuFuvXFpBIBNxrX7C_LPbK9SMRwVTfjI1tRPi1z08ZK iW0cME7rsu5w

You are absolutely right that the analysts are fixated on the cashflow aspect at the moment . One of them even said if OCA can pull off a positive cashflow it will be the first RV in a long while and should be suitably rerated.

Thanks for sharing Winner.

[ValueNZ]

I guess if you asked me something specific regarding the balance sheet i would be willing to have a stab in the dark at answering.
What do you think the billion dollar float (ORA + DMF) is worth?


So any thoughts I might share with you are probably going to be somewhat of positive reinforcement loop for the both of us, which may not gain alot of insights for either of us??
Seems fair enough so feel free to disregard the above question if you'd like.

[Daytr]

I don't think he is doing as you say, and he has qualified his point. It would still be interesting to see a comparison to the asset values though.

How has he qualified his point?
You can't look at depletion of cash in isolation without looking at what that cash has been invested in I.e assets.

[Cupsy]

How has he qualified his point?
You can't look at depletion of cash in isolation without looking at what that cash has been invested in I.e assets.

He qualified his point by mentioning it is something analysts have been following.
Also it is reasonable to look at it in isolation. For example, wrt to my monthly household budget, if I get paid monthly, and spend up large on an asset such as a car this month, technically I got an asset that has value similar to the cash outlay, but that is irrelevant to me if I can't pay the rent or buy food due to a cash flow shortage. That's my opinion anyhow, happy to be corrected.

[Daytr]

He qualified his point by mentioning it is something analysts have been following.
Also it is reasonable to look at it in isolation. For example, wrt to my monthly household budget, if I get paid monthly, and spend up large on an asset such as a car this month, technically I got an asset that has value similar to the cash outlay, but that is irrelevant to me if I can't pay the rent or buy food due to a cash flow shortage. That's my opinion anyhow, happy to be corrected.

Well they have invested in assets that could earn 30 - 40% over 7 years. An asset unlike a car that will probably earn cashflow through the DMF.

But correct on say the asset investment has offset cash depletion. So net zero until the profit on sale is realised let alone the future DMF.

In the meantime they earn management fees to 'pay the rent' as such.

[winner69]

During the period of that ~$630m cash burn I mentioned they spent $1,145m on buying and building things and had net cash inflows if $771m from new ORAs (new and resales)

[Daytr]

So much discussion about different things lately but nothing positive in the share price

Come May with full results all I can hope for is the chart below looks a bit (if not a lot) healthier

Since 2016 Oceania have burned through ~$630m of cash …the red line


From their Cash Flow Statements in Reports


Sorry guys but analysts / commentators have been concerned about ‘cash burn’ in the retirement sector for a while now

They would prefer to see positive cash flows instead of regular negative cash flows (cash burn) and the impact on debt levels etc etc

Just pointing how Oceania have done …..and saying we should be looking to positive cash flows over next year or so…….Mav confident that will happen


I’ll pull out the asset comparison tomorrow …..maybe

But you probably know what it’ll look like but everybody can make their own judgement


During the period of that ~$630m cash burn I mentioned they spent $1,145m on buying and building things and had net cash inflows if $771m from new ORAs (new and resales)

Where did you mention the capital spend of $1.145M? Why are you so concerned that the cash has been invested in the business to create future returns? And without doubt they will at a minimum through the DMF.

I really don't know what your fixation is with this stock?
As I said I don't own it.

In someways I hope your down ramping works as I might buy in.
However I have too much integrity to support these sort of antics.
One liner inflammatory statements is not a rational argument.

[winner69]

Where did you mention the capital spend of $1.145M? Why are you so concerned that the cash has been invested in the business to create future returns? And without doubt they will at a minimum through the DMF.

I really don't know what your fixation is with this stock?
As I said I don't own it.

In someways I hope your down ramping works as I might buy in.
However I have too much integrity to support these sort of antics.
One liner inflammatory statements is not a rational argument.

I’m sorry daytr in that we seem to see things differently

Is there anything wrong in having a morbid fascination in watching the ebb and flows of Oceania’s cash movements over the years …..after all the basis of any DCF and I hear that DCF is the way to go.

Remember I end that post you seem to have taken exception to ended with I’m looking to the chart looking a lot healthier after next results announcement ……..that doesn’t seem like ‘down ramping’

[Cupsy]

…..after all the basis of any DCF and I hear that DCF is the way to go.


Slightly off the topic here, but was wondering your thoughts on DCF, personally I don't touch it with a 10 ft barge poll.
I do however agree it's in theory the most accurate way to calculate.

Additionally, am I correct in detecting a slight dry bit of humour in some of your posts? I hope I am cause I quite like it. :)

[Rawz]

Where did you mention the capital spend of $1.145M? Why are you so concerned that the cash has been invested in the business to create future returns? And without doubt they will at a minimum through the DMF.

I really don't know what your fixation is with this stock?
As I said I don't own it.

In someways I hope your down ramping works as I might buy in.
However I have too much integrity to support these sort of antics.
One liner inflammatory statements is not a rational argument.

It’s okay for a business to invest and invest and invest with negative cashflows but sooner or later the balance sheet is exhausted. This is when bankers and/or investors want to see positive cash flows

EDIT to add: I guess if assets appreciate faster than the debt as a result of the investment then it’s okay. But this hasn’t been the case with OCA. So the negative cashflows have been too aggressive

[Daytr]

It’s okay for a business to invest and invest and invest with negative cashflows but sooner or later the balance sheet is exhausted. This is when bankers and/or investors want to see positive cash flows

EDIT to add: I guess if assets appreciate faster than the debt as a result of the investment then it’s okay. But this hasn’t been the case with OCA. So the negative cashflows have been too aggressive

Yes it is OK for a business to do that if they are investing in assets that will produce positive future cashflow which they will through the DMF.

You & Winner keep stating about negative cashflow or burning cash as if OCA is losing that money, rather than investing in land, bricks & mortar that will create further cashflow in the future through the DMF.

OCA has plenty of completed or partially completed units on hand they are / will be selling. These sales will bring a huge amount of cash back to the balance sheet.

If you don't understand that the RV industry has a life cycle & OCA is still in the expansion phase of that cycle, then perhaps you shouldn't be invested.

[winner69]

Slightly off the topic here, but was wondering your thoughts on DCF, personally I don't touch it with a 10 ft barge poll.
I do however agree it's in theory the most accurate way to calculate.

Additionally, am I correct in detecting a slight dry bit of humour in some of your posts? I hope I am cause I quite like it. :)

I wouldn’t even attempt a DCF valuation for Oceania ……..too many variables and unknowns

Any the valuers have essentially done it for me in their property valuations eh

[Daytr]

I’m sorry daytr in that we seem to see things differently

Is there anything wrong in having a morbid fascination in watching the ebb and flows of Oceania’s cash movements over the years …..after all the basis of any DCF and I hear that DCF is the way to go.

Remember I end that post you seem to have taken exception to ended with I’m looking to the chart looking a lot healthier after next results announcement ……..that doesn’t seem like ‘down ramping’

It's not that we see things differently that's the problem, I'm all for constructive debate such as Snoopy has been doing. I don't agree with his take on things but at least he constructs a case.

But you just spray outrageous inflammatory & unsubstantiated claims. Feigning innocence doesn't suit you.

[Rawz]

Yes it is OK for a business to do that if they are investing in assets that will produce positive future cashflow which they will through the DMF.

You & Winner keep stating about negative cashflow or burning cash as if OCA is losing that money, rather than investing in land, bricks & mortar that will create further cashflow in the future through the DMF.

OCA has plenty of completed or partially completed units on hand they are / will be selling. These sales will bring a huge amount of cash back to the balance sheet.

If you don't understand that the RV industry has a life cycle & OCA is still in the expansion phase of that cycle, then perhaps you shouldn't be invested.
All I’m saying is it’s fine to run neg cashflows for any business to a point where the debt to equity ratio is pushed to the max and then it’s time to run positive cash.

I guess as Mav has pointed out the time has now come for OCA and they will be running positive for the next few years (if all that stock is sold down in a timely manner)

[Cupsy]

I wouldn’t even attempt a DCF valuation for Oceania ……..too many variables and unknowns

Any the valuers have essentially done it for me in their property valuations eh

Apologies, I was meaning DCF as a valuation tool generally, not in the case of OCA. I don't touch it as I think it opens the door to too many errors due to making future assumptions (personal bias etc), but that's for me personally, I'm sure others can do it much more accurately.

