OCA - Oceania Group - retirement villages

[Muse]

Personally I think the whole sector is holding its breath waiting for Omicron to do its thing...whatever that might be. And then to a lesser extent the property market is of some concern.
Pleased I halved my holding sometime ago in this sector. Am waiting for <100 to replenish.

yeah I think you are right - re what the market is currently focused on, being covid.
but, for me, I'm more worried about what happens in 6-24 months from now after the effects from rising interest rates start to trickle through, than I am with peak covid cases at x thousand per day
In 3 years time OCA's share price will be far more dependent on what happened to interest rates and property prices, than what happened with covid.

Inflation & Interest rates are a double edge sword as they pinch you on both sides of the development margin equation - increasing your construction costs and putting downside on your resale values. and, more specific to OCA, wage inflation ramping up on an already high (and necessary) care operating cost.

sadly, for OCA, covid may simply just be the appetizer to the inflation & interest rate main course.

[BlackPeter]

Personally I think the whole sector is holding its breath waiting for Omicron to do its thing...whatever that might be. And then to a lesser extent the property market is of some concern.
Pleased I halved my holding sometime ago in this sector. Am waiting for <100 to replenish.

With all due respect - I think these Omicron fears related to market prices of retirement villages and care home providers are absolutely overblown.

Market is not dumb ... and anybody who wants to know what happens with stock prices after Omicron does not need to look further than Australia, the US or the UK. All three are already beyond the Omicron peak and what happened to their stock markets? Well, prices went up and down as they always do, maybe some very short term Omicron jitter, but this was it.

Our prices will go up and down as well ... but I doubt that Omicron will be a major driver for retirement villages into any direction. If you need to worry about something, than worry about interest rates rising, worry about property prices dropping, worry about political interference with the business model of retirement living, worry about shortage of care staff and a braindead government making things worse wherever they can and worry about climate change (anybody checked which of the retirement villages has most exposure to rising sea levels?);

But much more sensible than looking for things to worry about is in my view to leave the worrying to others and try to mop up some more discounted shares. Sure - they may or may not be cheaper in a month from now (I.e. bottom pickers should do what they are best at ), but I am pretty sure that for anybody else it won't make a big difference in a year or two or three when they look at their portfolio : And hey - there is this other saying: a sparrow in the hand is better than two doves on the roof ... or something like that.

[RTM]

BP, FM, I think the point has been made a few times previously (not by me) that when people get to the stage of their lives that its time to move to a village, and they need to make the move...they will do it. The selling price of their house to fund this is likely to be more than the purchase of the Right to Occupy in a village....or whatever its called. So I am not to worried about the long term prospects...irrespective of what the property prices do.

I am more worried about the short term effect of what COVID might do should it run amok in a village. Or maybe I should say "when it does run".

If it doesn't happen....great...I'll be happy to sit with my downsized holdings....which are still not insignificant. If they do get COVID jitters, then I am also happy to restock should they reach bargain prices. At this stage I am certainly happier with where I have redeployed the funds released.

[dubya]

I posted this article last week on the 'Retirement Villages' thread.
Probably worth posting here too.

Waiting lists at retirement villages as Covid anxiety drives desire for - security

January 30, 2022 | Sunday Star Times (New Zealand)


Polly Milnes once sailed the high seas with her husband; now she is taking shelter from the Covid storm in a Canterbury retirement village.

Milnes, aged in her roaring seventies, left her "very nice" three-bedroom Halswell home in suburban Christchurch last week, to move into Ryman Charles Upham in Rangiora.

Her bid to find security in a pandemic world is part of a trend since Covid-19 loomed.

Pensioners have been heading for the security of retirement villages since 2020, Retirement Villages Association executive director John Collyns tells the Sunday Star-Times.

"We found that during, and immediately after the lockdown, the number of inquiries about moving to a retirement village dramatically shot up," he says.

"It was not only from intending residents, but also from their kids, who were worried about their parents living in the family home during a time of lockdown, and seeing the problem of mental health, which older people in the community suffered."

As Omicron looms the same principles of concern and safety remain, two years after the initial outbreak.

