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Good morning to ya Bull.
No , I haven't suggested anything, but yes, I do have an opinion.
What I am outlining is the hugely rewarding end game for OCA if they just work through their pipeline and call it quits.
My exercise illustrates that there is a huge pot of gold for OCA whenever they choose to stop the music.
It dispels the industry accepted myth “that RVs only make money because they build and rent stuff in a favourable property market “ …but it just ain’t true… stopping (by any operator) and letting the money wall wash in just hasn't been experienced in this ever expanding industry… yet
OCA is currently at a pivot point. They have run out of new territories to build villages vertically and still sell profitably.
In their HY result they demonstrate this by their slides of net returns on their new tower villages with “all cash in” .i.e that including the roads and community buildings.
If other operators did this they would actually be making losses. RYM and ARVs current capital issues are caused by this fact. (and then exacerbated as they moved into building apartments).
These OCA slides show the Hamilton building barely breaks even (3% profit) while the Spanky Auckland area makes a handsome 25%.
Market commenters have often congratulated OCA on recently switching focus from highrises to villas as they see apartments as financially inferior. But OCAs towers are actually very profitable when fully sold down; however, that's only in high end districts. Currently , there is simply nowhere else to build a new village of towers profitably.
OCA will no doubt keep expanding as opportunities arise. Ie They just bought 2 adjacent bits of land to villages . But, while brilliant purchases, these kind of volumes won't be enough to sustain their build rate.
OCA have many choices:
A.Switch to broard acre villas.(ie just replicate SUM who have this nailed)
B.Head to Aussy. You have to wonder why they bother keeping their AuSX listing going…mmm.
C.Casually add bits and pieces of high value land as they have recently done.
D.All of the above.
E.Stay ultra premium and boutique with what they currently have and just call it a day.(Yes, that's my preferred choice… plus a little bit of “C”.)
But what is pleasing is that whatever they choose, they are not compelled to expand nor addicted to just for expansion's sake.
The reality for them now is all they really have to do now is kick back, finish the pipeline and let all these chess pieces in place do their thing, they've already won if they do that.
My exersize is at today's prices.
But yes , in reality expenses will rise but they will all be offset by a similar increase of income:
The rise in care will be met by rises in WhataOra and PAC fees.
The rise in village operations will be met by the rise in village fees.
Interest costs will disappear and replaced by positive investment income
Corporate costs will reduce as OCA stops development.
New build costs ( and margins) will have ceased.
Resale margins will increase as per the inflation of the day which automatically adjusts the DMF income accordingly.
The only new cost that will be incurred is taxation.
This is the second biggest beauty of RV investing , that it is essentially inflation proof.
I hope this covers your question.
And one last thing before I get on with real life leaving ST alone for a while.
(Posting does waste a lot of time and energy.)
Sailor, you asked my opinion on what this share might be worth if they do make say 30c p/a inflation indexed in 8 years...
I'd want 5% above inflation p/a . Thats for a no growth company that allows for some taxation.
That makes the share worth $6 to me. Just a little higher than your $5.50
Who might be interested in this company?
This is out of my lane and just my baseless opinion.
At today's price , It will be only of interest to to private equity only once its debt has been paid off ( so they can reload debt and resell it) but any mega pension fund could take an interest in this anytime.
As I've said, theres a ton of value here now sitting in plain site. Now sales, prices margins are all known and caresuites are derisked.