[Daytr]

All I’m saying is it’s fine to run neg cashflows for any business to a point where the debt to equity ratio is pushed to the max and then it’s time to run positive cash.

I guess as Mav has pointed out the time has now come for OCA and they will be running positive for the next few years (if all that stock is sold down in a timely manner)

Agreed. I wouldn't want to see that debt to equity level slip much further even if they do have $100M of capacity within their debt facilities. I'm sure they are aware they have enough stock on hand at the moment.

There are other RV operators that have stalled further development until they have sold down their current stock. This is a positive overall for the industry.

[winner69]

It's not that we see things differently that's the problem, I'm all for constructive debate such as Snoopy has been doing. I don't agree with his take on things but at least he constructs a case.

But you just spray outrageous inflammatory & unsubstantiated claims. Feigning innocence doesn't suit you.

Het daytr, you getting a bit rough now.

My analysis/tracking of Oceania goes back to IPO days

I’ll share imy master sheet of key metrics …posted below.. I believe the movement in a company’s book value along with cash flows and how they are funded (in case of cash burn) are the best way of assessing things. I like to see most things tracking up over time.

There’s also a section on tracking sales and the average realised gains they make on these to give me an idea of how they are going ….like the average gain on new sales wasn’t that flash in the last period but hopefully it’ll improve next few periods

Here’s what my table looks like for Oceania …..I think it’s rather cool …but not as good as the Summerset one

[winner69]

Apologies, I was meaning DCF as a valuation tool generally, not in the case of OCA. I don't touch it as I think it opens the door to too many errors due to making future assumptions (personal bias etc), but that's for me personally, I'm sure others can do it much more accurately.

Useful tool for assessing the value of many companies. I do some every now and again

Yep full of assumptions and of course discount rate sensitive….and good to run it with a rate that meets your expected return rather than a cost of capital number.

Best DCF I did was on A2 when share price was around $20 …..even with the high growth rates the market were touting i still came up with a number under 8 bucks ….and of course growth expectations lot lower now so I’d expect if I updated it it would come in less than 5 bucks.

[Daytr]

Het daytr, you getting a bit rough now.

My analysis/tracking of Oceania goes back to IPO days

I’ll share imy master sheet of key metrics …posted below.. I believe the movement in a company’s book value along with cash flows and how they are funded (in case of cash burn) are the best way of assessing things. I like to see most things tracking up over time.

There’s also a section on tracking sales and the average realised gains they make on these to give me an idea of how they are going ….like the average gain on new sales wasn’t that flash in the last period but hopefully it’ll improve next few periods

Here’s what my table looks like for Oceania …..I think it’s rather cool …but not as good as the Summerset one

Great, keep it up instead of inflammatory one liners. I usually enjoy your tongue in cheek posts but I think you just got negative. Easy to do when SailorBoy was ramping it & everything was a positive, down was up etc.

All the best Daytr.

[Snoopy]

I set the scene of my question like this.

1/ OCA take a deferred management fee (DMF) into the accounts when they sell a villa. This fee is 30% of the capital the resident pays over when they take up their licence to occupy.
2/ The DMF is recurring for each new ORA signed on as the villa licence to occupy changes hands. Thus the incoming resident refills the DMF coffers, when moving in, which means, barring a management disaster, the DMF never has to be paid back by OCA.
3/ The 30% DMF becomes a kind of 'extra defacto equity' for OCA, which allows OCA to be able to build 30% more villas in their growth plan than they would have, had the DMF not existed.
4/ The villas are built with 'real cash', retained earnings from OCA added to the float, that must be handed over to the builders on completion of each new construction contract.
5/ /Mr Market' values any retained earnings, and the float at 50c in the dollar, as that is the only way that a villa equity return of 3% can be increased to 6%, which is a satisfactory borderline acceptable return from a share investor perspective.
6/ The only way an OCA share investor can get their capital out of OCA is to sell their shares on market, at a price determined by Mr Market (a rate of 50c per dollar of the assets on the balance sheet).

Let the equity of an ordinary property development company, without a float, be 'E' (not the case with OCA because their 'E' is enhanced by the float).

The equation for an investor in 'cents in the dollar' to recover their share of the company's retained equity, by selling OCA shares -enhanced by the float- comes down to: 0.5 x 1.4286 x E = 0.7143E

So for every dollar generated within OCA, our shareholder investor can get back 71.43c of that by selling their OCA shares on market. Alternatively, our investor might want the money generated within the company paid out as an unimputed dividend (OCA do not have imputation credits to pay out) . Assuming our shareholder were on a 33% marginal tax rate they would receive 67c in the dollar,


With the error that I have now corrected in the example as quoted above, our OCA shareholder does get more than if that same money was paid out as an unimputed dividend at 67 cents in the dollar. However I do note that 71.43c in the dollar is still less than the 72c in the dollar a unit holder gets when invested in one of the listed PIE property owning vehicles. However, the difference is in fractions of a cent, which means that 'in effect' the headline rate of return on a property PIE and a float enhanced OCA are the same.




Hi Snoopy,
Again thank you for the reply, this post is really helped me come to grips with where you are coming from I think, although I'm still struggling a little bit with ignoring the effects of time.

Regarding your above quote, does this scenario not change for the investor depending on time?. because from the investors point of view, aren't more dollars able to be generated by OCA as the asset base increases? therefore the 65c (actually 71.4 as you have recalculated) you are speaking of is no longer 65c(actually 71.4 as you have recalculated) further along the timeline of the company, but rather a higher value in relation to an earlier point in time. If this is correct we cannot truly ignore the time factor and this should be taken into consideration?



I think you have this backwards. It is the fact that more dollars are able to be earned as village development expands and more villas are completed that increases the asset value of the company. Not the other way around!

But essentially you are correct. Increasing retained earnings and spending that cash on builds will result in the asset value of the company increasing. That increasing value of assets is the missing measure of increasing earnings as time progresses that you seek.

SNOOPY

[Rawz]

Apologies, I was meaning DCF as a valuation tool generally, not in the case of OCA. I don't touch it as I think it opens the door to too many errors due to making future assumptions (personal bias etc), but that's for me personally, I'm sure others can do it much more accurately.
Agree for 99% of retail investors i reckon a DCF is a waste of time and brain power. Every broker report i see they are constantly changing their DCFs its like they are having a laugh. honestly whats the point when after every company update your old DCF is useless so you create a new one, literally no point.

Best thing you can do is estimate max 3 years out where you think the company will be and put an appropriate multiple on that whether its earnings or cashflow or book value etc then work towards that valuation. People guessing where earnings will be 10 years out is just pie in the sky stuff.

[Snoopy]

"How is OCA developing a retirement village along these funding lines a good deal for OCA shareholders?"



Again as a fictional example, purely for my own learning exercise (and more than likely wrong).........

Could I not argue, that it is a good deal for shareholders based on a growing asset base?? and hence growing float?? via ORA growth due to the growing assets??.

Yes you will get 67c out of the dollar today paid out as a dividend from cash (rather than the use of that cash being put toward developing more units).
but having the company continue the development along these funding lines you might get the benefit of;

a)-Selling the the shares you would get (as you have all-ready corrected for) 100/70*0.5=71.4c, 71.4-67/67=6.5% more???.
b)-If i were to use my fictional 10% growth rate from my last post, could I not argue that in this fictional scenario you would get
year1 ((100/70)*1.1)*0.5=78.5cents after one year.
year2 (((100/70)*1.1)*1.1)*0.5=86.4cents after 2 years
and after 7 years 71.4c*1.1*1.1*1.1*1.1*1.1*1.1*1.1=$1.39, 139-67/67=107.4% more??? (remembering this is a completely fictional example for learning purpose only, I have no idea what an appropriate growth rate could be, or indeed even if there should be one in the first place)



First of all Cupsey, thank you for taking up the challenge of answering my question.

Just to clarify for other readers what these numbers are that you are quoting represent: 71.4c (after 1 year), 78.5c (after 2 years) , 86.4c (after 3 years) ....

These numbers represent the 'cents in the dollar' able to be cashed out when you sell your shares, connected with the retained earnings being reinvested. They are not the cents in the dollar able to be cashed out from existing equity capital that you own within the company. That figure remains at 50c in the dollar.