Covid prompted Milnes to take the step years earlier than intended. She had moved into a nice bungalow with lovely neighbours, but then the pandemic came.

"My step-son and his partner are over at Akaroa and when we got locked down I was in nobody's bubble.

"The neighbours are lovely. But they were in their own family bubbles. I found it very lonely. The more I thought about it, the more I thought to myself 'I'm going to have to rethink my life'.

"I'm sure what I have done now would have happened eventually [but Covid] has made me rethink and just brought forward my actual original plans."

And Milnes was far from alone in her rethink. She's so far from alone that she had to wait eight months for a Charles Upham townhouse. Her friend Margaret found an assisted-living apartment faster.

"We moved for the same reason, feeling that we wanted to be in a caring community. Similar people under an umbrella of security, that's the main reason that I've moved," Milnes says.

"I still have my independence, but there's somebody here if you need any help.

"Covid could get in here, who knows? But you're in a community, you're not battling or wallowing around on your own. You feel part of a team, an old team, but a team."

After years sailing with her husband, then taking cruises, Milnes has now run aground in Rangiora, with Covid curtailing her wanderlust. Her last trip was a 75-day cruise, but she's OK with where she's found herself.

"Somebody is quoted as saying once you're in, it's like being on holiday with your own furniture, and I can reinforce that."

Retirement villages are distinct from rest homes, which are more akin to hospitals for the elderly than homes.

In 2020 a Christchurch rest home was at the centre of New Zealand's deadliest Covid-19 cluster, linked to 12 fatalities.

The Rosewood rest home was found to have breached its obligations including cleaning services and emergency provision of personal supplies.

As with the general public, retirement villages and their residents have had social issues during the pandemic, Collyns says.

Among those have been increased security to keep residents and the businesses safer, higher potential for loneliness, and the vexed issue of vaccination.

"It is fair to say that there is a small number, we're talking a very, very tiny number of residents who are unvaccinated," Collyns says.

"It's also clear that other residents who are vaccinated are very cautious about involving the unvaccinated residents in village activities.

"That certainly creates a bit of a challenge for operators to work out how they can involve unvaccinated people in the village.

"There are opportunities for unvaccinated residents to be involved, but it's a lot more complicated to do that. Our advice to residents is to get vaccinated."

He felt the broader public were aware during the pandemic residents "were quite clearly being looked after, they had activities organised, they were socially distanced, and they were doing fun things".

"We wanted to make sure that operators didn't lock the gates and behave in a way that was over-bearing and too protective, because they thought the residents needed to be protected.

"Just because a resident lives in a retirement village, they should not be worse off than if they lived in their own home in the community."

With around 60 per cent of villages offering aged-care facilities, added precautions were crucial, given Covid was particularly tough on the elderly.

Retirement Village Residents Association president Peter Carr warns that there is no one-size-fits-all village, so the haste to feel secure should not over-ride other considerations.

"One of the things I like to say to people who are considering going into villages is do your homework," Carr says, and employing a lawyer to look over the contracts was a key part of that.

"You've got to be right about your decision. It's very hard to claw back because you lose a lot of money when you change your mind."

Carr, NZ National Fieldays Society board chairman, lives in a Cambridge retirement village, just 400m down the road from his last house.

His role is to give residents a voice when dealing with retirement village operators.

Since the first lockdown, some village operators erred too far on the side of caution, in the eyes of their residents.

"In some places, people felt they were locked up. They were never locked up in the physical sense, because you can't, but they were advised by some operators 'please don't leave the land'."

Under the traffic light system the degree of freedom is greater, he says, though there is still plenty of caution.

His village has a waiting list of around 30, and the security that caution provides - again - is one of the reasons pensioners are lining up.

"People are starting to think they're going to feel safer by being in villages. And I think they are, to be honest," Carr says.

"[It's a fact that] people in villages have a longer lifespan than those outside. It's quite an interesting thing. Perhaps that's also an attraction."

[percy]

Thanks for posting.
An excellent article.

[Beagle]

Agreed, a great article but won't help sentiment in this sector or for OCA. I suspect those thinking they might be able to get some more at under $1 might get their opportunity in due course. Thank goodness I learned a while ago that you can have too many.

