OCA - Oceania Group - retirement villages

[Baa_Baa]

Have you got a link for the 411/419 winner? I can't find any reference to that in their report or presentation.

If you're looking at OCA reporting you won't find it, Ferg. Winner is reporting on a RYM shareholders concern, which is where the numbers are coming from, and unsubstantiated at this stage, and he's extrapolating that concern to OCA. Whether that is justified or not is another matter. I doubt it.

It's almost as if winner wants to see OCA damned to hell, finding any thread of reason to doubt OCA's future. I know it's hard for shareholders seeing the whole sector getting slammed, but this is a systemic sector event unfolding, sector wide, market wide. Trying to pin that on RYM lying to shareholders, and ergo OCA too, is a long bow imo.

[Ferg]

Thanks Baa Baa. I was looking at the annual report for RYM and couldn't find any reference to it.....although I may have had a "man's look". Even a text search for "41" turned up nothing of significance in the latest RYM AR.

winner/jagger : the extra unsold new units for OCA is a surprise but not a concern. They don't disclose the new unsold units and suites in the AR, HYR or presentations. We understand some care patients were moved from about to be demolished facilities into newly built and not yet sold suites, which makes sense from a care and patient perspective. Given it has not yet been sold where it is subject to a new ORA, then that also makes sense that it is classified as "unsold" and is excluded from the embedded value calculations etc.

So these suites are new, unsold but occupied. This sounds like an oxymoron. But it actually makes sense given the demolition of existing facilities to make way for new facilities and the need to re-house those patients. Once OCA record their first ORA against each such suite, then it will be treated as a new sale with all the resultant accounting entries and treatment. It is simply another potential layer of confusion but can be explained. There were approximately 150 patients in this situation at year end which reduces the "unsold" inventory by one third.

Hopefully that helps.

[jagger]

Thanks Ferg, I understood it.

My point was OCA don't disclose new stock numbers so omitting the unsold, but occupied, care suites wasn't misleading because the stock number wasn't disclosed anyway.
That's not to say I don't think it should be disclosed (but that's OCA's perogative, as it is any other operator).

The transfer of residents is a well canvassed issue on the brownfield developments.
Prefer new care centres to have some occupied (albiet unsold) suites receiving care fees rather than a fully staffed centre and no/few residents.

[Beagle]

I think the issue Winner is getting at and its a concern for investors generally in the sector is what constitutes "delivery" of new units.
I used to think delivery meant the unit was delivered to the incoming resident, i.e. they took possession of the license to occupy.
When any company in this sector says we delivered XYZ units in the year it probably means they completed the construction and fit out to a standard of "practical completion".

It may not mean Council have signed off with final code of compliance or the landscaping and finishing touches are complete.
For example with stage 2 Awatere in Hamilton, 63 units "completed" in March 2022.
It would seem few were sold and yet SUM in this sector presell almost all their village units before completion...maybe people should have a think about why some villages completely sell out before completion and others hardly presell any.

From the call, there were 450 units unsold as at balance date, (a whole years worth of sales and a vastly higher stock situation that any other company in this sector). That number was confirmed twice because the analyst that asked the question was obviously deeply surprised by answer the first time. Some of the care suites in that number, about 80 by my calculations have been temporarily made available as premium accommodation rooms.

During the year they sold only 184 new units and there were 266 resales....but they have 450 new care suites and units available for sale and another 113 care suites due for completion this half. Over the last 5 years their margin on care has declined from 19% to 12% despite the much touted care suites being sold to us as the panacea for all their problems with low returns on care. Hmmm

I think the huge level of unsold units and the way returns on care have radically declined since they listed speaks for itself. Care suites are clearly not finding favour with elderly residents needing care. Good luck...to me the business model is working very well for residents, staff and management but doesn't work well for shareholders.

Disc: No vested interest, not short and not looking to buy them at a lower price because in the long run I think SUM's business model is vastly superior.

[bull....]

That issue that there may be many more care suites for sale than are officially on the books as vacant.is a worry .... and we'll never know what that was true but it raises questions about the transparency (and integrity) around the numbers they report.

Now there's a disgruntled Ryman share holder who questions how they are allowed to call nearly completed units (but still many months off being completed) as completed and even book profits now on future sales.

And some have commented that Oceania accounts are very obtuse - even to the point that it seems intentional to confuse punters so they don't really know whats going on.

Seems a bit of dodgy stuff going on in the sector and makes you wonder about the 'credibility' of what's in the Reports

Result ... wary punters and share prices not really reflecting a 'reasonably true' value

All red flag stuff to me

if im correct under accounting rules property developers are allowed to recognize profit over time
so they could book profits on uncompleted units

[couta1]

I think the issue Winner is getting at and its a concern for investors generally in the sector is what constitutes "delivery" of new units.
I used to think delivery meant the unit was delivered to the incoming resident, i.e. they took possession of the license to occupy.
When any company in this sector says we delivered XYZ units in the year it probably means they completed the construction and fit out to a standard of "practical completion".