1/ Latest reporting period being HY2024, as reported in November 2023 shows net assets of $1.017.3m on the balance sheet.
2/ On 6th December 2023 there were 724.155m OCA shares on issue.
3/ So NTA at the most recent balance date was $1,017.3m/724.155m = $1.40.
4/ At the end of business on 5th February 2024, the OCA share price closed at 70c.
5/ So the market was valuing OCA shares at half their asset backing: 70c/$1.40 = 1/2. Or put another way, the discount to asset backing was 50%.


If we look at the cashflow statement for HY2024, the difference between 'Receipts for New Occupation Rights Agreements' and 'Payments for Outgoing Occupation Rights Agreements' over the half year was: $105.214m - $38.578m = $66.636m. 30% of that figure will be the increment of the float. So the increment of the float is 0.3 x $66.636m = $20.0m That means another way of interpreting these figures is to say 'the float' increased by $20.0m over the period

However, and this is where it starts to get complicated, a second glance at the cashflow statement shows that net cash from operations was just $48.020m. That figure is less than the cashflow gain from rolling over the ORAs. Looking further up the cashflow statement you can see why. The receipts from residents care fees in cash are $30m shy of meeting the obligations for paying suppliers and employees. Of course OCA is not going broke because the 'Deferred Management Fees' (not a cash item) will make up the difference. But I think this cashflow statement should bring home the stark reality of operating a retirement village on a 'day to day' basis. The ORAs 'rolling over' are not wholly a cash cow. A large proportion of that ORA rollover cash is needed to subsidize the day to day running of the RV! Furthermore this 'problem' is not a 'one off'. It is ongoing. So those who think the capital gains on those ORAs will simply flow through to shareholders pockets in their entirety are just plain wrong. Instead I feel it is more correct to look at the increment of the float only up the the growth in operational cashflow as the gain. This means the net ORA cashflow gain is not $66.636m, but $48.020m. And it follows that the gain in the float was not $20.0m, but was 0.3x $48.020m = $14.4m. Don't get me wrong $14.4m, or $28.8m annualised is still a good number to be flowing the way of shareholders. But it may not quite be the 'Christmas has come early' gain that some think.

On a 'gain per share' basis this incremental $28.8m comes out as $28.8m/724.115m = 4.0cps, over an annualised 12 month period. But as I explained in the first half of this post, not all of this gain can be 'cashed out' by shareholders.

The amount that can be 'cashed out' at the end of the year is 4.0c x 0.714 'cents in the dollar' = 2.8cps

Let me reiterate, this is still good and still worth having. On a base share price around 70c, with no dividend being paid, this float top up alone represents a net yield of 2.8c/70c = 4%, equivalent to 5.55% as a 28% PIE gross tax return. And we have the expectation that, in the future, values will rise in line with government payouts to the oldies occupying these units as well. But I think given the kind of 'short term window' that Mr Market tends to look through, this IMV shows that at a share price of 70c OCA is trading roughly where it should be. There is no obvious 'bargain' to be picked up here.

I know this conclusion will be an anathema to some. But could it be that when all the ingredients of OCA are put together in a end of week 'Friday night fry up', that Mr Market has actually got the pricing right on this one?

SNOOPY

[Snoopy]

Dude, your argument is "Mr Market is discounting OCA shares, therefore this is bad for shareholders as if they sell their shares they only recieve x% back."

But dude, that's exactly why I am a shareholder, I only bought in because of the discount to intrinsic value...

The answer to your question is because it generates float, "free money" and a sh1t ton of it. OCA could make zero EPS for a decade and continue their float growth at 15-20% and shareholders will still do very well out of it by earning say 5% ROA from that point on.


In light of my last post, I think it is worth revisiting the latest balance sheet to be released which is the HY2024 result. That balance sheet shows a rise over the year of the ORA assets, with their value increasing to $935.726m. The previous half year result saw the ORA rights on the balance sheet at $870.476m. That is a good increase, but an increase of 7.5%. Good but nevertheless, well short of your 'expected float growth' of 15-20% p.a. ValueNZ.

You can look at these ORAs another way as well, adding on the ORAs of the assets held for sale being $15.548m (EOHY2023) and $15.737m (EOHY2024). If you add those onto the going concern totals, then the ORA rights sum to $951.463m at EOHY2024 and $886.024m at EOHY2023. That is a gain of 7.4% over the year. OK you can argue that the ORA assets 'being put up for sale' are transformational and not representative of the long term picture of the business. But I would also argue that these booked 'transformations' are taking longer to 'transform' than expected.

I would also argue that the float is not all 'free money' as you claim. Becasue the most recent cashflow statement shows that fully one third of it is required to top up the cashflow for the day to day operation of the business that allows, amongst other things, the staff to be paid.

Next you talk about the float money combined with the existing equity earning a 5% ROA going forwards from all those new villas being constructed. In my view this is also too optimistic. I would argue that the real figure would be closer to 3%. OTOH I don't think your expectation of a 5% return on these new assets, as a sharemarket investor, is out of line. But Mr Market can fix this for you. How to turn a 3% return into a 5% return? Easy! Just write down the value of those investment assets by 2%/5% = 40%. So all Mr Market is doing is writing down the value of those new assets you are building by 40% for you, and you are getting the return you require! And unfortunately unless building costs absolutely slump, the market write down of the underlying assets is set to continue indefinitely.

SNOOPY

[winner69]

First of all Cupsey, thank you for taking up the challenge of answering my question.

Just to clarify for other readers what these numbers are that you are quoting represent: 71.4c (after 1 year), 78.5c (after 2 years) , 86.4c (after 3 years) ....

These numbers represent the 'cents in the dollar' able to be cashed out when you sell your shares, connected with the retained earnings being reinvested. They are not the cents in the dollar able to be cashed out from existing equity capital that you own within the company. That figure remains at 50c in the dollar.



If we look at the cashflow statement for HY2024, the difference between 'Receipts for New Occupation Rights Agreements' and 'Payments for Outgoing Occupation Rights Agreements' over the half year was: $105.214m - $38.578m = $66.636m. 30% of that figure will be the increment of the float. So the increment of the float is 0.3 x $66.636m = $20.0m That means another way of interpreting these figures is to say 'the float' increased by $20.0m over the period

However, and this is where it starts to get complicated, a second glance at the cashflow statement shows that net cash from operations was just $48.020m. That figure is less than the cashflow gain from rolling over the ORAs. Looking further up the cashflow statement you can see why. The receipts from residents care fees in cash are $30m shy of meeting the obligations for paying suppliers and employees. Of course OCA is not going broke because the 'Deferred Management Fees' (not a cash item) will make up the difference. But I think this cashflow statement should bring home the stark reality of operating a retirement village on a 'day to day' basis. The ORAs 'rolling over' are not wholly a cash cow. A large proportion of that ORA rollover cash is needed to subsidize the day to day running of the RV! Furthermore this 'problem' is not a 'one off'. It is ongoing. So those who think the capital gains on those ORAs will simply flow through to shareholders pockets in their entirety are just plain wrong. Instead I feel it is more correct to look at the increment of the float only up the the growth in operational cashflow as the gain. This means the net ORA cashflow gain is not $66.636m, but $48.020m. And it follows that the gain in the float was not $20.0m, but was 0.3x $48.020m = $14.4m. Don't get me wrong $14.4m, or $28.8m annualised is still a good number to be flowing the way of shareholders. But it may not quite be the 'Christmas has come early' gain that some think.

On a 'gain per share' basis this incremental $28.8m comes out as $28.8m/724.115m = 4.0cps, over an annualised 12 month period. But as I explained in the first half of this post, not all of this gain can be 'cashed out' by shareholders.

The amount that can be 'cashed out' at the end of the year is 4.0c x 0.714 'cents in the dollar' = 2.8cps

Let me reiterate, this is still good and still worth having. On a base share price around 70c, with no dividend being paid, this float top up alone represents a net yield of 2.8c/70c = 4%, equivalent to 5.55% as a 28% PIE gross tax return. And we have the expectation that, in the future, values will rise in line with government payouts to the oldies occupying these units as well. But I think given the kind of 'short term window' that Mr Market tends to look through, this IMV shows that at a share price of 70c OCA is trading roughly where it should be. There is no obvious 'bargain' to be picked up here.

I know this conclusion will be an anathema to some. But could it be that when all the ingredients of OCA are put together in a end of week 'Friday night fry up', that Mr Market has actually got the pricing right on this one?

