OCA - Oceania Group - retirement villages

[Entrep]

The problem is if you get too clever with the Govt and can't point to the sector at least paying some tax either at a company or shareholder level...that might not work out to be in the best interests of shareholders in the long run.

Can you elaborate?

[Beagle]

Can you elaborate?

I expanded further in that earlier post already. At this point in time the capital gains made on the resale of occupation right agreements are tax free as an ORA or licence to occupy is deemed to be a financial arrangement under the financial arrangements section of the income tax act. A financial arrangement is basically, you give OCA, say $300K to occupy a care suite for the rest of your life and when you pass on your estate gets 70% of that back ($210K). OCA is taxed on the $90K difference less any costs of refurbishment but if they resell that licence to occupy for $400K to the next incoming resident they are not taxed on the $100K capital gain as actual and real ownership of the property never changed hands, OCA simply granted a licence to occupy.

The sector is currently very tax efficient for shareholders and we want it to stay that way. Iceman should know that its unwise to rock the boat

[dibble]

I expanded further in that earlier post already. At this point in time the capital gains made on the resale of occupation right agreements are tax free as an ORA or licence to occupy is deemed to be a financial arrangement under the financial arrangements section of the income tax act. A financial arrangement is basically, you give OCA, say $300K to occupy a care suite for the rest of your life and when you pass on your estate gets 70% of that back ($210K). OCA is taxed on the $90K difference less any costs of refurbishment but if they resell that licence to occupy for $400K to the next incoming resident they are not taxed on the $100K capital gain as actual and real ownership of the property never changed hands, OCA simply granted a licence to occupy.

The sector is currently very tax efficient for shareholders and we want it to stay that way. Iceman should know that its unwise to rock the boat

Indeed. One argument might go that if a company's MO meant there were never any imputations and as a result their policy was never to pay a dividend then the only way an investor could make a return would be to sell a few shares at a profit. Knowing this in advance suggests the investor could ONLY have the intention of making a capital gain therefore become subject to CGT. The IRD would only need one victory in court and probably the whole sector would then be caught up.

[iceman]

I expanded further in that earlier post already. At this point in time the capital gains made on the resale of occupation right agreements are tax free as an ORA or licence to occupy is deemed to be a financial arrangement under the financial arrangements section of the income tax act. A financial arrangement is basically, you give OCA, say $300K to occupy a care suite for the rest of your life and when you pass on your estate gets 70% of that back ($210K). OCA is taxed on the $90K difference less any costs of refurbishment but if they resell that licence to occupy for $400K to the next incoming resident they are not taxed on the $100K capital gain as actual and real ownership of the property never changed hands, OCA simply granted a licence to occupy.

The sector is currently very tax efficient for shareholders and we want it to stay that way. Iceman should know that its unwise to rock the boat

Well done mate. You've explained very well in laymans's terms how it is and what keeps the shareprices as high as they are. . I shall crawl back into my bunk :-)

[Entrep]

I expanded further in that earlier post already. At this point in time the capital gains made on the resale of occupation right agreements are tax free as an ORA or licence to occupy is deemed to be a financial arrangement under the financial arrangements section of the income tax act. A financial arrangement is basically, you give OCA, say $300K to occupy a care suite for the rest of your life and when you pass on your estate gets 70% of that back ($210K). OCA is taxed on the $90K difference less any costs of refurbishment but if they resell that licence to occupy for $400K to the next incoming resident they are not taxed on the $100K capital gain as actual and real ownership of the property never changed hands, OCA simply granted a licence to occupy.

The sector is currently very tax efficient for shareholders and we want it to stay that way. Iceman should know that its unwise to rock the boat

Thanks, very interesting and helpful.

[Onion]

The sector is currently very tax efficient for shareholders and we want it to stay that way. Iceman should know that its unwise to rock the boat

I didn’t see any beagles on the list (published recently) of millionaires wanting to pay more tax.

[bullfrog]

I expanded further in that earlier post already. At this point in time the capital gains made on the resale of occupation right agreements are tax free as an ORA or licence to occupy is deemed to be a financial arrangement under the financial arrangements section of the income tax act. A financial arrangement is basically, you give OCA, say $300K to occupy a care suite for the rest of your life and when you pass on your estate gets 70% of that back ($210K). OCA is taxed on the $90K difference less any costs of refurbishment but if they resell that licence to occupy for $400K to the next incoming resident they are not taxed on the $100K capital gain as actual and real ownership of the property never changed hands, OCA simply granted a licence to occupy.

The sector is currently very tax efficient for shareholders and we want it to stay that way. Iceman should know that its unwise to rock the boat

Nicely summarised, thank you!

[King1212]

Cash is trash. Just loaded some orders in for this a bit lower

send your cash to my account mate!! if your cash is trash! hahah

[Snoopy]

Valuers use "fancy" DCF models to put a current value on units. Helps justify their outrageous fees They reverse engineer values based on DCF models to get values that the market is telling them anyway based off market evidence. Clear as mud my Beagle friend ? Discounted cash flow models are vastly overrated in usefulness in this dog's opinion as they contain far too much guesswork and assumptions about long term matters. Discounting future cash flows at 14-20% when the long term risk free interest rate is less than 1% is but one example of the types of "work" that goes into their DCF model's.

Discounting the present value of completed but unsold units by more than 27% just because they are unsold when there's ample evidence they will be sold in due course at market value is another example of the "usefulness" of the valuation work that goes into these valuations. (This discount alone on completed unsold units is $64m or 10.4 cents per share).

More on the assumptions they use on page 20 of the analyst presentation http://nzx-prod-s7fsd7f98s.s3-websit...710/326865.pdf

Not saying they have no idea what they're doing but really NAV of $1.10 looks extremely conservative to me.

Thanks for pointing me to page 20 of the presentation. The footnote on that page appears to hold the answer regarding the $22.5m 'property impairment'.

"1. Fair value movement includes impact from right of use asset (Everil Orr village). This is a lease arrangement under which Oceania is the village operator. There is a corresponding rental expense of $19.2m (excluded from Underlying Profit). Note Everil Orr also contributed $1.5m to Deferred Management Fee revenue ($0.7m in FY2019)."

The note reads like almost all of the write down is associated with the "Everil Orr Village". The "Everil Orr Village" is leased/rented. I think this means this whole exercise could be tied up with the adoption of NZ IFRS 16 and how lease costs are reported? To further explain, under NZ IFRS 16, any property lease is recorded as a 'right of occupation' asset. That 'right of occupation asset' is then amortised each year as 'rental expenses' are charged up against it.

Having said this, I don't understand how a rental expense be excluded from underlying profit. It seems very obvious to me that rental expenses must be tax deductible in the income statement. Can you make any sense of that footnote on slide 20 Beagle?

SNOOPY

[Beagle]

I'll have a look next week if I get some spare time mate.

I know I've already taken more than one pot shot at the valuers but I find the lower part of page 48 more than a little perplexing. Why would the company instruct valuers to value everything up as at 30 April 2020 when we were in the real thick of the Covid 19 crisis when the company has a 31 May 2020 balance date ?

If the valuers were doing their work as at 31 May 2020 when the crisis had more or less passed I'd be surprised if they were as overtly negative as the view they appear to have taken deep inside Covid 19. I think the difference in the underlying assumptions a reasonable valuer would have used as at 31 May could have been materially different from those used in April and certainly all evidence since then including the crucial REINZ medium sales data for June 2020 has confounded all the experts and being far more robust than anyone expected.

Given this valuation timing anomaly I am even more convinced that the low valuation has created a situation where the $1.10 NAV is not actually a true and fair view of the companies net asset value as at 31 May 2020.