https://www.stuff.co.nz/life-style/h...ak-in-november
19% drop in Auckland median house price since Nov 2021.
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https://www.stuff.co.nz/life-style/h...ak-in-november
19% drop in Auckland median house price since Nov 2021.
Headline always grabs attention.
CoreLogic head of research Nick Goodall said the drop was in part due to a rise in the proportion of flats and apartments selling, and a fall in the number of freestanding homes sold, which was probably driven by house owners’ price expectations being too high.
Goodness me, you are such a Chicken Little in a bear market, catastrophising every share you have. Chill imho, it's not like we haven't done bear markets a number of times before now. You guru's are supposed to be offering soothing words calming the noobs, not calling 'the sky is falling'.
OCA are and have historically been very slow to recognise market movements in property prices on their balance sheet. By the time they value the asset base again the markets will either be back at their uplift from ages old valuations, or ahead of them regardless of where median houses end up.
It's well past time to draw back from the daily market price movements and focus on whether you think OCA is still a good fit for your investing strategy, and if so, is now a cheap deal for the asset? I think it is. Any more lower just means getting an even better deal.
Wise words.
I still say "patience my dear fellows, patience".
The more I look at the OCA accounts the more I am peeling away the layers of the onion (no easy task, but I am getting there). Underlying profit is trying to strip away IFRS impacts and focus on what is close to cash accounting based on activity. Looking only at the property side for now given that seems to the focus of this thread, building a new facility adds nothing to underlying profit per se. It is the sales of those new builds that adds to underlying profit (and of course resales). Whereas a new build adds to reported NPAT through revaluations, as in this complex cost "x" to build but it is now worth "y" under IFRS. Much like the brownfield developments are worth "x" when purchased, but are worth "y" once they are consented for multiple units etc. OCA has multiple layers of revaluations, but none of which matter for underlying earnings.
Given the relatively healthy development margins over recent years (where "y" is consistently higher than "x"), and the demand for such facilities seems insatiable, I view the risk to new build margins and the flow of sales as relatively low. Increased construction costs will result in higher property values and I expect Management will do what they can to control costs. This plus resales should maintain underlying profit. Yes there is a signalled dip in new build margins as the mix between cities and regions changes, but population density + demand suggests the mix may change back AND the impact may be insulated somewhat by high resale margins. Keep in mind resale margin is the difference between the new ORA value and the ORA value paid by the previous tenant.
Given the average tenure for units is 7 years and apartments is 5 years, resale margins are calculated versus these old values. Would someone like to check the maths - what are the compounded growth rates for property over the last 5 and 7 years? If some residents are currently living longer than expected due to the pandemic health initiatives, this merely pushes out the resale by a year or more, which will still result in a higher resale value than that tenant paid. Hence I come back to patience my dear fellows, patience. Resale margins are here to stay...but that is not all...
In addition, a higher overall ORA value results in a higher Management Fee given it is a % of the ORA. A higher ORA value means higher deferred management fee (DMF) income for OCA. Whilst these are accrued onto the Balance Sheet according to the ORA contracts, they are released to the P&L based on expected occupancy durations. So a growing "deferred management fee" on the liability side of the Balance Sheet is a GOOD thing. I say it is good because it is not a liability that will ever crystallise through a cash payment, rather it is revenue that has not yet been put into the P&L. Not all reported liabilities will result in a cash outflow for a business. And this growing balance is evidence of higher future DMF revenues (see * below).
In summary more developments = more activity, and inflation + time = higher values; more activity times higher values = higher revenues and profits for OCA. This is what I call the snowball effect. OCA have multiple snowballs in play, where each is at a different stage. Some snowballs take 8 years to extract full value. As to how the developments are funded, and the potential impact on EPS which Beagle touched on, will have to wait for another day.
*Homework: check out the concept of "embedded value" in the OCA annual and interim reports.
That said, if you want a faster return on your money then maybe follow JBMurc's mining picks on the ASX! (not investment advice).
Had another look at the interim financial statements presentation and I see that they really only just reached the point of inflection at the half year where 50% of their units are premium revenue, care suite, or independent living unit. So the sobering reality with care costs where they are at present is that about 49% of the current units, (grossly Govt underfunded basic care units) is being run as a charity. Given the value of these very small rooms that are grossly underfunded is very modest compared to other premium rooms, care suites and independent living units my estimate is that about 20% of one's capital invested in OCA is basically of a philanthropic nature, supporting the charitable side of their business.
To me this explains the discount to NTA because somewhere around 20% of the NTA is completely unproductive capital.
My contention is its no market accident that OCA is the only one in this sector to trade at a discount to NTA and this discount is genuinely warranted. FOOP (Fear of over paying) is alive and well with OCA as it quite rightly should be.
In five years time as the glacial speed of their business redevelopment program finally starts to transform this company the ~30% of units that are still basic underfunded care will probably amount to something like only 10-12% of the NTA. Hopefully they will move even further away from loss making activities after that.
Does it fit my long term investment objectives ?. Thank you Ferg, that's a timely question. A 4% unimputed dividend yield is absolutely pathetic so its an epic fail in terms of conferring retirement income on me. A slow boat to China with capital gains but maybe another 4%-5% per annum makes it a hold for me but only having a modest SUM of shares seems like the right fit for me. Chasing real capital growth in this sector should be done SUM where else in my opinion and only after watching TA closely on that one.
Disc: I am going to continue holding my modest allocation but I am no longer interested in adding, (no more coin tosses, sorry), unless it goes under the original IPO price. Share price gains from here are probably going to be as exciting as watching grass grow during a drought. Ouch, there I said it !
More fun than having money in the bank.
I feel having money in the share market is like horse racing. But (generally -gulp) the money is not all gone at the end of the race. It's all about having a good time.
Having a good time thanks to Covid discounts on OCA already thanks Ralph. I bought a house load of them at 76 cents LOL