OCA - Oceania Group - retirement villages

[Beagle]

Good work Mav. Don't want to rain on your parade but...

B.Care suite sales are going very strongly .There are now some waiting lists on earlier C/S deliveries. Prices are stronger than anticipated. They are not worried at all about getting best dollar first time around as they can re-evaluate prices on turn over no2. We are seeing this anyway with resale CS margins a whopping 19% after only 2-3 years.
Analysts have been historically shy of the CS model as it has been unknown and untested but now have satisfactory evidence it's not only working but surpassing expectations of market acceptance and original price points.
Care suites now are derisked.

All that sounds great until one ponders that the median house price in N.Z. over the last 3 years is up about 43%. On a rainy afternoon I spent a bit of time pondering this.
Such a modest increase relative in care suite prices to the median house price increase, (actually a decrease in relative terms compared to the real estate market average performance of 24%).
On one hand I can certainly appreciate that when they initially build a whole block of care suites on one site at one time they have to price them very attractively to fill them up as quickly as possible...I can certainly appreciate the commercial wisdom behind that and yet on the other hand I can't help pondering why (if the care suites were so attractively priced in the first release) the prices on resale are not at least keeping up with the movement in the average price of real estate ?

As you would expect...I have a couple of working theories to explain this...but its quite probably not one you folks want to hear so I won't unpack it unless people really want me to.
I hope over time the concept and market acceptance of care suites matures to the point where people see them as a lifestyle choice more than shopping around for the best deal on meeting late stage care needs.

[justakiwi]

Don't underestimate the importance of "shopping around for the best deal." Or the potential business this can/will generate.

I hope over time the concept and market acceptance of care suites matures to the point where people see them as a lifestyle choice more than shopping around for the best deal on meeting late stage care needs.

[peat]

Righto….. back in Wangas and it's raining cats and dogs,

I.Brent (CEO) is within the group working on the retirement housing reform with politicians etc. Generally reporting here ,without details of the conversation, indicates this process should not put fear into investors. This will be a long process with a fair outcome.

Thanks Mav.

Just sayin... I would suggest there remains political risk here
Labour is not always consulting interested parties before making significant decisions. We have seen this time and time again now.
and while I agree it is a low risk of something very bad happening I think Labour will become increasingly obnoxious to business because that is their trendline at present.

However it is good to be there at the table.

[Dotbond]

Start unpacking it Mr B

[Maverick]

Good work Mav. Don't want to rain on your parade but...

All that sounds great until one ponders that the median house price in N.Z. over the last 3 years is up about 43%. On a rainy afternoon I spent a bit of time pondering this.
Such a modest increase relative in care suite prices to the median house price increase, (actually a decrease in relative terms compared to the real estate market average performance of 24%).
On one hand I can certainly appreciate that when they initially build a whole block of care suites on one site at one time they have to price them very attractively to fill them up as quickly as possible...I can certainly appreciate the commercial wisdom behind that and yet on the other hand I can't help pondering why (if the care suites were so attractively priced in the first release) the prices on resale are not at least keeping up with the movement in the average price of real estate ?

As you would expect...I have a couple of working theories to explain this...but its quite probably not one you folks want to hear so I won't unpack it unless people really want me to.
I hope over time the concept and market acceptance of care suites matures to the point where people see them as a lifestyle choice more than shopping around for the best deal on meeting late stage care needs.

Nice work Beagle, I think that's a very fair point you raise that their c/s resale margins being up 18.7% which is nicely ahead of 11.5% the prior 2 years but is in fact not even keeping up with National HPI.

My understanding ( which I'm clear on) is that OCA price their C/S based on an arbitrary “gap” between the apartment prices and the C/S. In other words C/S prices are tied to apartment prices NOT houses.
You will see in their report their apartment prices are actually lower now than from 4 years ago.
2018-$998k 2019-$1131k 2020-$1134 2021-$952
So clearly while HPI has rocketed away , OCA apartments have actually retarded. We all will know this is all location based fluctuations so is therefore a false indicator of any individual apartment price.

What I'm saying is apartment prices changes are not the same as house price changes. I can definitely say that the arbitrary “gap” OCA has used between the apartment prices and C/S has recently closed considerably when determining the new resale price of the C/S.

There are more important factors to consider regarding care suites rather than pricing optimisation in the big OCA scheme of things;
1.The second biggest influence of a client selecting their final home ( i.e apartment/villa) is “does the village have continuum care”? - so apartment sales benefit
2.OCA have said that when they have added a C/S offering in their older homes that village occupancy goes up.- so apartment/villa sales benefit.
4. Demand is proving healthy to the point of waiting lists within a few years of delivery, -therefore improving occupancy rates plus underscoring potential price rises.
5.OCA has changed its DMF capture from 10-10-10 to 15-10-5. That's a hang of a slice of the pie if the client churn is faster than first modelled. ( which it is, churn is faster than the 3 years originally modelled. )

OCA`s significant future profits will come from apartments. As I've said before the actual profit focus on care suites , although nicely positive, is actually a kind of a red herring. It's all about the apartments that are being built on the freed up land.
I would recommend any serious shareholder drive by any of the half done projects in Auckland , Hamilton, Tauranga to get a real feel for what their game is.

