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  1. #3496
    Gnawing on Bones Beagle's Avatar
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    Hi Warren,
    If you go right back to the start of this thread you'll see when this company was originally rumoured to float it was riddled with enormous debt.
    The balance sheet needed to be well and truly cleansed and strengthened as part of the IPO process and it was. If I remember correctly most of the float proceeds were used to retire bank debt. When floated the company had very low debt so essentially the development program is being run through bank debt which is still fairly modest, the gradual change to an occupation right agreement model as new developments are sold down and retailed earnings.
    Capital will be recycled over and over again as units are sold down under the new business model which will fund future developments.
    No butts, hold no mutts, (unless they're the furry variety).

  2. #3497
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    Ah yes, net debt... that is one area where OCA has experienced rapid growth. From $84.4m in FY17 to an expected $203.6m in FY19, and $283m in FY20... up 235% in 3 years, that is more rapid than any other listed operator.

    That FY20 number would be nearly as much as the 'bad old days' (the days when Roger wouldn't touch OCA with a bargepole - those days were a mere 2 years ago) when OCA was riddled with debt... that was before the IPO where $173m of the $200m IPO proceeds were dedicated to paying off the $259.1m in debt OCA had as at FY16 - OCA did a good job however, and reduced debt all the way down to $84.4m.

    With the housing market now slowing down, it will be come down to how good OCA's continuum of care really is to attract people to their villages - otherwise we'll find sum things won't be selling so fast and capital recycling won't be occurring as swiftly... and that 'enormous debt' OCA is forecast to soon be riddled with again, just might turn into dangerous debt.

    I believe OCA can do it, especially if it is as good as their flashy preso's and tour days, but it has silently and certainly elevated the risk profile of OCA above that of a particular other listed operator with strong continuum of care offering who are nearly as cheap with similar yield.
    Last edited by trader_jackson; 16-04-2019 at 09:35 AM.

  3. #3498
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    Debt is relative to assets but I think you know that already.
    http://nzx-prod-s7fsd7f98s.s3-websit...429/298502.pdf
    In the interim financial statements released in January 2019 total external borrowings, (excluding residents advances under occupation right agreements) stood at $206.9m against total assets of $1,208.8m a bank debt ratio of just 17.1%.
    Cash flow increased by 175.9% on the previous comparable period.
    I have no concerns whatsoever over the gearing level and note interest rates are at around close to 50 year lows and considerably lower than a few years ago.

    The original debt level including loan from Macquarie relative to assets was from memory vastly higher but the original pre IPO financials are no longer available on the Companies office website to review again.
    Last edited by Beagle; 16-04-2019 at 09:49 AM.
    No butts, hold no mutts, (unless they're the furry variety).

  4. #3499
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    Quote Originally Posted by Beagle View Post
    Hi Warren,
    If you go right back to the start of this thread you'll see when this company was originally rumoured to float it was riddled with enormous debt.
    The balance sheet needed to be well and truly cleansed and strengthened as part of the IPO process and it was. If I remember correctly most of the float proceeds were used to retire bank debt. When floated the company had very low debt so essentially the development program is being run through bank debt which is still fairly modest, the gradual change to an occupation right agreement model as new developments are sold down and retailed earnings.
    Capital will be recycled over and over again as units are sold down under the new business model which will fund future developments.
    Wow, many thanks Beagle. As I see it, while the large bank debts etc of the pre float times were paid off, it must be some business now as it paid us shareholders 4.5% approx right off the float. The old bank debt cant have been costing them too much more than say 5%?
    Any-rate debt murders us all including businesses.
    Could you tell us a normal debt ratio and what OCA's ratio is?
    Mac's might be very happy to sit and see their 39% (?) grow into a mighty valuable nest egg?

  5. #3500
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    You're most welcome Warren, anytime. SUM have leverage of 32% as at 31 December 2018 which is nearly double that of OCA. I am not concerned by their leverage either as that's another company on a very strong growth path for the years ahead.
    Last edited by Beagle; 16-04-2019 at 10:05 AM.
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  6. #3501
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    Quote Originally Posted by trader_jackson View Post

    With the housing market now slowing down, it will be come down to how good OCA's continuum of care really is to attract people to their villages - otherwise we'll find sum things won't be selling so fast and capital recycling won't be occurring as swiftly... and that 'enormous debt' OCA is forecast to soon be riddled with again, just might turn into dangerous debt.
    The housing market may be slowing. but one thing isn't. And thats the rate of our aging population needing care.

    In terms of current numbers over 30% of people aged over 65 - 74 will suffer from obesity, chronic pain or arthritis. All conditions that will require some degree of care. By the time people hit 75 obesity will have killed a few off. But the chronic pain and arthritis lingers as you get older.

    From a 2014 research paper: “Dementia is a disease of ageing with the prevalence of 1-2% in those 65-74 years of age and increasing to 40% in people over 90 years of age (Treves & Korczyn, 2012). Over 41,000 New Zealanders are currently living with dementia pre and this will almost double to 75,000 people by 2026.”

    Then from local aging population research by 2036 1.26m NZ’ers are expected to be aged over 65. 392,000 of these people will be aged over 80. And 14,500 will be aged over 95.

  7. #3502
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    Quote Originally Posted by minimoke View Post
    The housing market may be slowing. but one thing isn't. And thats the rate of our aging population needing care.

    In terms of current numbers over 30% of people aged over 65 - 74 will suffer from obesity, chronic pain or arthritis. All conditions that will require some degree of care. By the time people hit 75 obesity will have killed a few off. But the chronic pain and arthritis lingers as you get older.

    From a 2014 research paper: “Dementia is a disease of ageing with the prevalence of 1-2% in those 65-74 years of age and increasing to 40% in people over 90 years of age (Treves & Korczyn, 2012). Over 41,000 New Zealanders are currently living with dementia pre and this will almost double to 75,000 people by 2026.”