SNOOPY

Good post Snoopy but I doubt whether many will believe you …or want to believe you ……because they haven’t believed me when I’ve made much the same comments (with supporting data)

….but you might be accused of down ramping lol

[ValueNZ]

In light of my last post, I think it is worth revisiting the latest balance sheet to be released which is the HY2024 result. That balance sheet shows a rise over the year of the ORA assets, with their value increasing to $935.726m. The previous half year result saw the ORA rights on the balance sheet at $870.476m. That is a good increase, but an increase of 7.5%. Good but nevertheless, well short of your 'expected float growth' of 15-20% p.a. ValueNZ.

It's worth noting occupancy fell during that period... But who cares about what happened over a one year period? Not me.

If OCA finishes up their pipeline over the next 8 years and occupancy returns to normal, with no additional development OCA will have a ~$2.4 billion float at around a ~12% CAGR. Additional development could easily push this to 15%-20%. Yes, this is my expectation and preference that OCA continues building up pipeline, but I will still do very well if for whatever reason they decided to stop investing in more developments.

You can look at these ORAs another way as well, adding on the ORAs of the assets held for sale being $15.548m (EOHY2023) and $15.737m (EOHY2024). If you add those onto the going concern totals, then the ORA rights sum to $951.463m at EOHY2024 and $886.024m at EOHY2023. That is a gain of 7.4% over the year. OK you can argue that the ORA assets 'being put up for sale' are transformational and not representative of the long term picture of the business. But I would also argue that these booked 'transformations' are taking longer to 'transform' than expected.

No comment as no significant relevance to the OCA's value.

I would also argue that the float is not all 'free money' as you claim. Becasue the most recent cashflow statement shows that fully one third of it is required to top up the cashflow for the day to day operation of the business that allows, amongst other things, the staff to be paid.

Next you talk about the float money combined with the existing equity earning a 5% ROA going forwards from all those new villas being constructed. In my view this is also too optimistic. I would argue that the real figure would be closer to 3%. OTOH I don't think your expectation of a 5% return on these new assets, as a sharemarket investor, is out of line. But Mr Market can fix this for you. How to turn a 3% return into a 5% return? Easy! Just write down the value of those investment assets by 2%/5% = 40%. So all Mr Market is doing is writing down the value of those new assets you are building by 40% for you, and you are getting the return you require! And unfortunately unless building costs absolutely slump, the market write down of the underlying assets is set to continue indefinitely.

What happens to OCA's cash-flow statements when they eventually decide to finish all development, or slow down development? AKA stop investing to grow float.

SNOOPY
See above comments.

[Rawz]

ValueNZ it could be difficult for OCA to grow the float above your estimate of 12% cagr unless they raise capital. Their debt/(debt+equity) has gone from 17% in 2017 to 38% today as per Winners summary sheet. The balance sheet strength they once had has been fully tapped for all current/historic development. 40% leverage ratio is the magic number all the RVs are trying/told to stick under it seems

[Ferg]

My analysis/tracking of Oceania goes back to IPO days

I’ll share imy master sheet of key metrics …posted below.. [snip] Here’s what my table looks like for Oceania …..I think it’s rather cool

Thanks for sharing that winner and nice to see others putting in the effort to understand OCA. Is your 'operating profit' number a balancing figure? The reason I ask is two fold: 1) the additions to equity for revaluations for the last half year for PP&E are there on pages 15 & 17 at $26.6m which I can't see in your figures, and 2) the 2 x realised values for underlying NPAT are not part of the financial construction of closing equity, rather those are 'off book' values that are used to calculate uNPAT. Instead there is $47m change in FV per page 14 that is added to equity via retained earnings - but this is not the same thing as the 2 x realised gains presented in the uNPAT calc's. Although I note you have a figure of $45.7m for your FV change- I can't see where that figure has come from.

[Snoopy]

When I say our investor gets back 50c in the dollar, I am not talking about any particular time frame. That statement applies to any time frame you care to choose. However that 50c in the dollar applies to the current net value of assets at any particular present moment. Not to the value of dollars that were in the pot the day you started your investment. So in this way I am accounting for the growth in the ORA over time.




But for this to be true, wouldn’t the investor have to buy in and buy out in the same time period? Which is unlikely at best and therefore a non-real world way of looking at things?


No, I am talking about buying and selling over any time period. There are no restrictions either stated or implied. I guess if you wanted to buy in and sell out without taking into account the inflation of the Occupational Rights Agreement over the years, then 'yes' you would have to buy and sell in the same time period. But why would you want to restrict yourself by planning to do that?



But the underlying equity does go up with time, as you suggest Cupsey, I expect with the ability of the residents to pay, which will equate to the rate of inflation, or the rate the government entitlement payments increase.




Ok, so on this point, you are saying the equity is going up with a rate of inflation or the residents ability to pay (I would call this the capital gain on the existing assets?, much like a capital gain on your home), but additional to this as time goes by is the equity of new assets as they are developed and come online into the system.?? So the equity growth at least in theory would be at a higher rate than inflation and capital gains (or losses) alone??.


Yes, that is right. Any new equity directed to building new facilities will compound the rate of growth of the company over and above the rate of inflation PROVIDED that is, these new equity build returns exceed OCA's cost of capital.

SNOOPY

[winner69]

Thanks for sharing that winner and nice to see others putting in the effort to understand OCA. Is your 'operating profit' number a balancing figure? The reason I ask is two fold: 1) the additions to equity for revaluations for the last half year for PP&E are there on pages 15 & 17 at $26.6m which I can't see in your figures, and 2) the 2 x realised values for underlying NPAT are not part of the financial construction of closing equity, rather those are 'off book' values that are used to calculate uNPAT. Instead there is $47m change in FV per page 14 that is added to equity via retained earnings - but this is not the same thing as the 2 x realised gains presented in the uNPAT calc's. Although I note you have a figure of $45.7m for your FV change- I can't see where that figure has come from.

Thanks Ferg

Thinking behind structure is that I (and many others) see Oceania mainly as a property development company. Logic then is to separate out property stuff like gains on sales and revaluations from reported profits and call the rest Operating Profit being the profit from running villages and caring for people. So yes Operating Profit is a balancing number. I do appreciate that a few odd things pop up in their expenses and these are included in that number …so no ‘normalisation’

The income statement has total changes in fair value (don’t overlook the amount in Other Comprehensive Income) and after picking up what they report as Realised Gains (on resales and development margins) I assume the balance is unrealised gains (like the 45.7m you mention)

That’s how I track Oceania (and others) and it works for me. Glad you took an interest.

[Ferg]

Thanks Ferg

Thinking behind structure is that I (and many others) see Oceania mainly as a property development company. Logic then is to separate out property stuff like gains on sales and revaluations from reported profits and call the rest Operating Profit being the profit from running villages and caring for people. So yes Operating Profit is a balancing number. I do appreciate that a few odd things pop up in their expenses and these are included in that number …so no ‘normalisation’

The income statement has total changes in fair value (don’t overlook the amount in Other Comprehensive Income) and after picking up what they report as Realised Gains (on resales and development margins) I assume the balance is unrealised gains (like the 45.7m you mention)

That’s how I track Oceania (and others) and it works for me. Glad you took an interest.

You're welcome. I think the development valuation gains are being double counted given you are driving the total back to reported equity. You have included the 2 x realised lines which are not part of the derivation of the equity value as well as the unrealised $46-$47m value which is. This has the effect of inflating the 'operating loss' {edit: since retracted, so ignore that} given it is a balancing figure. Although that will be partly offset for the $26m you are missing on the PP&E revaluation {edit: it IS offset fully, not partly offset}.

Edit: for clarity - the derivation of equity per 1H23 is +$26.6m PP&E reval + $47.4m change in FV. Total is $74m. You currently have $15.4+$12.9+$45.7=$74m....whoops, so I stand corrected. Your $45.7m is also a balancing figure. All good - cancel that.....move along, nothing to see here.... :)

Edit #2: on reflection despite the split not being 100% technically correct based on the financial entries for deriving reported NPAT & equity, it is an interesting way of looking at it nonetheless. In particular it now has me thinking about the $26.6m PP&E revaluation versus your balancing figure of $45.7m....

[winner69]

Ferg …. Remember a few years ago one of their presos gave us a lecture how we had to look at Total Comprehensive Income rather than reported NpAT because of the way they treated PPE (mainly care suites I think) depreciation in Income Statement but fair value adjustments in Other Comprehensive

[Cupsy]

No, I am talking about buying and selling over any time period. There are no restrictions either stated or implied.


