So SailorRob has a pretty good case I think when saying the balance sheet of these companies are amazing. Huge interest free loan from residents, which makes the whole business viable. Ive had a quick look at the annual report and couldnt agree more. $800m free $$. Nice. Low liabilities and boat loads of equity built on increasing valuations and new developments.
Times have changed though and we now have a housing market on the slide. I think the big question for OCA and the other retirement companies is whether they can be profitable without increasing valuations and a much lower development prog.
So here are the last 2 sets of accounts from OCA. See the valuation uplift - as per pg 61 of the annual report - thats all increases in fair value of property (incl new developments less costs of new developments).
|
|
Mar-22 |
Mar-21 |
Income |
Revenue |
184 |
143 |
|
Deferred mgmt fee |
47 |
32 |
|
Valuation uplift |
63.4 |
79.9 |
|
other |
13.8 |
4.3 |
|
Total |
308.2 |
259.2 |
|
|
|
|
Expenses |
Employees |
156.4 |
115.7 |
|
Finance costs |
9.38 |
6.8 |
|
Depreciation |
18.6 |
13.534 |
|
other |
67.82 |
48.466 |
|
Total |
252.2 |
184.5 |
|
|
|
|
|
Gross profit |
56 |
74.7 |
|
tax |
4.9 |
10.4 |
|
NPAT |
51.1 |
64.3 |
So, Im not an expert here at all, but we should probably consider that this wont be around for the next few years. Any valuations will be down. New developments might add a bit but cost increase and value decrease on these as well.
This would bring the whole operation back close to break even at best and likely a small loss each year.
Some might argue that depreciation is non-cash and so doesnt count. I would say that this expense is pretty legit and should count, $18m depreciation on $2b of property seems fine, and they will have to spend this amount every year to keep the properties up to spec.
Interested to hear from the bulls on this super high level take.