OCA - Oceania Group - retirement villages

[Ferg]

Welcome back SR. That interest free mysterious debt that is not a float that you refer to......OCA refer to it as 'cash recycling'.

Someone stated earlier that reported profits include profits on sales and resales of units - that is not correct. Development margins and resale gains are not directly in the P&L (refer image in Baa_Baa's post #19872). Hence the reason OCA and others prepare a reconciliation to underlying profit (see page 16 of the FY24 interim presentation). That reconciliation removes a number of items that are in the P&L and then adds on the development margins and resale gains +/- other adjustments.

Development margin is the difference between the value of the ORA receipt from the first client to occupy a unit and the the cost of developing that unit. That sale transaction occurs on the Balance Sheet, and does not appear in the P&L. Same for resales. Simplistically speaking a resale gain is the difference between the value of an ORA sale and the value of the previous ORA sale for that particular unit, with some minor adjustments (see page 29 of the interim FY24 presentation). All of this happens on the Balance Sheet....hence the reason underlying earnings differs to reported profit. So in summation, that image posted by Baa_Baa represents trading profits without any gains on sale or revaluations.

And anyone who is wondering how much is spent on refurbishment capex relative to DMF income - DMF income earned last fiscal year was $53.8m (per AR FY23 page 46) and the cost of care suite & ILU refurbishment was $4.5m (note total maintenance capex was $11.3m which includes some non-care and non-village assets like IT - see page 14 of the FY23 presentation). And for 1H24 DMF income was (19.5+7.9) $27.4m whilst C/S and ILU refurb capex was $3m (or $7.1 including all other items).

[Baa_Baa]

Welcome back SR. That interest free mysterious debt that is not a float that you refer to......OCA refer to it as 'cash recycling'.

Someone stated earlier that reported profits include profits on sales and resales of units - that is not correct. Development margins and resale gains are not directly in the P&L (refer image in Baa_Baa's post #19872). Hence the reason OCA and others prepare a reconciliation to underlying profit (see page 16 of the FY24 interim presentation). That reconciliation removes a number of items that are in the P&L and then adds on the development margins and resale gains +/- other adjustments.

Development margin is the difference between the value of the ORA receipt from the first client to occupy a unit and the the cost of developing that unit. That sale transaction occurs on the Balance Sheet, and does not appear in the P&L. Same for resales.

Thanks for backing me up Ferg, it's getting tiring and tedious hearing bold statements about OCA's financials that are plainly and simply incorrect and ill-informed.

It would be interesting to see an alternative view of the operational profitability of 'care', particularly as in recent times care revenues have gone up with increases in government (DHB) funding, care costs have gone down with covid overhead gone, albeit nurses incomes increased, non-strategic care assets are being divested, the overall mix of ILU to care has changed significantly and will continue to do so.

I don't believe for one minute that 'care' or 'operating profit' is not profitable, it's just not as profitable as property development. And for that reason, I don't want to see development constrained (it is about growing our future cash flows, and float ). It's all about selling the properties we have and the new ones we develop, sell sell sell. Get those properties inhabited with paying customers.

[Ferg]

Thanks for backing me up Ferg, it's getting tiring and tedious hearing bold statements about OCA's financials that are plainly and simply incorrect and ill-informed.

It would be interesting to see an alternative view of the operational profitability of 'care', particularly as in recent times care revenues have gone up with increases in government (DHB) funding, care costs have gone down with covid overhead gone, albeit nurses incomes increased, non-strategic care assets are being divested, the overall mix of ILU to care has changed significantly and will continue to do so.

I don't believe for one minute that 'care' or 'operating profit' is not profitable, it's just not as profitable as property development. And for that reason, I don't want to see development constrained (it is about growing our future cash flows, and float ). It's all about selling the properties we have and the new ones we develop, sell sell sell. Get those properties inhabited with paying customers.

You are welcome and there are no disputes from me. The message has been "sell, sell, sell" for some time now - we are all beating the same drum.

I have tuned out to the "it's not profitable" messaging but it does depend on how it is measured. Traditional accounting measures are not helpful on 2 counts - firstly confusion arises between unrealised property portfolio revaluations and realised gains; and secondly applying depreciation to assets that go up in value doesn't pass the common sense test. Hence the reason unrealised portfolio revaluations and depreciation are backed out of the underlying profit calculations, and the realised gains are added back in.

The portfolio revaluation in the traditional P&L is (mostly or in theory) unrealised but is based on known factors such as recent sales and independent valuations, but note that it is for the ENTIRE portfolio. Whereas realised gains are only for those ILUs and care suites actually sold. Confusion further arises given such realised gains naturally sit in the underlying P&L for the village segment of OCA. This has the effect of understating the underlying profit for the care segment when you consider a good portion (3.9+5.1) $9m in 1H24 of total realised gains should sit in the care P&L given they came from care suites. OCA adjust for this on page 18 of the half year presentation. And we see this same value deducted from the village segment on page 20.

Care revenues for the second half of the year increase versus the first half due to DHB funding increase timing (H2 gets the full effect of funding increases, whereas H1 only gets half) and also the snowball impact of selling more ORAs at higher prices and selling more PACs. What is interesting to note is that PAC revenues as a % of total premium revenues for care are increasing each half year - which supports what Maverick said earlier that OCA are seeing an increasing percentage of PAC sales at the expense of ORA sales for care suites. Note the latest half year had PAC revenues at (3.1/11.0) 28% of total care premium revenues so there is a long way to go before PAC revenue exceeds DMF revenue for the care segment.

Unfortunately care costs are not yet going down - they have been increasing. But as you say it will be interesting to see how this changes with the divestment of the relatively smaller sites that focus on care.