SNOOPY

Firstly, thank you for the posts today, amazing stuff and alot of effort on your part, hugely appreciate that and may take some time to digest on my part.

On the above point, 1000 apologies but I'm still not on the same page.

Maybe talking in shares might help, fictonally 1 share being 100 cents.

That 1 share today can only be cashed out at 50cents currently, I think I am with you this far.

Where I'm getting confused is where this share gets cashed out in the future.

In 7 years with a fictional 10% growth, the 100cents becomes approx 194cents, making the discount of 50% of the NTA 97cents.

{Alternatively a fictional -3% growth, the 100cents becomes approx 80.8cents, making the discount of 50% 40.4cents}

So (and I'm sure I'm missing your point here) I am struggling to see how 50cents return is still 50cents any time.

Yes we could say 50% with out Referencing time and inflation/deflation. But the minute we use cents, don't we have to account for this?

**perhaps rather than inflation/deflation, a gain or loss in retained earnings may be a better term?

[winner69]

Ferg …from 2019 results preso http://nzx-prod-s7fsd7f98s.s3-website-ap-southeast-2.amazonaws.com/attachments/OCA/338084/304090.pdf

Lesson why one needs to look at Total Comprehensive Income

They’ve never made things easy eh

[Ferg]

If we look at the cashflow statement for HY2024, the difference between 'Receipts for New Occupation Rights Agreements' and 'Payments for Outgoing Occupation Rights Agreements' over the half year was: $105.214m - $38.578m = $66.636m. 30% of that figure will be the increment of the float. So the increment of the float is 0.3 x $66.636m = $20.0m That means another way of interpreting these figures is to say 'the float' increased by $20.0m over the period

If by 'float' we are talking about the ORA....and that is what SailorRob called it....then your analysis is incorrect. We need to use consistent definitions. The float is NOT the DMF. Float refers to the total cash received and available for use by the RV as they see fit.

If ORA receipts are $105m and ORA repayments are $39m per your example, then the cash on hand increased by $66m as a result of ORA transactions. Assuming the 30% DMF's were fully earned on the outgoing ORA with no other deductions, then the DMF earned over the prior x years was $17m. These outgoing residents had a total ORA (or float) of $56m. That old ORA of $56m has expired via $17m retained via DMF fees and $39m repaid to the executors of the estates of the departing residents. So the change in ORAs (the 'float') is $105m - $56m = +$49m. The $56m of old float has been replaced by a new float of $105m. The new $105m ORAs, assuming the full 30% is earned, will given OCA DMF income of $31m over the next approximately 8 years.


Of course OCA is not going broke because the 'Deferred Management Fees' (not a cash item) will make up the difference

DMF *is* a cash item - it is prepaid by the resident up-front on day 1 when they pay their ORA - the exact amount of DMF will not be known until a later date. It is incorrect to call it a non-cash item. We need to a) be careful with our wording and b) consistent in our definitions, if we are to correctly raise the level of understanding of RVs.

[Ferg]

Ferg …from 2019 results preso http://nzx-prod-s7fsd7f98s.s3-website-ap-southeast-2.amazonaws.com/attachments/OCA/338084/304090.pdf

Lesson why one needs to look at Total Comprehensive Income

They’ve never made things easy eh

Thanks winner. I agree it's not easy but it gets easier the more time you put into it.

I had taken the CI items into account (that's the $26.6m) and I am familiar with the classification per the image. So we are getting the same total number - we have slightly different breakdowns thereof.

I think your way of looking at it is good. It cuts to the chase. Hence the reason I think your residual value of $45.7m versus $26.6m is interesting....the difference of $19.1m represents the revaluation of village assets over and above the realised portion.

So we have FV gains of $47.4m in the P&L, less the 2 x realised values of $28.3m per uNPAT (and your analysis) which gives an unrealised increase of $19.1m. Add on the $26.6 PP&E and we get your $45.7m number. Of the $45.7m we have $26.6m coming from care and the balance being unrealised gains. There may be a small adjustment for the FV component of care. So yes we have the same numbers, just shown differently and your method has got a few wheels turning for me.

I'm guessing your formula to support the 45.7 number in 1H23 is 26.6+47.4-15.4-12.9...is that correct?

Cheers

[Daytr]

In light of my last post, I think it is worth revisiting the latest balance sheet to be released which is the HY2024 result. That balance sheet shows a rise over the year of the ORA assets, with their value increasing to $935.726m. The previous half year result saw the ORA rights on the balance sheet at $870.476m. That is a good increase, but an increase of 7.5%. Good but nevertheless, well short of your 'expected float growth' of 15-20% p.a. ValueNZ.

You can look at these ORAs another way as well, adding on the ORAs of the assets held for sale being $15.548m (EOHY2023) and $15.737m (EOHY2024). If you add those onto the going concern totals, then the ORA rights sum to $951.463m at EOHY2024 and $886.024m at EOHY2023. That is a gain of 7.4% over the year. OK you can argue that the ORA assets 'being put up for sale' are transformational and not representative of the long term picture of the business. But I would also argue that these booked 'transformations' are taking longer to 'transform' than expected.

I would also argue that the float is not all 'free money' as you claim. Becasue the most recent cashflow statement shows that fully one third of it is required to top up the cashflow for the day to day operation of the business that allows, amongst other things, the staff to be paid.

Next you talk about the float money combined with the existing equity earning a 5% ROA going forwards from all those new villas being constructed. In my view this is also too optimistic. I would argue that the real figure would be closer to 3%. OTOH I don't think your expectation of a 5% return on these new assets, as a sharemarket investor, is out of line. But Mr Market can fix this for you. How to turn a 3% return into a 5% return? Easy! Just write down the value of those investment assets by 2%/5% = 40%. So all Mr Market is doing is writing down the value of those new assets you are building by 40% for you, and you are getting the return you require! And unfortunately unless building costs absolutely slump, the market write down of the underlying assets is set to continue indefinitely.

SNOOPY

Hi Snoopy, I struggle with the relevance of some of your analysis as it looking backwards for a company that is in the midst of a major expansion. The DMF numbers plus any profits on new sales should add significant cash than what is currently being earned

For an extreme example, is Nvidia valued at $1.7Trln for its current earnings?

[ValueNZ]

If by 'float' we are talking about the ORA....and that is what SailorRob called it....then your analysis is incorrect. We need to use consistent definitions. The float is NOT the DMF. Float refers to the total cash received and available for use by the RV as they see fit.
I see no reason to not include the DMF in the float calculation, it is cash received upfront, which is essentially a interest free loan.

[ValueNZ]

“I love money more than the things it can buy, but you know what I love more than money? It’s using other people’s money.” - Danny Davito.

[bull....]

I see no reason to not include the DMF in the float calculation, it is cash received upfront, which is essentially a interest free loan.

should be % of DMF + re-sale gains in float thats how i see it

[Ferg]

I see no reason to not include the DMF in the float calculation, it is cash received upfront, which is essentially a interest free loan.
Snoopy is only counting the DMF, I am saying the float is the full ORA value which includes the DMF component. The 'float' SR refers to is the full upfront payment of the ORA, from which a % will be deducted as DMF. You are aware the DMF is deducted from the ORA? The first part of my sentence said : "If by 'float' we are talking about the ORA"

[Ferg]

should be % of DMF + re-sale gains in float thats how i see it

Ok. Obviously SR has confused everyone by introducing the term 'float' which is not a term used by OCA. We should be talking ORAs, DMFs, development margins, resale gains and more importantly, sales volumes.

[ValueNZ]

Snoopy is only counting the DMF, I am saying the float is the full ORA value which includes the DMF component. The 'float' SR refers to is the full upfront payment of the ORA, from which a % will be deducted as DMF. You are aware the DMF is deducted from the ORA? The first part of my sentence said : "If by 'float' we are talking about the ORA"
Apologies Ferg, good to know we are on the same page. The float is the ORA (refundable portion, as found under liability section of balance sheet) + DMF.

I took your statement out of context.

[Ferg]

So we have Godwin's law & Benford's law.....here is Ferg's law: "the level of comprehension on a subject is inversely related to the number of words and posts thereon".

