OCA - Oceania Group - retirement villages

[Snoopy]

The cash flow is mind boggling.

That AR2023 and the cashflow statement within certainly made epic reading. Net decrease in the cash position a drop of a mere $2.376m over the year. Yay! Oh hang on. The improved cash position was all funded by increased borrowing!

So if the market simply keeps valuing it at the same discount to cashflow or assets... Then won't you by definition get the earnings return or the asset return?

Yes I think you are right. Even if the discount to net asset backing never unwinds, shareholders should still benefit from improvements in operational performance and dare I say it units sales, either individually or as packaged assets. The main point of contention is if there are any capital ratio issues along the future earnings path. I am not saying OCA will be a poor investment going forwards. I am just saying that the share price growth expectations of some investors going forwards may be a little high.

SNOOPY

[winner69]

Yes he has provided a possible if not plausible explanation as to why the shares are valued the way they are.

But Christ Almighty you would have thought he sh1t the bed the way people are responding!

Sure wound up a few eh

Talking of sh1t I think that guy Phaedrus would call this a ‘toxic’ thread


Quote - These "toxic" threads share many similarities and are quite easily identified. Here are a few pointers :-

Watch for a preponderance of overly loyal extremely positive contributions.
Any negative posters are "run off the thread".
When negative posters are accused of "downramping" you can be sure that all objectivity has been lost.
Look out for multitudinous "cut and paste" entries of scarcely relevant articles from the net.
Beware of threads where anyone posting a negative comment is personally attacked.
Dissenting views should be encouraged, not rubbished. We learn nothing from those that agree with us.

[mistaTea]

Sure wound up a few eh

Talking of sh1t I think that guy Phaedrus would call this a ‘toxic’ thread


Quote - These "toxic" threads share many similarities and are quite easily identified. Here are a few pointers :-

Watch for a preponderance of overly loyal extremely positive contributions.
Any negative posters are "run off the thread".
When negative posters are accused of "downramping" you can be sure that all objectivity has been lost.
Look out for multitudinous "cut and paste" entries of scarcely relevant articles from the net.
Beware of threads where anyone posting a negative comment is personally attacked.
Dissenting views should be encouraged, not rubbished. We learn nothing from those that agree with us.

Yeah, Phaedrus described the present day OCA thread perfectly lol.

It is so bad that on stocktalk it is even set as a 'Strict' thread so that Admin keep a close eye on it.

Some of the peeps here remind of the (now not so funny anymore) Ricky Gervais, where he quips that you either find his jokes funny or you are a c*nt.

[winner69]

Yeah, Phaedrus described the present day OCA thread perfectly lol.

It is so bad that on stocktalk it is even set as a 'Strict' thread so that Admin keep a close eye on it.

Some of the peeps here remind of the (now not so funny anymore) Ricky Gervais, where he quips that you either find his jokes funny or you are a c*nt.

Wonder if the reasons behind a low share price (non performing) and why discussions are toxic have things in common …..solve that and and Snoopy could write it up and become famous.

I pointed this thread out to a mate at LSE a while ago. He liked to get ‘raw material’ / case studies to give to his students doing behavioural finance and the role it plays in investor decision making.

Must catch up up him again …….and tell him this is a good study (again)

[Daytr]

Yeah, Phaedrus described the present day OCA thread perfectly lol.

It is so bad that on stocktalk it is even set as a 'Strict' thread so that Admin keep a close eye on it.

Some of the peeps here remind of the (now not so funny anymore) Ricky Gervais, where he quips that you either find his jokes funny or you are a c*nt.

Describes the Black Monday thread as well.

[Daytr]

This indeed may happen if the cashflow is good and the dividend keeps increasing in line with that. So how is that cashflow going? And what was it that happened to the dividend last time around?

SNOOPY

Snoopy perhaps I've missed it on this fast moving thread but I haven't seen you make mention of the 30% less refurbish costs on every resale. This imo is the most compelling thing about OCA and over time as the units are resold about every 5 - 7 years the float is going to start growing rapidly as the maturity profile of the portfolio moves forward.

A $1.2M unit is bought back at $800K, conservatively $200K is spent on refurb, probably more like $100k but let's stick with that. The unit has had capital gain over that 5 - 7 years of say another $100k, so OCA increases the float by $300K per unit & I think that is very conservative. So every 5 - 7 years the float will have increased by circa $400M once you allow for investment gain on the float or saved interest costs on borrowing to build more units.

That $400M imo is a conservative number & could be 50% higher than that.

Am I missing something?

[Snoopy]

Snoopy perhaps I've missed it on this fast moving thread but I haven't seen you make mention of the 30% less refurbish costs on every resale. This imo is the most compelling thing about OCA and over time as the units are resold about every 5 - 7 years the float is going to start growing rapidly as the maturity profile of the portfolio moves forward.

A $1.2M until is bought back at $800K, conservatively $200K is spent on refurb, probably more like $100k but let's stick with that. The unit has had capital gain over that 5 - 7 years of say another $100k, so OCA increases the float by $300K per unit & I think that is very conservative. So every 5 - 7 years the float will have increased by circa $400M once you allow for investment gain on the float or saved interest costs on borrowing to build more units.

That $400M imo is a conservative number & could be 50% higher than that.

Am I missing something?

