OCA - Oceania Group - retirement villages

[850man]

https://www.stuff.co.nz/business/opi...er-youre-wrong

Sign of the times... more people want housing than there is housing to be had, whether it is homes or retirement village units, makes no difference. OCA should be capitalising on this and adjusting their pricing to reflect the demand. Not going to impact their ability to sell as their buyers will be getting more for their home when they sell in this market.
My worry, which I've previously said is that low OCA prices could be seen by their customers as lower quality which is a real concern.

[Maverick]

Sign of the times... more people want housing than there is housing to be had, whether it is homes or retirement village units, makes no difference. OCA should be capitalising on this and adjusting their pricing to reflect the demand. Not going to impact their ability to sell as their buyers will be getting more for their home when they sell in this market.
My worry, which I've previously said is that low OCA prices could be seen by their customers as lower quality which is a real concern.

The recent chat of OCAs pricing policy in that they are basically not pricing their stuff properly, is worthy of comment.

It is known that their pricing policy is that of “progressive pricing” , that is selling cheaper at the beginning and ramping up as occupancy rises. Anybody flying urgently somewhere knows how this works.
This makes obvious sense knowing the cafeteria , 24 hr on-call nursing etc and the myriad of other fixed costs are better paid for by spreading over many customers rather than a few. Let's face it, residents are only there for a couple of years anyway before pricing can be reset. As vacancies diminish the prices will ramp higher.

Location is always key to price setting , Nelson is currently the big care suit seller which explains the average new sale $227k price tag. It is worth noting that resales(older units) are on average $310k which obviously reflects the functioning churn and progressive pricing of Sands and Meadow bank….the process is nearly 1.5 yrs old there.

I've toured Nelson’s Gables during and after completion. These care suites are essentially similar to a nice hotel room with a largish ensuite. They have the nicely blended in gantry rails and stuff for lifting people if required . Not spectacular views but very nice all the same. I'm thinking $227k for one of these , in Nelson, is about right for now.

Now before you all bemoan “ isn't OCA about premium blah blah” I want to add the Nelson apartments upstairs deserve attention. They have the premium views, fabulous balcony and are really something else...I want one! These fellas sell between $700-$900k. That has and always will be where the OCAs substantial profit growth is going to come from. I'm talking about ongoing DMFs on expensive apartments, not the one off new sale margins or care.

Let me expand this a bit more.
OCA has 3 income streams : health care , new building margins and “village profits”.

“Health care” has passed the point of inflection. Upwards and onwards from here.

“New build margins” have and still are reducing for the next few years as the deliveries are not Auckland centric. (That income stream point of inflection is still 2 years away.)

“Village profits” ( the profit essentially made on DMFs for 3 yrs after the new and re-sales) ...now that's the interesting one to watch. They have been more or less flat but from here on they are on a nice upward ride. This is where OCAs bulk growth will come from and starts growing meaningfully in FY22. This is based on increased DMFs on a combo of existing and new sales already made so therefore cannot not happen (double negative intended)

All three income streams added together have resulted in a circa 50m profit for 3 years now as one stream raises while another falls. FY21 (finishing in 3 weeks ) will most likely be another boring 50m result…..1.5 - 2 years beyond that is when all 3 streams start to work positively together, all 3 then will be past their own inflection points. I and all the analysts seem to have concluded the same thing judging by their individual projections.

So worrying about current prices of (Nelson) care suites is a red herring to the big picture which has ample evidence now to demonstrate the plan is going very, very nicely. Just check out the DMF growths in the latest report (C/S and ILU) since listing*, that's the growth that really counts and particularly ILU DMFs as this is where the lion's share of growth is going to come from. The DMF numbers are far more crucial to the big picture than new build margins (which will ultimately go to zero after pipeline completion) or profit on “care” (which will never be spectacular leveling out around $50-55m, by my calcs). Of course , in the medium term, all 3 working positively together will be pleasant, but that's a couple of years away when Auckland new builds start selling down.