[Cupsy]

Snoopy is only counting the DMF, I am saying the float is the full ORA value which includes the DMF component. The 'float' SR refers to is the full upfront payment of the ORA, from which a % will be deducted as DMF. You are aware the DMF is deducted from the ORA? The first part of my sentence said : "If by 'float' we are talking about the ORA"

Shouldnt float be less the dmf?

[ValueNZ]

Shouldnt float be less the dmf?
No it should be the full amount paid by the resident upon paying for the license to occupy. That is under the liability section of the balance sheet, both the refundable ORA and DMF.

DMF is paid all in advance, and is found in the income statement as the resident exits.

[bull....]

can OCA lose the float

[Snoopy]

Firstly, thank you for the posts today, amazing stuff and a lot of effort on your part, hugely appreciate that and may take some time to digest on my part.

On the above point, 1000 apologies but I'm still not on the same page.

Maybe talking in shares might help, fictonally 1 share being 100 cents.

That 1 share today can only be cashed out at 50cents currently, I think I am with you this far.

Where I'm getting confused is where this share gets cashed out in the future.

In 7 years with a fictional 10% growth, the 100cents becomes approx 194cents, making the discount of 50% of the NTA 97cents.

{Alternatively a fictional -3% growth, the 100cents becomes approx 80.8cents, making the discount of 50% 40.4cents}

So (and I'm sure I'm missing your point here) I am struggling to see how 50cents return is still 50cents any time.


Cupsy your maths is correct. In your hypothetical example what is cashed out at 50c today can be cashed out at 97c in seven years time. When I say 50c is still 50c I am talking about the exchange rate between dollars operating inside the company and dollars you can cash out. So in this particular example:

a/ You can cash out your $1 of value in the OCA company today by selling your OCA shares, giving you cash in your pocket of 50c OR
b/ You can cash out your $1.94 of value in the company in seven years time and get 97c in your pocket

The thing that has not changed across time is the expected 'exchange conversion rate'. For any $1 inside OCA today, or in seven years time, or at any time in between, or at any time after seven years: Each $1 you take out of your investment in OCA by 'selling your shares' will turn into 50c in your pocket, as long as OCA remains a listed entity. $1.40 of net tangible assets within the OCA company becomes 70c when you sell a single share on the market today (there is that 'exchange rate' again - 50c in the dollar). That is the extension of what Lyall Taylor was telling us in his article.

SNOOPY

[Snow Leopard]

In accounting, float has a very definite meaning (https://www.investopedia.com/terms/f/float.asp).

Whatever it is you are all disagreeing over.

It is NOT float.

https://i.tribune.com.pk/media/images/1492652-__snow_leopards-1503894004/1492652-__snow_leopards-1503894004.jpg
Image from here (https://tribune.com.pk/story/1492652/snow-leopards-angry-us-pullout-paris-deal)

[Ferg]

Ok. Obviously SR has confused everyone by introducing the term 'float' which is not a term used by OCA. We should be talking ORAs, DMFs, development margins, resale gains and more importantly, sales volumes.

Here is the origin of the term used in this post from 26 Nov 2022:


So the $917,647,000 Deferred management fee/refundable occupation license item on the balance sheet is essentially an interest free loan that cannot be called and is only paid back once the next lot of money has come through. It is a thing ofimmense beauty and the key to understanding the industry.

So it allows them to massively increase the amount of property they own and develop, at no cost or risk. Also worth noting here the terms and rate on their actual conventional debt which is outstanding, one bond is I think 2027 at 2.3% and the other 2028 at 3.3%. So massively negative in real terms.

So a conventional developer like you or I in simple terms, to build a million dollar house, we have to first get a million dollars, then build the house and then to build another one we either have to sell the first, or go to the bank and borrow against the first and maybe get 800k if we are lucky and subject to handing over the title to the first one to the bank and paying interest and introducing all kinds of risk.

OCA has their cake and eats it, they 'sell' the first house for more than a million while still owning it and don't pay any interest on the money they get and they don't have to pay it back (they keep a ton of it too) until it's been 'sold' again, and they do this until the cows come home and then do it some more. So they can never get into trouble with this type of liability, and it reminds me of float in the insurance industry which is fought over like crazy. Only this is way better as float is heavily regulated and you have to put up your own capital too.

Then as they develop more they get more of this free money and develop more... It's one hell of a business, and everyone is missing it as they think you're buying the net tangible assets but no, you are also buying the free billion dollars. I've never seen it discussed here but it's the real key to the business model.

And I reiterate:

So we have Godwin's law & Benford's law.....here is Ferg's law: "the level of comprehension on a subject is inversely related to the number of words and posts thereon".

[ValueNZ]

ValueNZ it could be difficult for OCA to grow the float above your estimate of 12% cagr unless they raise capital. Their debt/(debt+equity) has gone from 17% in 2017 to 38% today as per Winners summary sheet. The balance sheet strength they once had has been fully tapped for all current/historic development. 40% leverage ratio is the magic number all the RVs are trying/told to stick under it seems
Not true. Bank debt is just one, relatively small source of funding of OCA's assets. They just need to continue selling down stock and use that cash to fund new projects.

[Cupsy]

In accounting, float has a very definite meaning (https://www.investopedia.com/terms/f/float.asp).

Whatever it is you are all disagreeing over.

It is NOT float.

https://i.tribune.com.pk/media/images/1492652-__snow_leopards-1503894004/1492652-__snow_leopards-1503894004.jpg
Image from here (https://tribune.com.pk/story/1492652/snow-leopards-angry-us-pullout-paris-deal)

Insurance float I think is what is being referenced, different to the link you have provided.

[winner69]

ValueNZ it could be difficult for OCA to grow the float above your estimate of 12% cagr unless they raise capital. Their debt/(debt+equity) has gone from 17% in 2017 to 38% today as per Winners summary sheet. The balance sheet strength they once had has been fully tapped for all current/historic development. 40% leverage ratio is the magic number all the RVs are trying/told to stick under it seems

Not sure what you mean here rawz but if Refundable ORA’s was counted as debt the debt/(debt + equity) goes to 61%

[Cupsy]

No it should be the full amount paid by the resident upon paying for the license to occupy. That is under the liability section of the balance sheet, both the refundable ORA and DMF.

DMF is paid all in advance, and is found in the income statement as the resident exits.

Yeah you are correct, but for some reason I had it in my head that it was expensed over the life of the ORA, (but I am probably mistaken).

"The timing of the recognition of deferred management fees is a critical accounting estimate andjudgement. The deferred management fee is recognised on a straight line basis over the longer of
the term specified in a resident’s ORA or the average expected occupancy. The expected periods
of occupancy are based on historical Group averages, for the relevant accommodation they are
estimated to be 7 years for units, 5 years for apartments and 3 years for care suites from the date
of occupation."

[Rawz]

Not sure what you mean here rawz but if Refundable ORA’s was counted as debt the debt/(debt + equity) goes to 61%

Was going off the numbers near the bottom of your spreadsheet you post yesterday. I assumed it excluded the ORA

[Baa_Baa]

Insurance float I think is what is being referenced
https://www.fool.com/personal-finance/2006/12/05/insurance-industry-basics-float.aspx

Yes that (insurance float) has always been the basis of what SR was trying to draw an analogy, but better! It takes a while to get ones head around, but once we realise our development is funded by an uncallable (in TOTO) ever increasing fund that we pay no interest on, with other income streams on top, then we start to realise the long term potential for investors. Current market climate suggests moderating the development spend, focus on reducing external liabilities (bank debt) whereas in reality none of the RV's are particularly stressed in the scheme of things. Strange how market sentiment seems to play on investor confidence, when the best thing they could be doing is going hard out growing the asset base, selling them, culling the losers and ergo growing the float, cashflows and income. Maybe the sector needed to take a breather, while everyone catches up with what really makes this sector a good long term investment. SR was on the money, pity that he pissed a few influential people off trying to explain it, I understand how he could get frustrated having to constantly challenge the ill-informed but vocal few. If the analysts and commentators really realised the underlying financial long term strength of the listed RV's business & financial model, they and all their clients would be flocking to get some, especially at these heavily discounted market prices. But have you ever heard any of them recognise the 'the float' and the value of the business model that is built on it? No, me either.

[ValueNZ]

Yeah you are correct, but for some reason I had it in my head that it was expensed over the life of the ORA, (but I am probably mistaken).