Daytr, I think your general line of thinking is right, although I might take issue with some of the details. 30% less refurbishment costs every five years? That sounds credible if we look back over the last 5-7 years. But whether that will happen over the next 5-7 years, I am not sure. My gut feeling is that price to income ratios in the wider property market, and the cessation of twenty years worth of interest rate falls means that house prices will not rise that fast going forwards. OTOH I doubt if refurbishment costs will stop rising with inflation plus a bit more as good tradespeople are hard to come by.

A $1,2m unit bought back at $800k (presumably the price that the previous licence to occupy holder paid ) is a rise of 50% in 5-7 years, which is a quite bit higher than the percentage price rise even you were suggesting. I don't think you can claim another 'capital gain' of $100k over and above that. That sounds very much like double counting on an already optimistic price rise scenario., even allowing for your somewhat generous refurbishment cost assumption of $200k. So perhaps a gain of $200k per housing unit in the value of that float every 5-7 years might be nearer the mark? A bit lower than your 'very conservative' figure of $400k! Given NZ's infrastructure issues, I would expect rates bills to keep rising faster than inflation too, putting another permanent squeeze on retirement village operating margins.

But again all this is from an 'operator perspective'.

If we instead look from the 'investor perspective' the 'investment equation' only works if our investor can buy this house at half price. So from an investor perspective that house has increased in value over the 5-7 years from $800k/2 = $400k to $1,200k/2 = $600k (because our investor has bought the house via OCA's sharemarket listing at half NTA). However, the building team who does the refurbishment will still have to be paid in 'todays cash' which means $200k. That wipes out all of the investor capital gain of $200k, which means that in inflation adjusted terms our investor is going backwards. As you suggested in your post, that $200k of fix up costs is probably over generous. But your figures do allow me to show a kind of 'worst case' scenario where our investor ends up 'treading water' and not making any money at all, despite the 'float' rising in value.

SNOOPY

[SailorRob]

Posted to Snoopy on behalf of my mate 2cups.

Hi Snoopy,
Awesome post thanks for taking the time to post this, it is much appreciated.
I have lurked on share trader for a number of years and this is one of few posts that has
made me very interested in joining to enable further discussion.
I really think this is a good explanation of why OCA may be priced as it is, and it also really
hits home for me as to why when I look at housing prices, I think based on their rental
income they are way overvalued (funnily enough by somewhere approaching double).
One thing I am interested to dig in a bit deeper on (from your perspective), is why you
consider the Occupational Rights Agreement (or float) to be at best a market value of zero?
And I would be interested to know your thoughts on two things with regards to this;


1. The growth rate of the value of the occupational rights agreement (which to me from
memory appears to be somewhere in the ballpark of 15% since listing),


2. If we were to ignore the entire RV aspect of the business, and assume it broke even
only enabling it to sustain a break even operation into the future (perpetuity), while
also making an assumption there was zero property development, would you still
consider the ORA(float) to be worth zero and why? And if you didn’t consider it to be
worth zero, what would you consider it to be and why?

Thank you in advance for any reply you may provide, as well as for your initial post. Much
appreciated.

cupsy

[Daytr]

Daytr, I think your general line of thinking is right, although I might take issue with some of the details. 30% less refurbishment costs every five years? That sounds credible if we look back over the last 5-7 years. But whether that will happen over the next 5-7 years, I am not sure. My gut feeling is that price to income ratios in the wider property market, and the cessation of twenty years worth of interest rate falls means that house prices will not rise that fast going forwards. OTOH I doubt if refurbishment costs will stop rising with inflation plus a bit more as good tradespeople are hard to come by.

A $1,2m unit bought back at $800k (presumably the price that the previous licence to occupy holder paid ) is a rise of 50% in 5-7 years, which is a quite bit higher than the percentage price rise even you were suggesting. I don't think you can claim another 'capital gain' of $100k over and above that. That sounds very much like double counting on an already optimistic price rise scenario., even allowing for your somewhat generous refurbishment cost assumption of $200k. So perhaps a gain of $200k per housing unit in the value of that float every 5-7 years might be nearer the mark? A bit lower than your 'very conservative' figure of $400k! Given NZ's infrastructure issues, I would expect rates bills to keep rising faster than inflation too, putting another permanent squeeze on retirement village operating margins.

But again all this is from an 'operator perspective'.

If we instead look from the 'investor perspective' the 'investment equation' only works if our investor can buy this house at half price. So from an investor perspective that house has increased in value over the 5-7 years from $800k/2 = $400k to $1,200k/2 = $600k (because our investor has bought the house via OCA's sharemarket listing at half NTA). However, the building team who does the refurbishment will still have to be paid in 'todays cash' which means $200k. That wipes out all of the investor capital gain of $200k, which means that in inflation adjusted terms our investor is going backwards. As you suggested in your post, that $200k of fix up costs is probably over generous. But your figures do allow me to show a kind of 'worst case' scenario where our investor ends up 'treading water' and not making any money at all, despite the 'float' rising in value.

SNOOPY

Does OCA pass on capital gains?
I didn't think so? But I haven't looked into the company closely.
My point being, if the right to occupier sells back they get what they paid say $800K less 30%. OCA then sells the unit on for $1.2M which nets is $640K less refurbishment costs.
This is how I arrived at my higher figures.

[winner69]

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