[geezy]

Agreed, a great article but won't help sentiment in this sector or for OCA. I suspect those thinking they might be able to get some more at under $1 might get their opportunity in due course. Thank goodness I learned a while ago that you can have too many.

that would be me

[Maverick]

No doubt the falling SP has got us all somewhere between frustrated and down right f**ked off. While I'm confident I have the fundamentals nailed down I`m proving completely hopeless at understanding the share price. I find it bizarre that such a fundamentally solid company with good growth prospects trading at 21% discount to asset backing.

The only soothing thing for me while watching the SP tanking is to have my spreadsheets on hand to re-consult to put my mind at ease that everything fundamentally is ( or isn't ) still ok. I thought others would appreciate me sharing some numbers that allow me to sleep so well at night through all of this. I hope this is some help to you.

While my s/sheets have intense detailing on every level ( for example specific deliveries, area values , area build margins, Nurse rates, DHB rates etc) the following is a very basic summary.
These are the past 5 years historical numbers and my 2022 expectations. It will give you an insight of the growth of various income streams , how the are tracking and the changing relative importance of each income stream ( such as village DMFs now gaining meaningfully, that are rendering aged care of increasing lesser importance).

.......................................2017...2018 ....2019....2020...2021....2022(forecast)
Aged care profit ($m).......31.9 ....28.9.....25........19.2 ...22.2....23.2
New build margin ($m) ....5.1.......21.1.....29........34.3....28.6.....34.5
Village DMF($m)..............13.3....15........17.9......2 1.4....26.5....31.3
Resales ($m) ..................12.7 ....16.9.....15.1......11.5....21.5...22.4
U-NPAT($m) ....................14.......52........50.9......4 2.9 ...50.1...58.6

Notes.
Aged care profit -reaching point of inflection in 2020.
New build margin- will be higher in 2022 due to a high proportion of apartment deliveries and a large built up unsold apartment stock due to timing of seasons and covid lockdowns.( as long as next month isn't disrupted too much by omicron)
Village DMFs- rising to meaningful levels now and are very predictable based on previous sales .This growth is all but certain and continuous.
U- NPAT growth is excellent but EPS growth will be diluted by an extra 12.5% of issued shares.

Apart from the 2022 U-NPAT increase , I do not consider any of the above income streams to be out of trend nor at risk due to macro events. The unusual rise in 2022 U-NPAT is simply the sum of many small increases of the income streams. This growth will continue in the years ahead.

Comments.
-Resale prices of villas and apartments have been rising at about 4-5% p/a over the last 6 years so It's hard to envisage a big pull back given these rises have not reflected the current boom in the general HPI increases ( that seem highly likely to pull back).
-Beyond 2022 things will continue to rise on all income streams with a particular boost when Waimarie and other 2023/4 projects are sold down.
-Should the build rate be increasing as we are told, future growth just gets stronger. Watch for the future capex spend as proof .

The falling SP is industry wide not company specific . Even the most stable of Companies , ARV, has now fallen further than OCA over 2 years . I`d you want to feel better , just be glad you didn't buy RYM. I also find it odd that impending property falls no doubt causing this sell off, that SUM , being the most property centric company of all has done the best of everyone ...go figure?

My thinking for 2022 based on EPS above of 8.4c (that's a growth in EPS of 5% YOY) then normally a PE of 18-20 would be reasonable. That's a SP of about $1.50-$1.70 . But like I said , while I've got the fundamentals dialed in my SP predictions are terrible. So you guys and gals judge for yourself what the SP should be worth.

Needless to say that while this destruction of paper wealth is unsettling, I personally won't be selling as my confidence in the company itself remains rock solid.

[Old mate]

Thanks as all ways Mav

[stoploss]

Hi Mav ,
with Covid delays , supply chain issues , Labour cost increases it might be hard to come up with the forecast margin on the new builds.(34.5%
" I find it bizarre that such a fundamentally solid company with good growth prospects trading at 21% discount to asset backing."
I think your sentiment was echoed by many when the buyout of MET went through at the lower price ......
Thanks for all your analysis, a good long term industry to be exposed to ,even if it does take a lot of patience.