OCA - Oceania Group - retirement villages

[Crypto Crude]

I'm sorry if anyone thinks my post is that bad... it really is not... but if so, apologies once again...
Fish is not creditable...

Carry on with the topic..

[Perky]

Good man CC. Thanks for apologising. I reacted because this was not the first time you’ve had a crack at her and it just needs to stop. Anyway you’ve apologised and like you say..back to topic.

[bottomfeeder]

Recent news regarding unit licensees getting a share of the gain on sale and non payment of costs when moved out does not mean lower profits to providers. It just changes the metric for purchase, refurbishment, interest on units not being used but awaiting sale, and in a falling market does not stop the provider from making a low all offer of purchase. Can you imagine a resident dying, then their family placing the unit on the market at an inflated price, perhaps in a less than satisfactory condition, and because the pay no costs sitting on it for extended times. Not going to happen. Not even a residential house has those benefits. It's not going to work. The providor has an obligation to the comfort of the next occupier that they have a clean, modern, and comfortable residence. If the elderly tenant controlled the process, they would all become detiorated slums after a period of time.

These proposed changes will never go ahead.

[Curly]

Recent news regarding unit licensees getting a share of the gain on sale and non payment of costs when moved out does not mean lower profits to providers. It just changes the metric for purchase, refurbishment, interest on units not being used but awaiting sale, and in a falling market does not stop the provider from making a low all offer of purchase. Can you imagine a resident dying, then their family placing the unit on the market at an inflated price, perhaps in a less than satisfactory condition, and because the pay no costs sitting on it for extended times. Not going to happen. Not even a residential house has those benefits. It's not going to work. The providor has an obligation to the comfort of the next occupier that they have a clean, modern, and comfortable residence. If the elderly tenant controlled the process, they would all become detiorated slums after a period of time.

These proposed changes will never go ahead.

Would also need to factor in the multitude of running costs carried by the Rest Home. That would also need to be apportioned out to the occupier. Government can not be to harsh otherwise providers will walk away and Government cannot pick up the service of elderly rest home care. It will only be a tweak of the figures and a juggle here and there.
Storm in a tea cup and will have little effect on business model once done and dusted.

[ronaldson]

I thought most of the NZX listed providers already commit to ceasing village fees upon vacancy, and to interest upon the capital (not sure if that is the original investment or that sum less the 20 or 30% deferred management fee - probably the latter) if not reimbursed from sale within 9 months, so really doesn't this debate affect only fringe players?

[Maverick]

On a really different topic to the very good RV discussion lately ...

I've Just tidied up my expectations for OCAs finance cost with the recent sharp run up in NZ borrowing costs. The damage that will do to the underlying profit is meaningful but not as bad as it could have been.

They normally have been expanding their debt costs as they ramp up their building rates at the rate of $1-$2m P/A but I reckon this year it will jump to be around a $3.5m increase ( so roughly an extra $2m on top of the usual increase).

So while it is material, they dodged a small bullet with their bond offers and new shares issued. About 60% of their debt ($225m)is now locked in at at an average of 2.75%.

Definitely a cost head wind to knock off some of the increased profits coming that I've recently written about. But I`ve got to take my hat off to their prescience.

(even the legendary Beagle applauded Brent at the time for it)

[ronaldson]

NZ Herald article today seems to identify the village at issue for not paying out a departing resident for (so far) 10 months as Woodlands Boutique Retirement Village, a family owned 17 villa development in Bethlehem near Tauranga.

I googled it and noted some adverse feedback about management but the actual village, which clearly does not attempt the 'continuum of care' model but simply provides secure private living with limited additional amenities. It certainly looked somewhere I could live, with a relatively cheap entry price and the 30% deferred management cost incurred by 7.5% increments over 4 years. Some angst was evident over the $189 weekly fee, which perhaps was not fixed as is the case with most listed operators.

It seemed the reason for the delay in reimbursing the departing resident was lack of owner capital and the fact that over the period the owner/s allegedly had no fewer than four conditional sales where the intending purchaser could not obtain a sale of their existing home in the current market conditions.

Even if you take the " facts " with a grain of salt the particular issue should probably have been sorted by the owner/s earlier, but the matter is now the subject of complaint to the RVA who are no doubt unimpressed by the industry fallout triggered by a relatively insignificant member of their association from a single instance.

[Maverick]

On a really different topic to the very good RV discussion lately ...

I've Just tidied up my expectations for OCAs finance cost with the recent sharp run up in NZ borrowing costs. The damage that will do to the underlying profit is meaningful but not as bad as it could have been.

They normally have been expanding their debt costs as they ramp up their building rates at the rate of $1-$2m P/A but I reckon this year it will jump to be around a $3.5m increase ( so roughly an extra $2m on top of the usual increase).

So while it is material, they dodged a small bullet with their bond offers and new shares issued. About 60% of their debt ($225m)is now locked in at at an average of 2.75%.

Definitely a cost head wind to knock off some of the increased profits coming that I've recently written about. But I`ve got to take my hat off to their prescience.

(even the legendary Beagle applauded Brent at the time for it)

This projection needs updating already after Ferg pointed out that the remaining 40% of debt is at a lesser rate than I factored. I had made an assumption on that 40% part of the debt based on recent heavy rate rises but turns out OCA have fixed that too. Some of these swap-rates ( just wanted to say that word) are fixed for up to 5 years. Damn those guys are good!

So total jump in finance cost should be around $2.4m increase ( so roughly an extra $1m extra on top of the usual increase).

Thanks for pointing that out Ferg, your expertise is much appreciated.

I know this kind of detail is a but pedantic on this forum but its not right for me to rave on about how good the incomes are going without mentioning the negatives. Then its also not right to not correct anything inaccurate I've said.

[Habits]

This projection needs updating already after Ferg pointed out that the remaining 40% of debt is at a lesser rate than I factored. I had made an assumption on that 40% part of the debt based on recent heavy rate rises but turns out OCA have fixed that too. Some of these swap-rates ( just wanted to say that word) are fixed for up to 5 years. Damn those guys are good!

So total jump in finance cost should be around $2.4m increase ( so roughly an extra $1m extra on top of the usual increase).

Thanks for pointing that out Ferg, your expertise is much appreciated.

I know this kind of detail is a but pedantic on this forum but its not right for me to rave on about how good the incomes are going without mentioning the negatives. Then its also not right to not correct anything inaccurate I've said.

Great in-depth answers from you Mav. I dont always understand the detail, I take it you mean that this is a positive development.

I did buy a parcel at a dollar so am left guessing why the sp keeps sh**ting itself. Rising bond yields I guess

[Ferg]

I take it you mean that this is a positive development.

It is a partial positive on an overall negative. Funding costs will increase off the back of rising interest rates. Maverick assumed all non-bond debt was subject to floating rates. However OCA have fixed some of that debt using interest rate swap agreements per the last annual report. This meant Maverick's original assessment of increased interest costs was too high - his subsequent post is correcting that in light of the swap agreements. Organisations of this size often have a treasury policy which stipulates things like fixing interest rates etc. (and FX) rather than leaving themselves exposed to the whims and fluctuations of various markets.