OCA - Oceania Group - retirement villages

[Waltzing]

"Run Rate of EBITDA, pre-COVID adjusted"

IM completely confused now and i thought i was confused before but now ive realised im only half as confused as im going to be!!!!

[Beagle]

I confess it’s hard to fathom why a solid company would trade below the value of all its assets. Like if it shut down and sold everything, shareholders would get paid out more than the value of their current holdings. Someday this will re rate to a much higher multiple, when punters figure out the massive discount to asset value let alone the future trading value.

I feel your frustration mate and I share it. I vented some of my frustration in the SUM thread this morning because I see real risk to the downside there....(doing my good Samaritan deed for the day)...now I better do some real work because I think the likelihood of easy gains for the market for the rest of 2020 at least, is slim to none.
Lockdown in Auckland yet again, is grueling to say the least.

[macduffy]

I wouldn't get too hung up on the apparent discrepancy between shareprice and NAV. Assets don't always fetch their assessed valuation in a shut down/ liquidation, depending on the circumstances at the time. I hold OCA and am confident its value will be recognised.

[Maverick]

Attachment 11846

To deal with staff/resident ratio issue, if there is a something like occupants satisfaction survey from industry association would be good.

OCA only has 2 reserved land for future development, its debt ratio is 61.57%, so it needs to purchase more sections to match its ambitious plan.

The current SP is ok for long term, but I would not put all eggs into this one.

FL, let me explain why OCA shouldn't and are even unable to go out and buy more sections to continue their model as you suggest.

Don't be offended but it seems very very few investors actually get the OCA model and where the bulk of the profits are actually going to come from.
We all accept OCA is the most care focused of its peers and therefore will succeed/fail compared to its peers via the "care suit ORA model" (i.e high churn DMFs)....While this is partially true it's actually proving to be a red herring. It's not where the lion's share of profitability will come from at all.

What OCA is doing goes way beyond offering high end late stage care. Let's single out Hamilton "Awatere" as a current example but the model can be applied to any of their pipeline projects.
Here goes….
-Awatere stopped taking on clients to partially empty the village to clear a corner area of ground. Care revenue naturally fell while expenses didn't, investors got grumpy and staffing costs appeared out of control as employees were inefficiently retained.(apparently it's hard to recruit new retirement village staff)
-They built a care-suite block in the now empty corner of the operating village site. This took them a couple of years which now stands proudly overlooking Hamilton and is very classy.
-On its recent completion, all the remaining 60 village residents were then transferred into it but at no extra charge under the grandfather principle. Lucky for them but investors are still not feeling the love.
-As the original clients now slowly vacate the care suits they are being refilled with full paying new clients under the ORA system - investment rewards are ramping up but still seem hopelessly slow. Winner has correctly pointed out many times in the past, “OCA selling more but making less”
-When the care suit block eventually fully replenishes with full paying clients this village eventually ends up twice as profitable than the original old govt DHB funded rest home that was there. BTW ,I spoke to a care worker onsite last week and she said there is plenty of uptake from new full fare clients wanting in.

OCA has currently got only one mature new build care suit; Eden-Auckland. the other aggregate OCA developments are still a few years away from any meaningful investment reward actually showing up on the bottom line. Earl, Beagle and myself are now saying we are currently at the point of “inflection”, that is...overall it ain't getting any worse from here. Care profits will finally start to show improvement from now on. To be fair though, it will still take a few more years just to improve care profits to where they once started.

On pipeline completion of all OCA projects, “care profits” will only have approximately doubled over the circa 7-9 years of transformation, according to my figures. As we have experienced to date, there is currently a large destruction of overall care profits.
I`ve got to admit it's just not that compelling as an investment to bother with, to go through this hassle and pain. That's only a final outcome of CAGR about 10% for the grief, so why not just buy RYM or SUM with their proven record for at least the same ROI?

Back to Awatere as our example, now this is where things get exciting….
They have since demolished the vacated old rest home buildings and by no accident,ended up with a sizable area of empty, premium land all consented as a retirement village in the very heart of Hamilton CBD with enviable views of the city….drum roll please….FOR FREE!
-OCA is currently building a tower of high density apartments on this empty dirt.
-These apartments will certainly sell for a premium (aka-whatever they want) under the ORA model once complete.
This is where OCA will make the vast majority of their profits of the transformation....its the apartments, not the care-suites.
The difference between the OCA “village” section of profits from beginning to end of the pipeline is staggering and completely dwarfs my anticipated 100% improvement in “care” earnings. As much as I have shared my ongoing workings on ST to date, I will keep this particular figure to myself.

Interestingly , OCA`s NZ wide “care-suite new builds” pipeline (not to be confused with “care-suite conversions” which sound similar but model quite differently as those are really just a clever makeover) are largely either now complete or well under way. The mega-profitable apartment developments obviously have had to wait for the land to be cleared first which means building the reasonably profitable care-suites first. It is becoming clear to see OCA`s development build programmes are currently morphing from care-suite heavy to the apartment delivery phase.

So getting back to your comment FL, that's why OCA can't go out and buy a paddock to build a village. They only want premium land already in the existing wealthy areas with a point of difference, that is not in the “burbs” or on the edge of town. (check out the photos in yesterdays SUM`s HY report and notice all the paddocks in the background of its new villages to compare.)

Another work in progress is Green Gables in Nelson...down there you have SUM and ARV building villages in the suburbs in neighboring Richmond while OCA are about to open their new 3 story development 300m away from the Nelson CBD. If you were a retired rich-lister, where would you choose?( I do not in any way mean to disparage SUM or ARV developments but just use them as a live comparison for OCAs modus operandi).

This transformation plan from an investment view just requires confidence in the execution of the plan and a load of patience. That is; consent planning, emptying out existing beds, building care suits,(we are here) then building premium apartments and finally selling down.

For anyone following the actual progress of the company and not being distracted by covid or what appears as disappointing underlying earnings , there is now enough compelling evidence of what they are up to and to see it is actually starting to come together.
If a picture tells a thousand words then doing a driveby of a few OCA development sites will help understand their story better.

Disc, this is a basket I personally can't get enough eggs into.

[Greekwatchdog]

Thanks Maverick for such a wonderful explanation on OCA. I said last night judge Earl and the Team on final result and your analysis here confirms it. DISC I hold and are buying more and have thrown these in the bottom draw..

[Baa_Baa]

@Maverick thank you so much for sharing your insights. Love that word ‘inflection’. The future is bright. Assuming continued good execution, the strategy is very exciting for transforming the business model and long term shareholders returns.

[Curly]

Mean while, OCA plus .01, SUM plus .50c today. Patience I guess.

[Waltzing]

Now i know why he calls himself MAV and flys with a high tech vision system in the cockpit. He has a 35,000 foot view of the retirement properties that OCA owns and has a huge computer display with all retirement properties tagged on Google Maps.

[Snow Leopard]

...Don't be offended but it seems very very few investors actually get the OCA model and where the bulk of the profits are actually going to come from....

Don't be offended but it seems you are being very presumptive.

[Beagle]

Top post Mav. As you suggest, there's a lot of classy new high end apartments going to be built in the next few years and the trick for OCA is they're using existing land more efficiently and effectively.

SUM on a forward PE of 18.5 assuming they make $100m this year, OCA on a forward PE of just 10.2 assuming they make $60m underlying this year.
Forward PE of 10.2 is crazy cheap for a company with a clearly defined trajectory of growth.