So, at the end of all this lengthy post , what does it mean,
Simply, OCA is along term hold that is right on track. We are close to all 3 inflection points when it it will all magically come right on the bottom line and we will all pat ourselves on the back saying how smart we all were to own them.


*If anybody is interested to look up the latest HY21 result presentation for the “village and apartment DMF chart". Its page 18 but note they have mucked up the 1HY20 and 2HY20 values (ie .transposed).

[Waltzing]

Only as smart as the information one has to hand.

For many with a wide range of projects having an in depth model on a specific company is only warranted if one is holding an over weight position on a specific company in a special sector.

I am sure for many information published like the post above will give investors the insight to focus with a more in depth perspective on the company and determine their level of risk.

[Bjauck]

Sign of the times... more people want housing than there is housing to be had, whether it is homes or retirement village units, makes no difference. OCA should be capitalising on this and adjusting their pricing to reflect the demand. Not going to impact their ability to sell as their buyers will be getting more for their home when they sell in this market.
My worry, which I've previously said is that low OCA prices could be seen by their customers as lower quality which is a real concern.

However be prepared for the backlash from families who will then claim that they are being robbed by greedy corporates of their expected inheritances of tax free capital gains from the older generation’s real estate home investment for which the government has given an implicit guarantee.

They will want their piece of pie from the real estate property gravy train! Increasingly too they may be banking on it for being able to afford deposits for their own family size home-and-garden.

[winner69]

Good posts Maverick

[Beagle]

Good post Mav but if wages keep rising at a CAGR of 7.3% per annum that'll suck a fair bit of wind out of their sails in terms of future profit growth. Earl claimed at the recent half year analyst briefing that going forward wages would increase broadly in line with the rate of increase in the annual ministry of health grant review. Now he's abandoned ship I'm not sure what credibility, if any, one can ascribe to his forecast of this, their most substantial cost.

I am happy to concede that wages costs this year and in FY20 will have been higher than normal due to Covid but as far as I am concerned I will need to see the rate of wages growth moderate by quite a bit going forward to have more confidence in the veracity of their business model. There's little doubt that the changes in their business model will improve their net profit going forward and if it weren't for the substantial $33m per annum extra they pay staff now compared to when they listed we would have seen profit growth already from their ~ $50m baseline.

So far the only people benefiting from all the changes are staff and management. I hope shareholders start to reap decent rewards going forward.
I was a bit underwhelmed with their half year profit, with the major culprit being the matter I have been talking about.

For now I am happy to have a moderate stake in these as part of a well diversified portfolio, current portfolio allocation with no intention to change it further in the short term, is 5.6%. I note the yield is poor and unimputed so not a great fit for my plans to retire in the not too distant future and live comfortably on dividend income. These need to grow and I am not sure we will see all that much profit growth in FY22. FY23 profit growth should be better if Waimarie street is delivered on time and on budget.

[winner69]

I see they report ‘Termination’ costs in their break down of personnel costs

Some $1.2m in F20 quite a sizeable amount (relative to reported UE)

Wouldn’t want that to continue

[Beagle]

Makes me wonder what the termination cost was to tell Gasparich to "go away" immediately ?

[Baa_Baa]

Makes me wonder what the termination cost was to tell Gasparich to "go away" immediately ?

Unless some fancy employment contract clause at sign up, it's likely he has no payout on resignation except owed salary and leave, plus any accrued bonus (if any). He told them about MET when he resigned, so I think there's no way he was "terminated" by OCA (fired). He resigned, they accepted, simple and done.

[Beagle]

Unless some fancy employment contract clause at sign up, it's likely he has no payout on resignation except owed salary and leave, plus any accrued bonus (if any). He told them about MET when he resigned, so I think there's no way he was "terminated" by OCA (fired). He resigned, they accepted, simple and done.

Hope you're right. Could easily have been him saying he's resigning and happy to work out the agreed notice period and Liz telling him to "go away" immediately, quite possibly in two far less polite words. I think the fact that MET made a long detailed announcement the very next business day and OCA's announcement was very short hints at a less than friendly and amicable parting of the ways.