It may not mean Council have signed off with final code of compliance or the landscaping and finishing touches are complete.
For example with stage 2 Awatere in Hamilton, 63 units "completed" in March 2022.
It would seem few were sold and yet SUM in this sector presell almost all their village units before completion...maybe people should have a think about why some villages completely sell out before completion and others hardly presell any.

From the call, there were 450 units unsold as at balance date, (a whole years worth of sales and a vastly higher stock situation that any other company in this sector). That number was confirmed twice because the analyst that asked the question was obviously deeply surprised by answer the first time. Some of the care suites in that number, about 80 by my calculations have been temporarily made available as premium accommodation rooms.

During the year they sold only 184 new units and there were 266 resales....but they have 450 new care suites and units available for sale and another 113 care suites due for completion this half. Over the last 5 years their margin on care has declined from 19% to 12% despite the much touted care suites being sold to us as the panacea for all their problems with low returns on care. Hmmm

I think the huge level of unsold units and the way returns on care have radically declined since they listed speaks for itself. Care suites are clearly not finding favour with elderly residents needing care. Good luck...to me the business model is working very well for residents, staff and management but doesn't work well for shareholders.

Disc: No vested interest, not short and not looking to buy them at a lower price because in the long run I think SUM's business model is vastly superior.

SUM's business model is far from superior when it comes to the care side and that is important to many people, if I needed any form of care I would head straight to an OCA or RYM village and the thing is that even if you buy an independent unit it doesn't mean you won't need care help at a latter stage.

[jagger]

Property developers can only do that to the extent they have presales.

[bull....]

Property developers can only do that to the extent they have presales.

yea but i believe , i may be wrong im not a tax accountant you can use an input or output calc of exp to recognize future revenue without having a pre sale ?

[Beagle]

SUM's business model is far from superior when it comes to the care side and that is important to many people, if I needed any form of care I would head straight to an OCA or RYM village and the thing is that even if you buy an independent unit it doesn't mean you won't need care help at a latter stage.

I respect your knowledge of the retirement village industry however the fact of the matter is there is very, very little money in care and from an investment point of view, (which is what we're talking about on here), the returns from independent living units are quite clearly, vastly superior to care units. My contention is that generally speaking most people want a "full feature" village which is why RYM and SUM achieve great presales for most of their villages and OCA with their "boutique" villages generally do not.

When I first invested in OCA I thought the care suites would turn things around so OCA could earn even better returns with their care suites than others do on their independent living units. I think we all thought that. We were "sold" that story by Earl Gasparich...the very same man that told an analysts call in January 2021 that staff costs would broadly rise in line with Government funding going forward, (or words to that effect), and of course we know how badly that's turned out. The fact is this company has not achieved the objectives it laid out in the initial float.

For me there is such a very serious credibility problem with the whole business model transformation story were were "sold". OCA's marketing catch cry of "Believe in Better" is simply no longer believable from an investors point of view. I acknowledge it may be believable from a residents, staff and management point of view.

Ultimately, as I see it, your and other shareholders hope is that OCA's excellence in care service will drive better returns in the future. There is no concrete earings evidence to date in the last half decade to support that hope. All the earnings per share evidence to date, (keep in mind I am a numbers man and try and leave emotions out of investing decisions) suggests their business model is not working anywhere near as well for shareholders as SUM with their full feature, "land based cruise ship" care lite villages. The sales evidence is clear and emphatic, people generally have a very strong preference for villages with all the bells and whistles.

5 years into this its clear the whole care suite thing hasn't worked and while earnings for OCA have gone nowhere, (actually backwards in inflation adjusted underlying earnings per share terms), SUM's underlying profit has risen 2.5 times over the same period.
At the end of the day the financial results speak for themselves and share prices over the long run follow earnings which explains why OCA's share price is in the doldrums.

For me its this simple, you'd have to be a very "brave" man indeed over the medium to long term to bet that OCA with its business model which has yet to prove it can grow earnings will beat SUM's business model with its ten year average proven rate of 33% per annum underlying earnings growth.
My contention is simply this, some business models work well for shareholders and some don't. Good luck mate.

[bottomfeeder]

Business models are not etched in stone. They can be modified and varied any time when management feels the necessity to do so. Care units are not contracted for the life of the occupant, no matter how short.

Unfortunately, care units are a necessity, and will always have their demand. If as you say they are unprofitable then I see them being reduced in number by the operators. I also see the Government either increasing their minimum contribution, or mandating each operator to supply minimum quantities of care units as a requisite to approve funding.

This is not going to happen overnight, but will work its way through the system. Market forces will prevail. It is unlikely operators will continue to run aspects of their businesses at a loss for very long.