"The timing of the recognition of deferred management fees is a critical accounting estimate andjudgement. The deferred management fee is recognised on a straight line basis over the longer of
the term specified in a resident’s ORA or the average expected occupancy. The expected periods
of occupancy are based on historical Group averages, for the relevant accommodation they are
estimated to be 7 years for units, 5 years for apartments and 3 years for care suites from the date
of occupation."
You're right sorry Cupsy!

Thanks for correcting that, reading "The deferred management fee is payable by the resident on termination of the ORA." made me think it was recognised as revenue when the resident exits.

I am not an accountant... lol

[Cupsy]

First thing I need to mention is about the 70c of equity supporting the 30c of 'free float' that you get. The multiplying factor is actually 100/70 = 1.4286, as the equity value you get is $1 from each 70c of value the company has put in. Or put another way, if you think of the total equity in the company adding up to a 100% figure, then of that figure, the company 'owns' 70% of the equity and the float 'owns' 30% of the equity, the sum of the equity owned by the company and owned by the float summing to 100%, as you would expect.

This post is fictional and for my learning purpose only snoopy, i'm pretty sure I have something mixed up here, i'm thinking maybe im just getting confused with terminology??



The equation for an investor in 'cents in the dollar' to recover their share of the company's retained equity, by selling OCA shares -enhanced by the float- comes down to: 0.5 x 1.4286 x E = 0.7143E

So for every dollar generated within OCA, our shareholder investor can get back 71.4c of that by selling their OCA shares on market. And that is a few cents better than paying an unimputed dividend.

going to review this hopefully directly with snoopy, cause i'm quite lost here i think.

[Snoopy]

If we look at the cashflow statement for HY2024, the difference between 'Receipts for New Occupation Rights Agreements' and 'Payments for Outgoing Occupation Rights Agreements' over the half year was: $105.214m - $38.578m = $66.636m. 30% of that figure will be the increment of the float. So the increment of the float is 0.3 x $66.636m = $20.0m That means another way of interpreting these figures is to say 'the float' increased by $20.0m over the period




If by 'float' we are talking about the ORA....and that is what SailorRob called it....then your analysis is incorrect. We need to use consistent definitions. The float is NOT the DMF. Float refers to the total cash received and available for use by the RV as they see fit.


OK, I may have been a bit loose with my terminology here. The Occupational Rights Agreement or ORA is the money the resident hands over to OCA when they move into a villa. As part of the deal, when the resident departs the villa, they will get their ORA money back, less 30%. That 30% they will not get back is deemed the Deferred Management Fee, or DMF. Ostensibly it is used to 'manage the business' while the resident resides there. But there is no legal requirement for OCA to explain their cost allocation to maintenance and management from the DMF. The DMF is a capital charge which management can do what they like with.

The question then becomes what happens to the rest of the ORA money, the remaining 70% when it is handed over to OCA? Can OCA really do what they like with that? My thinking is no they can't, because -as part of the OCA business model- that money, or perhaps more correctly that money plus any complementary bank borrowing that has been raised against it - has been ear marked, and you could argue 'already spent', in developing new village assets. And although it never has to be repaid by OCA (because when the time comes for an ORA handover, the new resident indirectly pays the old residents ORA balance back with OCA acting as an intermediary) it still has to remain on OCA's balance sheet in some form even as it has already been transformed from cash into investment property while OCA is holding it. So by this measure the 70% retained balance of the ORA figure is not part of the money that OCA can 'do what they like with', because it is needed to support the existing debt on the balance sheet, by shoring up the equity ratio of the company. Also if the company is ever wound up, it would have to be repaid. So the company has a duty not to 'fritter this money away'.



DMF *is* a cash item - it is prepaid by the resident up-front on day 1 when they pay their ORA - the exact amount of DMF will not be known until a later date. It is incorrect to call it a non-cash item. We need to a) be careful with our wording and b) consistent in our definitions, if we are to correctly raise the level of understanding of RVs.


Yes DMF is cash because it has been prepaid in previous years. But in the context of what I was talking about, I meant the company could use DMF assets already paid up to fund any current year operational cashflow deficit, because the DMF money was already sitting in the balance sheet as cash collected in previous periods, ostensibly for this purpose, and is waiting to be spent on such things (hopefully).

SNOOPY

[Baa_Baa]

You're right sorry Cupsy!

Thanks for correcting that, reading "The deferred management fee is payable by the resident on termination of the ORA." made me think it was recognised as revenue when the resident exits.

I am not an accountant... lol

Are you sure it's right? Correct me if I'm wrong but the 'accounting' for it may be spread over the average life of the occupancy, but the client/resident liability for it, is spread over the first three years of their occupancy. i.e, if they leave earlier than three years, their liability is not the full amount, but if they leave over three years the liability is the whole amount - but not deducted from the final payout, until they actually leave (perhaps why it's accounted for [amortised against] the average term of tenancy? I may be wrong.

Sorry, it's late and I can't be bothered checking the details.

[Cupsy]

The question then becomes what happens to the rest of the ORA money, the remaining 70% when it is handed over to OCA? Can OCA really do what they like with that? My thinking is no they can't, because -as part of the OCA business model- that money, or perhaps more correctly that money plus any complementary bank borrowing that has been raised against it - has been ear marked, and you could argue 'already spent', in developing new village assets. And although it never has to be repaid (because when the time comes for an ORA handover, the new resident indirectly pays the old residents ORA balance back with OCA acting as an intermediary) it still has to remain on OCA's balance sheet in some form even if it has been transformed from cash into investment property while OCA is holding it. So by this measure the 70% retained balance of the ORA figure is not part of the money that OCA can 'do what they like with', because it is needed to support the existing debt on the balance sheet, by shoring up the equity ratio of the company. Also if the company is ever wound up, it would have to be repaid. So the company has a duty not to 'fritter this money away'.


SNOOPY


OK, ignore what I have posted here, re-reading snoopys post i think I have got the gist of it. Again thanks snoopy.

[Baa_Baa]

@Snoopy, have you considered the ratios of the bank debt to ORA (withheld equity) [not Bonds on issue] to determine whether OCA have room to use the 'float' to do 'whatever they want with it', or have you assumed a direct correlation of the ORA withheld to the bank debt? i.e the bank debt is somehow directly correlated to the amount of debt that the bank(s) have allowed? If so I suggest that the bank debt is a much smaller percentage of the withheld ORA + DMF unpaid, that will never be repaid in TOTO and is constantly growing (the float).

[Snoopy]

OK, this is a question I have been wondering with regard to "value" of this ORA, they can't lose this money as you say, but they can invest it cant they?, therefore it has to have a value does it not??, my simple mind thinks "whats an easy way to think about a value?", and it comes up with earning 6% in a term deposit. I know im highly likely way off the mark here, so maybe someone can explain it to me?


I am just looking at the latest balance sheet reflecting the HY2024. There is $10.090m of cash on there. But does that $10.090m include all the cash held that residents have paid into ORA agreements that technically they owe to their residents when they leave? Since the liability side of the balance sheet shows refundable occupation rights of $935.726m, the answer to my question is clearly no. I conclude that the 70% residual ORA money taken in by the company has already been spent on investment property, being the largest asset item on the balance sheet. So forget about investing the 'float', -if that is what you want to call it- at the bank earning 6% interest.

The so called float money has already been incorporated into the underlying structure of the OCA business and the benefits are there for all to see on the balance sheet. There is no 'hidden' float money that stupid investment fund managers cannot see and has somehow been overlooked, hiding in a long lost corner of the balance sheet. Sad to say the float no longer exists as a separate thing that OCA can 'do what they like with'.

SNOOPY

[ValueNZ]

I am just looking at the latest balance sheet reflecting the HY2024. There is $10.090m of cash on there. But does that $10.090m include all the cash held that residents have paid into ORA agreements that technically they owe to their residents when they leave? Since the liability side of the balance sheet shows refundable occupation rights of $935.726m, the answer to my question is clearly no. I conclude that the 70% residual ORA money taken in by the company has already been spent on investment property, being the largest asset item on the balance sheet. So forget about investing the 'float', -if that is what you want to call it- at the bank earning 6% interest.

The so called float money has already been incorporated into the underlying structure of the OCA business and the benefits are there for all to see on the balance sheet. There is no 'hidden' float money that stupid investment fund managers cannot see and has somehow been overlooked, hiding in a long lost corner of the balance sheet. Sad to say the float no longer exists as a separate thing that OCA can 'do what they like with'.

SNOOPY
This is so blatantly incorrect, I'll respond tomorrow as to why.

