OCA - Oceania Group - retirement villages

[Snoopy]

OCA, charge a ORA on the physical bed AND also a nursing charge for extra tailored services as required. There's no "not for profit" intentions in that model!
I personally don't expect any profit on the nurse component nor ever will. It's the bed underneath them that produces the profit. This average ORA revenue (property component)alone for Last years new sales was $33k p/a, per one care suit. That runs on average over 3 years then it starts over again immediately. That's what I meant earlier about a turbo ORA. Comparably, Villas recycle over about 7 years to yield 3 years of ORA income.

Yep forest read all that stuff ...and all the stuff in presentations ...and even listened to a bit of Earl

But follow the cash

From the Operating Cash Flow (the $57.0m) leave out the $80.0m net they got for ORA sales you get negative $23.0m

This is Receipts from residents for village and care fees less employees and suppliers less rent less interest ...to me that’s the cash cost of looking after and caring for residents. The rest of the cash flow statements are all property related.

So following the money $23m cash gone in H1 ....last year it was ~$4m ...big difference.

So at last the 'profitability' of those companies operating high end care suites has been exposed. It is all about the rich putting up big bucks to purchase a care unit and receiving loss making care. It is a continuation of the property market boom funding the profit. Turn off the property market tap and suddenly the 'profits' from looking after all the high end care patients disappear.

SNOOPY

[Beagle]

Just as well the provision of property and care are inextricably linked then isn't it Snoopy

Thanks Playa.

[jmsnz]

Just as well the provision of property and care are inextricably linked then isn't it Snoopy

But that isn't 100% true in that you can get hospital level care without 'buying' the property. In which case I assume that OCA and others are relying on the government funds plus families desire/ability to pay for extras within the room. I suspect that without those buying care suites the model would be difficult to sustain.

[justakiwi]

Without the government subsidies for those that are eligible, the only people who could ever afford care (of any kind) would be the wealthy. So yes, all aged care facilities rely heavily on that funding. No doubt some families are paying for “extras” - I expect there will be significant profit built into those (I’m talking room with a better view, room upgrades - not additional nursing care). Even our little rest home charges extra for a room with its own en-suite - which really bugs me given that those four rooms only have private en-suite due to the layout of the building. They are rooms on the corners of two corridors. I think it sucks charging an extra fee when those rooms couldn’t have been built with a shared en-suite anyway. And you’re not talking an extra fee per week - you’re talking an extra fee per day!

But that isn't 100% true in that you can get hospital level care without 'buying' the property. In which case I assume that OCA and others are relying on the government funds plus families desire/ability to pay for extras within the room. I suspect that without those buying care suites the model would be difficult to sustain.

[Baa_Baa]

But that isn't 100% true in that you can get hospital level care without 'buying' the property. In which case I assume that OCA and others are relying on the government funds plus families desire/ability to pay for extras within the room. I suspect that without those buying care suites the model would be difficult to sustain.

There’s a lot of folks who after means testing don’t qualify for government subsidy, they pay the full whack direct to the ‘home’ and it ain’t cheap! They can’t escape that, if they can afford it they pay it, no option regardless of whether listed company or not.

Snoopy over simplifies the rest home business model which is odd considering his dogged deep dives into other companies of interest.

The fact that a company makes a loss on care could be looked at a loss leader or even at a pinch COGS for the other highly profitable revenue streams. I don’t really care, looking at the revenue and profits in Toto.

I also don’t buy into the short or even medium term fluctuations in property values, in the long run NZ wealth for many is built on a property investment model that always goes up in value over time and has no tax on capital gains, speaking of which, the RH business model is also the beneficiary of very favourable tax treatment. RH’s are a proxy property play.

The forecast for demand for these services is both startling as it is encouraging for long term investors. Follow the money.

The only fundamental concern I have is the risk of a changed regulatory environment to the detriment of the listed companies. But that’s not apparent and neither is the need for the listed companies to continue to provide essential care services, that otherwise the state would become liable for.

At the end of the day if you don’t like the industry model or the company models within it, or the risks real or perceived, just don’t invest in it. You won’t be missed imo.

[jmsnz]

There’s a lot of folks who after means testing don’t qualify for government subsidy, they pay the full whack direct to the ‘home’ and it ain’t cheap! They can’t escape that, if they can afford it they pay it, no option regardless of whether listed company or not.

Snoopy over simplifies the rest home business model which is odd considering his dogged deep dives into other companies of interest.

The fact that a company makes a loss on care could be looked at a loss leader or even at a pinch COGS for the other highly profitable revenue streams. I don’t really care, looking at the revenue and profits in Toto.

I also don’t buy into the short or even medium term fluctuations in property values, in the long run NZ wealth for many is built on a property investment model that always goes up in value over time and has no tax on capital gains, speaking of which, the RH business model is also the beneficiary of very favourable tax treatment. RH’s are a proxy property play.

