OCA - Oceania Group - retirement villages

[Rawz]

Incorrect.

It all will be.

The response you posted regarding the 40% rule wasn't at all what I was getting at.

Not sure what your post means? It all will be??

Imagine how much prime real estate OCA could buy right now at dirt cheap prices if their balance sheet could handle it. It’s a missed opportunity.

Anyways, you can get great returns via P/E expansion and leverage expansion. Like 2CC has moved from a forward PE multiple of 3 to 8. And now can grow using debt and pay fat dividends along the way. It’s perfect.

[SailorRob]

Not sure what your post means? It all will be??

Imagine how much prime real estate OCA could buy right now at dirt cheap prices if their balance sheet could handle it. It’s a missed opportunity.

Anyways, you can get great returns via P/E expansion and leverage expansion. Like 2CC has moved from a forward PE multiple of 3 to 8. And now can grow using debt and pay fat dividends along the way. It’s perfect.

Sorry, I see what you're saying, 'right now'. Yes you're right. I meant over time their growth will be all funded with other peoples money.

[winner69]

Solid Q3 sales numbers from Summerset reported today

APR/Sept (OCA first half) sales up 18% …..if Oceania do this as well it’ll blow all forecasts out of the water

[Daytr]

The thing with the 40% rule, aside from the extra risk, is it limits the returns you can get.

For example look at RBD…they have used crap loads of debt to buy earnings per share in the USA and Aus via taking over restaurants. they can’t do this again for a very long time. They need to pay down debt and grow out of it. This often puts dividends at risk or kills them.

Or NZL.. since listing they highlight the CAGR of their AFFO which is impressive but they won’t be able to maintain it because the land purchase needs to slow as they have already loaded the balance sheet up.

In the tough times the SP gets punished and if earnings slip you are up for a cap raise at the wrong time devastating shareholder value aka RYM.

Exclude financials and possibly less risk for utilities but still they can’t grow as fast if they have already used all the leverage available.

Some exceptions to the rule but it’s a red flag for me always and something I look at

Hey Rawz, a lot will depend on how OCAs debt is structured. Are interest rates fixed and maturities spread out over time etc.

During the GFC many companies had so called manageable debt but went broke as they had all or a high proportion of their debt rolling short term as they were playing the yield curve to sane in interest costs.
The problem came when the banks refused to roll their debt during the short term credit crunch.

I don't follow OCA, so a question.
Have they written down their property assets in the last 18 months or so as property prices were in decline?
And if so, is there likely to be a write back?

[mike2020]

They were disappointingly slow to follow asset prices up last time we had a rise and any write downs were probably from an already conservative starting point. I only see it as undervalued asset wise.

[Antipodean]

Oceania healthcare limited annual shareholders meeting – 25 august 2023 - responses to shareholder questions [Question 14]

over 90% of total assets at 31 march 2023 are property assets carried at fair value as assessed by cbre limited and colliers limited as independent valuers. Colliers limited was also engaged to perform a review of the cbre limited valuation of certain sites in the portfolio comprising 38.1% of the total value of property assets. The review supported the cbre limited valuation.

[ValueNZ]

If anything Oceania Healthcare should have taken on more debt whilst terms were so favourable. I think the gearing ratio is a bit irrelevant in this case because it doesn't take into consideration the occupational rights agreements which is just as good as equity.

A fairer representation would be net bank debt/net bank debt+equity+occupational rights agreements+deferred management fees, which is 555/(555+962+880+45) = 23%

23% is very conservative.

[ValueNZ]

The thing with the 40% rule, aside from the extra risk, is it limits the returns you can get.

For example look at RBD…they have used crap loads of debt to buy earnings per share in the USA and Aus via taking over restaurants. they can’t do this again for a very long time. They need to pay down debt and grow out of it. This often puts dividends at risk or kills them.

Or NZL.. since listing they highlight the CAGR of their AFFO which is impressive but they won’t be able to maintain it because the land purchase needs to slow as they have already loaded the balance sheet up.

In the tough times the SP gets punished and if earnings slip you are up for a cap raise at the wrong time devastating shareholder value aka RYM.

Exclude financials and possibly less risk for utilities but still they can’t grow as fast if they have already used all the leverage available.

Some exceptions to the rule but it’s a red flag for me always and something I look at

Time to rethink risk. Taking on more debt doesn't automatically mean extra risk, it is highly dependent on the terms of the debt. A blanket 40% rule makes no sense.

Here is an extract from the Q3 Vltava Fund letter which discusses risk.
"Suppose your investment objective is to beat inflation over the long term. This is a perfectly realistic and reasonable goal in practice – to strive to increase the real value of your investments. What will be the source of risk for you in this case? The risk will be something that will threaten or even prevent you from achieving this goal. If you base your investments on holding cash, you will achieve the lowest possible volatility. According to standard financial theory, your portfolio will therefore have minimal risk. In practice, however, this will ensure that you will never achieve your investment goal of real appreciation, because the real value of money declines over time. Cash therefore represents the greatest risk in terms of the probability of achieving your investment goal. As Warren Buffett says, stocks are more volatile than cash or bonds, but they are safer in the long run."

My investment goal is to produce a return that beats the SP500 over a long period of time. I believe that OCA taking on more debt decreases risk in my opinion, as the likelihood that I make a return that outperforms the SP500 over the long term increases. For example, OCA being able to significantly grow it's occupational rights agreements in the future, say 20% CAGR, then OCA will be able to leverage this debt which is interest-free, non-callable, and shouldn't ever decrease significantly over any short timeframe.

The same goes for Oceania's bank/bond debt which is ultra cheap, and the bank debt is set to refinance 5 years from now. More of this debt would be a good thing.

[Rawz]

Time to rethink risk. Taking on more debt doesn't automatically mean extra risk, it is highly dependent on the terms of the debt. A blanket 40% rule makes no sense.

Here is an extract from the Q3 Vltava Fund letter which discusses risk.
"Suppose your investment objective is to beat inflation over the long term. This is a perfectly realistic and reasonable goal in practice – to strive to increase the real value of your investments. What will be the source of risk for you in this case? The risk will be something that will threaten or even prevent you from achieving this goal. If you base your investments on holding cash, you will achieve the lowest possible volatility. According to standard financial theory, your portfolio will therefore have minimal risk. In practice, however, this will ensure that you will never achieve your investment goal of real appreciation, because the real value of money declines over time. Cash therefore represents the greatest risk in terms of the probability of achieving your investment goal. As Warren Buffett says, stocks are more volatile than cash or bonds, but they are safer in the long run."

My investment goal is to produce a return that beats the SP500 over a long period of time. I believe that OCA taking on more debt decreases risk in my opinion, as the likelihood that I make a return that outperforms the SP500 over the long term increases. For example, OCA being able to significantly grow it's occupational rights agreements in the future, say 20% CAGR, then OCA will be able to leverage this debt which is interest-free, non-callable, and shouldn't ever decrease significantly over any short timeframe.

The same goes for Oceania's bank/bond debt which is ultra cheap, and the bank debt is set to refinance 5 years from now. More of this debt would be a good thing.

wish you all the best

[Fortunecookie]

Debt can make you rich or destroy you. You got to know when to load up on it. Unfortunately I am not person lol.