I have been closely watching Hamilton- “Awatere '' for over 3 years now. To the absolute delight of my wife (Tui please) I called past again when heading south from the ASM and even I was staggered how huge and impressive the shell of the apartments now are. It completely dwarfs the new C/S block to the point of barely noticing them. That picture really tells a thousand words.

[Dotbond]

Thanks Maverick

[Beagle]

Thank you Mav for unpacking it some more, much appreciated, puts my mind more at ease.

Good to know Brent and the team are "on the hunt" for more acquisitions, (would expect nothing less from the former head of investment banking at Jarden) and I think they are well capable of debt funding the next one leveraging the balance sheet so the next debt funded acquisition should be strongly eps accretive.

Don't underestimate the importance of "shopping around for the best deal." Or the potential business this can/will generate.

Mav's made a great point that the team are focusing on care suites providing the full continuum of care and thereby boosting villa and apartment sales.
Unpacking this a bit more...I was thinking about this from another perspective and that the pure late stage care thing, what is the best deal for people ? For example with my Mum we knew she only had about 6 months to live with her terminal cancer diagnosis and while I would have liked her to have had a sea view room at the Sands, stumping up with say $500K and losing 15% occupation right agreement fee = $75,000 cost to her estate is far more expensive than another really good option we found, (which was much closer for her friends to visit), and still really good care and cost us just $45 a day for a premium room with a sea view, albeit a distant one. Over the 6 month this cost her estate just over $8,000 in premium room charges. My sense is this fast growing charity https://www.eldernet.co.nz/Facilitie...ice/FaStID/365
provides strong competition to care suites on a strict comparing apples to apple's stand alone basis and that's my concern on a pure is the care suite model really that attractive to people ?

Mav makes a good point that care suites are there to provide a total end to end health care solution for people's needs and this drives apartment and villa sales which is where the real money is made for OCA.

On another subject I think the caliber of the directors is really awesome at OCA and Brent must be a very bright chap to have made it to the very top of Jarden as the former director of investment banking, N.Z.'s leading brokerage house and investment bank.

I will slowly accumulate some more from time to time on any untoward share price weakness. Long term, and that is the key, LONG TERM, (while I would never say never), its difficult to see how you can go too far wrong with this one.

[winner69]

Another month passes and had to update this

In spite of the excitement of Oceania ASM and rave broker reports the OCA shareprice to SUM's is unchanged and the the long term market sentiment in saying SUM is better than OCA remains

Suppose I do this just to remind myself not to put more into OCA at the expense of SUM

SUM quarterly sales soon - could be interesting

[Beagle]

Nice chart Winner and I can certainly appreciate your enthusiasm for SUM and the key differences between their business models we've discussed at length.

To be objective though one should note that the declining trend in their share price relativity coincides for the most part with the period of time when OCA have been in the early stages of their business transformation program and now that we are past the point of inflection I expect gains from that transformation to steadily build momentum over the years ahead.

Whether momentum builds at a faster rate that with SUM with its vast land bank (which with the passage of time has proven to be a very good are far sighted approach), is anyone's guess.

Having a bob or two each way and a few quid on ARV too looks like a sound strategy to me. (I continue to believe RYM's is significantly overpriced relative to its peers).

[BlackPeter]

Pity the government takes 33% of it

I’d prefer Oceania retained the earnings and turned it even more gold.

Another month passes and had to update this

In spite of the excitement of Oceania ASM and rave broker reports the OCA shareprice to SUM's is unchanged and the the long term market sentiment in saying SUM is better than OCA remains

Suppose I do this just to remind myself not to put more into OCA at the expense of SUM

SUM quarterly sales soon - could be interesting

I remember similar discussion some years ago about the relativity RYM to SUM. Ryman did (SP-wise) so much better than SUM and one members even created a theorem saying that SUM will always be just a fraction of RYM. Well, he was wrong, wasn't he?

I remember that at that stage both beagle and I said that holding SUM might be more sensible than holding RYM, given that SUM had so much more growth potential than RYM. We both have been right :

Just wondering whether this is again one of these opportunities to purchase into the undervalued share (OCA instead of into the now fully priced SUM) and just wait for the markets to catch up? It certainly did pay for me some years ago to keep my SUM shares despite the Couta theorem, and I recon in some years I can as well look with pride on the growth of my OCA shares.

They say buy low, sell dear, don't they?

Discl: hold OCA (and INA.ASX), but no SUM anymore;