1025 at 31. 3.23
if it helps , my estimate of “unsold” is about 330….but we should all know by now these can’t be classified as “sold” until the occupying grandfathered residence moves on to then make it available for its first time sale.
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The problem with the 'premium care model' is that while you might be initially able to fill your units with non-subsidized 'pay out of my own resources' residents, there is no guarantee that after those initial residents 'gain their upstairs promotion', there will be others similarly well off to take their place. Thus there is no guarantee that this model will work down the years. Granted it may be that above a certain population level, there will be a large enough cohort for such a model to work. It may be that 'Auckland' is that population base level and Oceana's 'St Heliers' is an example of this. But I can tell you that in Wellington such a model is not perceived to be sustainable (the view of the now retired manager of what is regarded as a top quality Kapiti Coast retirement village for those who are 'wealthy').
Part of the problem of course is that what was seen as premium accommodation in the day is no longer - as time marches on and expectations change. An obvious example of this is the Waterloo Hotel in Wellington, which was celebrated as one of the finest hotels in the city at the height of its popularity in the 1940s and 1950s and is now a backpackers. How long will the like of St Heliers retain their premium halo?
SNOOPY
Snoops ….the Waterloo eh ….never stayed there but frequent visitor lol. Probably had a drink with you once.
When built described just like The Helier …like words used were ‘zenith’ , ‘new standards’, ‘ chrome’, ‘modern appearance’ in this bit of history. (Descriptive language not changed much the other years eh) -
When completed, the hotel overwhelmed the immediate area. It had 102 rooms and accommodation for 125 and it was regarded as the zenith in hotel design. A contemporary account considered that it set "new standards in furnishings and interior decoration as well as in other appointments". The liberal use of chrome in many of the building's fittings was an integral part of the hotel's modern appearance. While the building was still being erected, plans were drawn up by Atkins and Mitchell to lengthen the Waterloo Quay elevation to provide more staff accommodation.
https://wellingtoncityheritage.org.n...hotel-waterloo
I thought the $20.4m breaks down to PAC revenue (Premium Accommodation Charges for accommodation provided above the mandated minimum) of $5.5m in FY23, along with $14.9m from care suite DMF collected.
I don't think PAC revenue is necessarily solely income from care suites but can be from occupants of care beds also where there are additional benefits/services provided. Which may be the case at some OCA facilities? My modest knowledge base with regard to Rest Homes is that every effort is made to justify charging at least some minor on-cost above the subsidy whilst still remaining in compliance with Government contract requirements.
Thinking about OCA's cash position going forward I note in FY22 $72.5m was spent on acquisitions (rather than development capex) and $61.6m in FY23. So simply ceasing purchases of land/facilities can mitigate cash outgoing significantly.
Additionally, the FY23 Financials show assets held for sale at $101.7m which seem to be 10 existing facilities which are effectively "on the block" and we know two of these have subsequently been on sold with settlement by end August. And most importantly unsold stock (being care suites/ILUs not under contract) as at 31 March 2023 were $409m, which is a much higher figure than the equivalent number at the previous year end. With the property market moving a bit more freely now that figure should be reducing. No doubt Brent will update us at the ASM later this month. Given there was already considerable headroom with cash on hand/banking facilities it doesn't seem there should be a cash problem.
Nicely said as always... that's an excellent segway from the recent focus on care subsidy onto ( far more importantly ) village sales.
While care profit will do its thing, its the new sales turnover that gets this model cranking. We can see on any other days newspaper that nation wide house sales volumes are lifting. The main limiter now seems to be low supply...boom.. our potential residents can help with that... win win.
Anyway, just wanted to say excellent post Ronaldson, your contributions here are top notch.
I disagree that they should have repaid it. Oceania received the subsidy as it was intended. Why shouldn’t those who provide care earn a reasonable profit on their capital invested? It is disgraceful that the gains on investment in real estate, and real estate values surged as a result of Covid measures, cross-subsidise the lack of a reasonable profit on assets used for care. Why shouldn’t it be the other way round? The NZ investment environment, and government revenue raising, has messed up priorities. And it is chronic!
A younger care worker earning double the income would boost NZ’s economy much more than an older real estate investor earning half the capital gains would detract from it. Likewise OCA earning twice the care profit would boost the tax take more than if it earned untaxed capital gains.
Hey Winner,
Been thinking about your care quandary yesterday and the best way to answer it in a way that is understandable and within reach of more everyday analysis. I'm talking here now, not about the GOVT fee profits anymore but now solely about OCAs other care profit component , PREMIUM FEES.
Govt fee profit ( discussed last week) + PREMIUM FEES + other ( always flat and about $1.4m) = $total care profit.
I've had a sleep on it and have had an idea which is simple and has incredible back testing results.
I was going to private message you all this as not to further bog down this thread with more graphs and tech stuff. But this is actually really good and some others might find it useful.
Here's how the rule of thumb formula works.
We currently have 1021 premium beds valued at $331k each = total value $338m
This asset base, if 100% full, should yield an average DMF total of 10% p/a .
$338m x 10% = maximum annual premium care profit of $33.8m. ( if they were 100% occupied by paying residents)
We know it was only $20.4m
Let's turn that into a percentage …20.4/33.8= 62%
So for 2023 we only got an actual yield of 62% on the asset base.
It wouldn't be right for one of my posts not to have a graph somewhere so here's the history of that percentage calculated for the last 6 years
https://lh5.googleusercontent.com/vc...p5ztFVQrsT9DEg
This stacks up nicely with what I said yesterday that about a third of OCAs haven’t been sold which implies a return of just under 66% is about right. These unsold units are either occupied by a grandfathered client or in a delivery still in the sell down phase.
Forecasting from here;
OCA tells us they want to build another 667 caresuits and at their historical build rate of 135 p/a that tells us they should be done by 2028.
We have observed it then takes about 2-3 years to bring a new delivery to maturity and for waiting lists to form.
So 2028 + 3 years = 2031 all these units are all up and running at maturity.
The last steps are to value the asset base and then to anticipate the possible efficiency of the DMF return on it.
1688 units at today's nominal value $324k = $547m
Annual maximum DMF + PAC return is 10% so that's a maximum premium revenue potential of $54.7m.
Logically, occupancy on mature deliveries will rise to OCAs usual rate of 92%.
let's make it 90% instead as the kids might slow the sign up process a little while they balk for a few weeks over the ORA costs. Plus there will be a few grandfathered folk who just have incredible genes.
Therefore premium care revenue in 2031 should be $54.7m x 90% = $49.2m
I would expect this profit growth will be fairly linear which mean extra premium care revenue of $3.6m P/A ( then any inflation adjustment to sale prices on top of)
Here's the unbelievable thing for me , I have very elaborate spreadsheets built over 5 years with every morsel of OCA intel known to man packed into the it. I $hit you not, my complex system has the forecast as $49.1….
Hey Winner …Now that's spooky eh?