OCA - Oceania Group - retirement villages

[Waltzing]

Look forward to MR B's report.

Note: 2.1 and 2.2 , 3.1 ECT still make for an extensive read.

Fairly large set of Financial Accounts.

At a glance cost's look rampant...

[Ferg]

Overall the result says to me they are on track to deliver growth. As I peruse the old annual reports and the various promises of building new suites and ILUs etc. - OCA have a history of delivering so I have no reason to doubt them on their build rate. They have stated in previous reports the development cycle can take up to 8 years to reach EBITDA maturity for a brownfield site.

Costs aren't too bad IMO. Although an issue for me is the increased Corporate costs - I wonder if some of that is non-recurring due to the share placement, bond issue and 2 acquisitions - but they would have normalised that in the underlying profit which they didn't (I'm referring to opex over and above what was capitalised).

Funding costs increased by $2.6m due to the new retail bond and developments being funded by a combination of debt and ORAs (last year ORAs funded more than 100% of capex, this year was 89% if you exclude the late acquisitions). This sort of cost increase is to be expected.

Staff related costs* are 65.9% of revenues* which is up slightly on last year's 65.2%. Again, there may have been some one off costs due to COVID - time will tell. *Note: this is based on the adjusted underlying numbers. The rate of growth is slowing and I can see cost savings are being made in other areas so I'm genuinely not worried.

When looking at the care results, keep in mind the realised gains (new and resales) for care suites are included in the village numbers. Of the total realised gains of $56m roughly $13m was from care suites (last year $12m).

The pleasing thing for me is that items such as care+PAC revenue per average bed increased 5% over the year. I have previously stated Management and the Board know what they are doing. IMO they are doing what they can to address the biggest issues as evidenced by this sort of thing. Also, cost recoveries from village fees are at an all time high ($ and per ILU).

I expect to see higher everything next year (hopefully not corporate costs) and I will put it out there now that DMF revenue will be $57m+ versus this years $47m (I previously estimated it at $49m but hey.....close enough).

In summary this result gets a pass from me. They have turned a corner (inflection point anyone?) and are poised for growth and efficiencies of scale. I'm a happy holder.

[Rawz]

I try to buy shares to hold for 10 years. Mav saying only need to wait 2 years for the huge profits. Excellent.

[couta1]

Look forward to MR B's report.

Note: 2.1 and 2.2 , 3.1 ECT still make for an extensive read.

Fairly large set of Financial Accounts.

At a glance cost's look rampant...

Do you own any of these or are you just navel gazing? I can never tell.

[winner69]

So Mav says OCA do what they say and ‘This thing is going to “go off” sometime between now and early 2024.” And profits are going to be huge.

Jeez, wonder what happens after that ……even ‘huger’ profits …maybe exponential growth


Sounds good, thanks Mav

[Maverick]

Great post Ferg and thanks for sharing. I'd give you another rep points if I could but I'm told to spread the love around first , so sorry about that, you deserve it.

Agree with your numbers (and for the record , we haven't worked on this result together). Excellent summary and I concur with you on ALL of it.

While we Can only work on the historical numbers to work out the future, the last 3 years have been unusually negative for OCA.
-borders closed making our staffing more expensive.
-high extra covid costs
-sales and building disruption
-rapidly increasing corporate and finance costs due to business expansion.
-government underfunding to breaking point (without premium revenue streams)
-very negative sentiment , on the share price at least

well the numbers are so big now that WHEN even one of these negatives return to positive , and they must,(which I have not allowed for) then that's a lot of extra icing on the cake.

Anyway, didn't want to start raving about more possibilities, just wanted to thank Ferg for his excellent report. Great job!

[Bjauck]

The Aged Care Association seems unhappy that nothing much came out of the budget for rest homes and aged care nursing. It seems that the government is still expecting rest homes to be run on the smell of an oily rag - or to be cross subsidised by those who purchase retirement village ORAs.

budget-2021-8m-for-aged-care-commissioner-absolutely-unnecessary

[couta1]

The Aged Care Association seems unhappy that nothing much came out of the budget for rest homes and aged care nursing. It seems that the government is still expecting rest homes to be run on the smell of an oily rag - or to be cross subsidised by those who purchase retirement village ORAs.

budget-2021-8m-for-aged-care-commissioner-absolutely-unnecessary

Yes a pretty miserable "Be Kind" message from this helicopter money Govt, plenty of money for all kinds of other fringe stuff but nothing for this very important sector, meanwhile a few more smaller operators and not for profits will be about to throw the towel in, who will pick up the slack? best the larger players don't and pass the problem back to the Govt. Add to this that completely nutty immigration policy change which means the partner of a much needed nurse for instance can now only come on a visitors visa and not work as they currently can, meanwhile Aussie will welcome both on an open work permit, just insane with the dire need in the sector.

[winner69]

I know it's now 'historical' but the FY22 Cash Flow statement was a horror

Collected $190m in fees, gave $208m to employees and suppliers and spent $14m on other stuff which sort of gives an operational cash outflow of $42m

Suppose that's the cost of the 'charitable' stuff that Beagle refers to .... but $42m is a lot

Just as well they got $144m for selling stuff .... but subsidising that to the tune of 442m doesn't seem to make much sense

[Ferg]

I know it's now 'historical' but the FY22 Cash Flow statement was a horror

Collected $190m in fees, gave $208m to employees and suppliers and spent $14m on other stuff which sort of gives an operational cash outflow of $42m

Suppose that's the cost of the 'charitable' stuff that Beagle refers to .... but $42m is a lot

Just as well they got $144m for selling stuff .... but subsidising that to the tune of 442m doesn't seem to make much sense

Hold my beer winner - I have been looking into this given it also initially concerned me.

DMFs are invoiced to the client on say a monthly basis (usually over 3 years I believe). The amounts owed by clients appear as a negative within the workings for the ORA liability (see page 70). This management fee amount payable by the client only crystallises when the outgoing resident departs the village. BUT that amount does not appear in the cashflow because the outgoing client is refunded a nett amount being their ORA less the management fee owed.

In the cashflow we have large ORA receipts for all sales of $214m, then a deduction for ORA payments for outgoing tenants of $70m which has been reduced by the management fee receivable to OCA (and payable by the outgoing tenant). So we have some mismatched lines in the cashflow. Payments for village opex & management appear in the cashflow as per normal as part of the $207m, but the funds to pay for that are hidden within the outgoing ORA payments which have been reduced by the amounts owed by outgoing tenants. In other words the top line receipts from clients of $190m are NOT grossed up for the management fee deducted from the outgoing ORA payment.

IMO to show this correctly, one would gross up the receipts from clients and the outgoing ORA payments for a nett effect of nil on the cashflow. I reckon this would show a more correct cashflow and it wouldn't seem such a "horror" despite the fact the client didn't pay the amount directly; it was paid indirectly via a reduced outgoing ORA refund. OCA did disclose this amount previously - per the 2021 annual presentation, page 32 has a reconciliation of resales cash flows - that shows $14m "DMF realised". That would change the 2021 operating cashflow to a positive. I cannot (yet) find this same figure for 2022 - this might be one of the things that was dropped.