OCA - Oceania Group - retirement villages

[Baa_Baa]

I might have another sniff when Macca's finally sell their last tranche, whichever year that might be.

I've been unable to find out when the Macquarie GIF II and GIF III unlisted funds started, but both are 10 year closed-end funds and both hold Oceania within the NZ vehicle of Oceania Healthcare Holdings Limited.

Presumably they can hold those funds for the full 10 years or sell anytime within the 10 years. In total GIF II and GIF III currently hold 254,175,418 shares (41.65%) in Oceania Healthcare Limited (OCA), I don't know how much each fund holds respectively. GIF II has only 3 companies remaining of an original 9 companies in the fund. GIF III has only 2 remaining companies of an original 4 companies. On 5 Sept 2018, Macquarie sold 95,000,000 shares (15.567%) in OCA reducing their holdings from 349,175,418 (57.218%).

The effect on OCA at the time of the Macquarie 95m shares selldown was virtually nothing! 1 cent down on the day $1.14-1.13, flat the day after and another cent down the day after that. It didn't move the market at all <1% and the SP drop of 2 cents over three days may not have had anything to do per se with Macquarie selling. Shortly afterwards the market boosted OCA from $1.12 up to $1.23 and I recall the excitement being expressed here!

My conclusion is that the Macquarie "over hang" is not something I need be concerned about, nor the timing of when Macquarie sells whenever they do. It is certainly not a fearful future event and I don't think it will have any material bearing on the share price at the time. In fact Macquarie would be unlikely to sell cheaply when they can hang on until the bitter end of their two 10-year closed-end funds waiting to reap the highest returns for their investors.

When Macquarie do sell, probably in tranches, I expect it will be to another very deep pocketed insto and off-market at an agreed price between the parties at the time. Once again having virtually no effect on the market price on that day.

[Beagle]

Technically what you point out in regard to the price action looks quite correct to me but I suspect a large number of those 95m shares got churned over and over again on market which had a suppressive effect on the share price. That said most of the sector came under pressure late in 2018 / early 2019 so who knows.
I simply don't think our market is anywhere near capable of absorbing that level in one tranche and contrary to Mavericks hope of a back room deal to enable a Macca's complete clearance to another party, my understanding is that might be a trigger event under the takeover's code.

Off market part tranche deal quite possible. The likes of ACC have plenty of money.

I remain of the view overhang's are never a good thing and it will take them about 3 years to get to a 50 / 50 split between the old and new model care system.

[Baa_Baa]

Technically what you point out in regard to the price action looks quite correct to me but I suspect a large number of those 95m shares got churned over and over again on market which had a suppressive effect on the share price. That said most of the sector came under pressure late in 2018 / early 2019 so who knows.
I simply don't think our market is anywhere near capable of absorbing that level in one tranche and contrary to Mavericks hope of a back room deal to enable a Macca's complete clearance to another party, my understanding is that might be a trigger event under the takeover's code.

Off market part tranche deal quite possible. The likes of ACC have plenty of money.

I remain of the view overhang's are never a good thing and it will take them about 3 years to get to a 50 / 50 split between the old and new model care system.

It was an off-market block trade deal with a syndicate of Deutsche Craigs Limited and Craigs Investment Partners Limited, First NZ Capital Group Limited, Macquarie Securities (NZ) Limited. Priced at $1.08 (below the market on the day at $1.14-$1.13). https://www.nzx.com/announcements/323383 (the SSH notice is attached at that link).

There are plenty of very large rich insto's and brokers who can underwrite deals of the size of Macquarie's holdings. One might consider that the sale had zero effect on the market on the day, but as those underwriters started pumping out their new OCA shares to their punters the SP rose very quickly to a high of $1.23.

I remain unconvinced that the Macquarie shareholding has or should have any material effect on my decisions about buying, holding or selling OCA. Next time it happens perhaps I should sell my shares into the punters rally afterwards! Then buy them back when the market SP drops as it catches up with reality ... like it did last time.