The forecast for demand for these services is both startling as it is encouraging for long term investors. Follow the money.

The only fundamental concern I have is the risk of a changed regulatory environment to the detriment of the listed companies. But that’s not apparent and neither is the need for the listed companies to continue to provide essential care services, that otherwise the state would become liable for.

At the end of the day if you don’t like the industry model or the company models within it, or the risks real or perceived, just don’t invest in it. You won’t be missed imo.

And my mum is one of those who is paying, at least until we get down to the last +/-$230,000. Basically she owns a freehold small 2-bedroom unit so isn't someone that I would ever class as 'wealthy' and if we are honest probably couldn't afford/be comfortable with the cost without knowing that ultimately the tax payer will pick up the tab.

I actually think that we have our model pretty well balanced. Those that need care and can't afford to contribute can get it whilst those that can afford have options for better facilities earlier if they wish but ultimately care levels are even(ish) so everyone has access to the base level of care.

From an investment point of view I can not see you can lose. Given our demographics we will need the full range of options and there will have to be a base level of care funding. Some investments might do better than others but in the long term they will all provide enough return for me to pay for my care when I get to mum's age.

Disc: Hold RYM & OCA

[Beagle]

But that isn't 100% true in that you can get hospital level care without 'buying' the property. In which case I assume that OCA and others are relying on the government funds plus families desire/ability to pay for extras within the room. I suspect that without those buying care suites the model would be difficult to sustain.

Yes you can.

[Snoopy]

Snoopy over simplifies the rest home business model which is odd considering his dogged deep dives into other companies of interest.

The fact that a company makes a loss on care could be looked at a loss leader or even at a pinch COGS for the other highly profitable revenue streams. I don’t really care, looking at the revenue and profits in Toto.

Consider that entry into the retirement village 'property proxy business' now requires taking on a 'loss leader' nursing care service in tandem with it. Wouldn't you be better just buying a rental property? That way you avoid the 'loss leader' nursing attachment.

I also don’t buy into the short or even medium term fluctuations in property values, in the long run NZ wealth for many is built on a property investment model that always goes up in value over time and has no tax on capital gains, speaking of which, the RH business model is also the beneficiary of very favourable tax treatment. RH’s are a proxy property play.

Property values depend on many things.

1/ The balance of people leaving a city offset by the number of immigrants coming in to boost the population.
2/ The income of the house owners needed to service the mortgage.
3/ The current loan to value ratio restrictions on buying property.
4/ The size of the average house on a particular section of land.
5/ The market mortgage interest rate.

Cities like Auckland have seen increasing population, rising income, as of now no restriction on loan to value ratios and houses getting larger and larger and all time low interest rates. So it isn't surprising that Auckland house prices have been on a long term rising trend.

However, incomes in the future are less certain and the net immigration population gains into the future are in doubt. So the reserve bank is currently manipulating the property market by removing loan to value ratios and slashing interest rates. If 'property prices always go up', then the reserve bank would not have needed to do anything.

I think in the medium term there are real doubts that the likes of the Auckland property market will go up. And if it does, you can bet that loan to value ratios and interest rates will be adjusted accordingly. So I think it is very likely that retirement village operators will be operating in a property market that is flat at best in the medium term. In that situation, retirement village operators become inherently loss making businesses.

The forecast for demand for these services is both startling as it is encouraging for long term investors. Follow the money.

The fact that independently constructed retirement villages will remain an important part of aged care into the future is not in doubt. The fact that the care side of the business cannot charge fees to cover their operating costs has not been addressed by the government. So whether retirement villages can operate profitably into the future is in doubt IMO. It depends on the vicissitudes of the property market.

The only fundamental concern I have is the risk of a changed regulatory environment to the detriment of the listed companies. But that’s not apparent and neither is the need for the listed companies to continue to provide essential care services, that otherwise the state would become liable for.

Has the reinstatement of depreciation on commercial buildings rolled across to retirement villages? If it has that could alleviate some operational cashflow issues. But is a 'licence to occupy home' in a retirement village a commercial building? I would love to know.

At the end of the day if you don’t like the industry model or the company models within it, or the risks real or perceived, just don’t invest in it. You won’t be missed imo.

Still happy to be 'missing in retirement village action'.

SNOOPY

[macduffy]

Some interesting viewpoints in recent posts, but most of these are of a generic nature and more suitable for the "retirement village operators" thread than the OCA one.

[Snoopy]

Some interesting viewpoints in recent posts, but most of these are of a generic nature and more suitable for the "retirement village operators" thread than the OCA one.

Oceania operates the highest proportion of care beds compared to all other listed retirement village operators. So Oceania will be the most affected by any slow down in care unit capital value appreciation. And that means Oceania will be the listed entity most likely to get burnt from care unit operational losses.

SNOOPY