[Cupsy]

I am just looking at the latest balance sheet reflecting the HY2024. There is $10.090m of cash on there. But does that $10.090m include all the cash held that residents have paid into ORA agreements that technically they owe to their residents when they leave? Since the liability side of the balance sheet shows refundable occupation rights of $935.726m, the answer to my question is clearly no. I conclude that the 70% residual ORA money taken in by the company has already been spent on investment property, being the largest asset item on the balance sheet. So forget about investing the 'float', -if that is what you want to call it- at the bank earning 6% interest.

The so called float money has already been incorporated into the underlying structure of the OCA business and the benefits are there for all to see on the balance sheet. There is no 'hidden' float money that stupid investment fund managers cannot see and has somehow been overlooked, hiding in a long lost corner of the balance sheet. Sad to say the float no longer exists as a separate thing that OCA can 'do what they like with'.

SNOOPY

Hi snoopy,
Sorry, I went off half cocked here, you do actually all-ready explain in your post that it is incorporated into the underlying structure. With regard to a term deposit I was trying to analogize to get some idea in my mind of how it could be thought of in terms of worth, but in retrospect was a poor way of thinking about it i think.

[winner69]

Seems Rob was right .....the greater the float gets the lower the share price should go

[Cupsy]

Seems Rob was right .....the greater the float gets the lower the share price should go

:laugh::laugh::laugh::laugh::laugh::laugh:
Are you stirring the pot by any chance?

[bull....]

I am just looking at the latest balance sheet reflecting the HY2024. There is $10.090m of cash on there. But does that $10.090m include all the cash held that residents have paid into ORA agreements that technically they owe to their residents when they leave? Since the liability side of the balance sheet shows refundable occupation rights of $935.726m, the answer to my question is clearly no. I conclude that the 70% residual ORA money taken in by the company has already been spent on investment property, being the largest asset item on the balance sheet. So forget about investing the 'float', -if that is what you want to call it- at the bank earning 6% interest.

The so called float money has already been incorporated into the underlying structure of the OCA business and the benefits are there for all to see on the balance sheet. There is no 'hidden' float money that stupid investment fund managers cannot see and has somehow been overlooked, hiding in a long lost corner of the balance sheet. Sad to say the float no longer exists as a separate thing that OCA can 'do what they like with'.

SNOOPY

that 1 billion ORA money is supervised by a statutory supervisor as under NZ law. they have the powers to tell any RV what to do with that money if they are not happy with what they are doing with it. So no RV can technically do what ever the hell they want with it. but they can invest this int free loan if the supervisor deems it suitable investment.

So technically they could have invested it all already in the structure yep and thats why no such term as float exists in RV language as it technically does not exist anymore only as a liabiilty.

thats why profit = DMF < 30% + re-sale gains less costs and lumpy cashflows from these = fv of OCA

did the supervisor tell oca to stop paying div's :scared: Cause they worried about ORA liability ?

[Balance]

Looking like sp is going to break below 68c.

Got down to 45c during the Covid sell down in 2020.

Sellers now getting more aggressive - not waiting for the retail punters to load up too much before they slam the bid side. :eek2:

!https://images.healthshots.com/healthshots/en/uploads/2023/01/17202205/fear-770x436.jpg

[bull....]

further all the un-sold stock is in effect the ora monies :scared: + monies needed to re-pay debt :scared: :scared: the supervisor is panicking. cut div's cut div's you need much needed cash to re-pay the ORA

I would be checking what properties the supervisor has lodged a land based security on

[Leemsip]

Of course the float is already invested in buildings etc, this is the point of it, free money to build stuff. There will never be a cash crunch though, as new punters pay for the apartments and OCA use this to pay out the people leaving...

Its a good business model. I think MAV has the right of this, its a cashflow game, with OCA coming out of the cash spending phase and into the cash receipts phase as their new builds sell down.

Not invested, waiting for something silly to happen to the share price in the recession....

[bull....]

Of course the float is already invested in buildings etc, this is the point of it, free money to build stuff. There will never be a cash crunch though, as new punters pay for the apartments and OCA use this to pay out the people leaving...

Its a good business model. I think MAV has the right of this, its a cashflow game, with OCA coming out of the cash spending phase and into the cash receipts phase as their new builds sell down.

Not invested, waiting for something silly to happen to the share price in the recession....

cash crunch is underway. as per all RV announcements on debt reduction , slow-down construction , concentrate on cashflow. So yes sales are very important going forward to keep the lights on as per mav's focus. but as i say sales not necessarily translate to cashflow.

[Baa_Baa]

that 1 billion ORA money is supervised by a statutory supervisor as under NZ law.
did the supervisor tell oca to stop paying div's :scared: Cause they worried about ORA liability ?

What is the name of this "statutory supervisor" who has the power to tell an RV's not to pay dividends?

[bull....]

What is the name of this "statutory supervisor" who has the power to tell an RV's not to pay dividends?

retirement villages act . if you are a resident of oca you can ask the name of the person. or alternatively the FMA know who it is.


Statutory supervisors employ accountants or analysts in their businesses to review each village’s audited financial statements. They look for financial trends or results such as: balance sheet insolvency, levels of debt as a percentage of total assets, major variances in year-on-year profit or loss, increases in operating expenses, bank covenants not being met, existing residents not accessing their termination proceeds, maintenance not being carried out, whether occupational rights agreements are difficult to sell and other indicators that may not be in the best interests of residents.
If an issue is found the statutory supervisor seeks advice from the village operator about what action is planned to rectify or mitigate the issue. The statutory supervisor also receives a report from the village’s independent auditor about the audit of the village’s financial statements

[Daytr]

cash crunch is underway. as per all RV announcements on debt reduction , slow-down construction , concentrate on cashflow. So yes sales are very important going forward to keep the lights on as per mav's focus. but as i say sales not necessarily translate to cashflow.

You are blowing things out of proportion here Bull. They have debt locked in, the earliest tranche due is not until Oct 27.
It's only prudent to slow down development if sales have been slow due a spluttering housing market.

OCA has something like 400 units either completed or in various phases of development.
Of course sales are key as they are for any developer. The proceeds from sales should be more than enough to complete the development and over time sales proceeds will outweigh what is requires to complete the builds.

OCA forecast to increase new & resales by 50% in the first half of 2024. Interestingly they are also forecasting to halve their development margins but maintain their resale margins.

[Maverick]

14950
All this talk of “floats “ , are they real , imagined and even useable?
Heres the picture to tell the story from 1hy24.

I apologise for my childish graphics , but stumpy fingures on an iPad will do that…but it does make it clear to deferentiate what I’ve added over the offical release.

There it is ..the float…. Right now it is $950m tied up in property development with $364m now currently ready for sale.

It does exist and being used to handsomely achieve assets CAGR 18 % ( over 6 years. )

Hopefully this picture saves a thousand words.

[Cupsy]

further all the un-sold stock is in effect the ora monies :scared: + monies needed to re-pay debt :scared: :scared: the supervisor is panicking. cut div's cut div's you need much needed cash to re-pay the ORA

I would be checking what properties the supervisor has lodged a land based security on

The bold portion of your post is an interesting point, from notes to the consolidated financial statements in the AR, 3.3 held for sale

"As the refundable occupation licence payment is repayable to the resident upon termination (subjectto a new ORA being issued to an incoming resident),""

[Balance]

Looking like sp is going to break below 68c.

Got down to 45c during the Covid sell down in 2020.

Sellers now getting more aggressive - not waiting for the retail punters to load up too much before they slam the bid side. :eek2:

!https://images.healthshots.com/healthshots/en/uploads/2023/01/17202205/fear-770x436.jpg

67c heading fast towards 60c?

[Daytr]

67c heading fast towards 60c?

There is a real lack of buyer depth.
Could be good timing for me.

[bull....]

The bold portion of your post is an interesting point, from notes to the consolidated financial statements in the AR, 3.3 held for sale

"As the refundable occupation licence payment is repayable to the resident upon termination (subjectto a new ORA being issued to an incoming resident),""


As the refundable occupation licence payment is repayable to the resident upon termination (subjectto a new ORA being issued to an incoming resident

hope to many dont die at once

[Mrbuyit]

^^ surely only a problem if no-one wants to move in?

a worse situation for shareholders (although somewhat unlikely) is all residents living to 150 years old.

[Rawz]

It’s funny watching the bears and bulls wrestle control back and forward on this thread