    Then from local aging population research by 2036 1.26m NZ’ers are expected to be aged over 65. 392,000 of these people will be aged over 80. And 14,500 will be aged over 95.
    Good stuff, that's telling him !
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  8. #3503
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    You are right - as at May 2016 OCA was worse... it had $259m in debt with 'just' $783m in total assets - as bad as sum others!

    What I find most interesting is the Change in fair value of investment property (that has helped support this asset growth, leading to this low ratio of 17%)... it has gone from $34m booked gain in FY15, up to $50m in FY16, then $57m in FY17, and a banger of a FY18 with $68min (wow that is another $175m in paper money generated in 3 years)... so if the music were to stop, and the results at half year seemed to indicate it has pretty much stopped (with fair value change in HF18 being $34.1m vs just $1.6m in HF19 - or even worse, dare I say it, start to go backwards in FY19 or FY20), and total assets were to stay around the $1.2b mark for a year or two while borrowings jumped closer to $300m for a year or two - we will see a dramatic jump from that low 17% figure you correctly point out it was at half year, to 25% - a near 50% increase in less than 2 years... OCA have shown already profit with their care side of things profit is going backwards (hopefully only a temporary thing), so they really need to do the property development side of things (and, most importantly, selling those ORA's) really really well! I have confidence they can do so, but as it was already pointed out on this thread, they sold more stuff at half year, yet still managed to make less money (???), hence I have my concerns, which have only been amplified by the bigly record smashing borrowing.
    Last edited by trader_jackson; 16-04-2019 at 10:26 AM.

  9. #3504
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    Any REIT running at a 25% leverage ratio would be considered by most to be leveraged very conservatively. Bit bored with the debt discussion to be honest. Debt is simply a tool to grow the company, and the company is focusing on providing needs based services that will be in great demand in the years ahead. I think the debt is very conservative in the circumstances and have no qualms about it whatsoever.
    No butts, hold no mutts, (unless they're the furry variety).

  10. #3505
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    Quote Originally Posted by Beagle View Post
    Good stuff, that's telling him !
    One of the other big issues that I have only touched on, but dont have the hard data on is the number of care workers.

    As we age we are not being replaced by younger people at the same rate. So the number of Care Workers, relative to the number of aged people is going to reduce.

    Hospitals dont want the aged - so they will have to be out in the community.

    Care workers wont want to be driving all over town to look after a portfolio of old folks still living in their home.

    Aged care workers will likely much prefer working in a decent environment for a solid working day for a decent wage where decent resources are close at hand.

    One of the realities we are faced with is looking after our aging partner. When our back is knackered and we are tired of wiping up more poo a decent aged care facility for both people is going to look mighty attractive, no matter what the prevailing property market is doing.

  11. #3506
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    Quote Originally Posted by Beagle View Post
    Any REIT running at a 25% leverage ratio would be considered by most to be leveraged very conservatively. Bit bored with the debt discussion to be honest. Debt is simply a tool to grow the company, and the company is focusing on providing needs based services that will be in great demand in the years ahead. I think the debt is very conservative in the circumstances and have no qualms about it whatsoever.
    Yes running a certain level of debt is not only necessary but in most cases very prudent.

  12. #3507
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    Quote Originally Posted by minimoke View Post
    One of the other big issues that I have only touched on, but dont have the hard data on is the number of care workers.

    As we age we are not being replaced by younger people at the same rate. So the number of Care Workers, relative to the number of aged people is going to reduce.

    Hospitals dont want the aged - so they will have to be out in the community.

    Care workers wont want to be driving all over town to look after a portfolio of old folks still living in their home.

    Aged care workers will likely much prefer working in a decent environment for a solid working day for a decent wage where decent resources are close at hand.

    One of the realities we are faced with is looking after our aging partner. When our back is knackered and we are tired of wiping up more poo a decent aged care facility for both people is going to look mighty attractive, no matter what the prevailing property market is doing.
    Yeah, tell me about it mate. Its really hard for a partner to put a loved one in a care facility, (my Mum held on for too long when Dad got dementia and it really took a toll on her), but its a bit easier when they know that the care facility is top notch and has the best facilities and care in the industry. I think the whole care suite thing is something that's going to be in massive demand in the years ahead. It's certainly a feel good investment too when you know residents are going to be well cared for and have first class facilities tailored to meet their needs.
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  13. #3508
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    Warren, the love of your life Liz loves her tennis. She’s had many senior roles with NZ Tennis and Auckland Tennis over the years

    Maybe she’s mates with our Jayne
    “Imagination is more important than knowledge.”

  14. #3509
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    Quote Originally Posted by Beagle View Post
    Any REIT running at a 25% leverage ratio would be considered by most to be leveraged very conservatively. Bit bored with the debt discussion to be honest. Debt is simply a tool to grow the company, and the company is focusing on providing needs based services that will be in great demand in the years ahead. I think the debt is very conservative in the circumstances and have no qualms about it whatsoever.
    Beagle.
    I now understand OCA financing a lot better. You write well and most clearly. Many thanks for your excell input.
    I too have no qualms re my considerable (for me) investment. But as I saw my loved mother enjoy her care suite and the quality of care at OCA (compared to where she had been in care before) and I looked at the BoD made up of Nursing , Building , and Aged care experts plus our Liz and our Earl, I had every confidence!
    What a bargain.

  15. #3510
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    Sorry if this has already been addressed...

    Regarding the Refundable occupation right agreements carried as liabilities on the balance sheet, how relevant are these as debt when they are not refunded until a new occupant has paid for their occupation licence? I hope this makes sense. It appears that this is a debt which is never required to be paid off or refinanced.

    Thanks in advance.

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