[Valiant]

Good they got another major consent approved today and future development pipeline is 84% consented. Very impressive...if only they had an internal development model and could control development costs... A major point of difference between this one and RYM and SUM is these guys use external construction companies but project manage it themselves.
Its one thing to get consent for a development which is great but quite another to get a quality construction company to give you a competitive fixed price construction quote in the prevailing construction market. I doubt they'll get margin's in the 30%+ range or anywhere even close like they did on the Sands going forward from here...

Yes those investors are no mugs but my sense is they are playing a very, very long game...which is fine as long as you have the patience.
I might have another sniff when Macca's finally sell their last tranche, whichever year that might be.

Hi Beagle, are you saying that RYM & SUM directly employ construction labour and trades people versus OCA who utilise external contractors? So RYM / SUM are not utiliising any external contracts with construction trades? I'm unsure myself but I'd be very surprised if RYM/SUM employed their own labour and had no constructions contracts on their books.

I agree with your comments regarding the difficulty obtaining quality construction companies - there is just not enough competent players in the market at this time. Remember this affects all developers. Comparing the contract of the Sands to new developments going forward is not a fair comparision IMO, the market has altered vastly in the past 2-3 years and I see contractors starting to look harder at their RFP's and ensuring they're pricing deisgn and programme risk more effectively.

[Beagle]

Hi Valiant,
RYM have made great strides in internalising their construction processes. SUM are somewhat behind RYM. Others are well behind the 8 ball and far more vulnerable to rampant construction cost inflation.

All I am saying is that shareholders in OCA get a free look at how construction costs might rise when SUM comment that construction cost inflation is running at about 10% per annum in Auckland and they expect development margins to return to more normal level's of about 25% on a national average basis from early 30's%. My understanding is SUM are far more internalised in their development process than OCA.

To be clear what I am suggesting is next time OCA approach say Naylor Love for a fixed price construction contract the directors might get quite a shock.
One thing to get consents, another to build it on time with an acceptable development profit and another to run it cost effectively. Earl is a great guy and very affable, likeable and wants to please people but controlling costs, (especially in older facilities which is still by far the bulk of their current business model) is something that's not being executed especially well at present in my opinion.

Baa Baa, we'll have to agree to disagree on the materiality of Macca's overhang. Takes two to make a market eh

[Valiant]

Beagle, I don't disagree. All signs point towards further cost increases across the whole construction industry and good on SUM managment for getting in front of it and advising their shareholders of whats to come. Personally, I'd be shocked if the directors of OCA didn't know that they can expect increased construction / development costs moving forward.
OCA still have multiple brownfield developments left to execute and as you'll appreciate these are more difficult to execute then greenfield developments.
FWIW, a few years back I worked in one of the large engineering firms consulting to SUM. My understanding is they still utilise external consultants for various services (as do MET, ARV, OCA).

Oh, yeah - I was evaluating a Naylor Love tender earlier this week. They're up there with the best we have in the Southern Lakes region.
Cheers

[Beagle]

Beagle, I don't disagree. All signs point towards further cost increases across the whole construction industry and good on SUM managment for getting in front of it and advising their shareholders of whats to come. Personally, I'd be shocked if the directors of OCA didn't know that they can expect increased construction / development costs moving forward.
OCA still have multiple brownfield developments left to execute and as you'll appreciate these are more difficult to execute then greenfield developments.
FWIW, a few years back I worked in one of the large engineering firms consulting to SUM. My understanding is they still utilise external consultants for various services (as do MET, ARV, OCA).

Oh, yeah - I was evaluating a Naylor Love tender earlier this week. They're up there with the best we have in the Southern Lakes region.
Cheers

Yeap, saw quite a few of their signs up on construction sites when I was down your way last week. Crikey the level of construction in Queenstown is quite "remarkable"
For sure, SUM still use the technical expertise of a range of expert consultants and some subby's.
Missing Qtown already Some people are fortunate to call the place their home, enjoy

[Baa_Baa]

Baa Baa, we'll have to agree to disagree on the materiality of Macca's overhang. Takes two to make a market eh

Sure does, happy to politely disagree when the facts suggest I’m correct.

Normally I’d agree that an overhang is worrying if the large seller is compelled to sell on market, but in this case I seriously doubt that they will.

The volume involved in unloading is so high that a sustained on market sell would take ages and ruin their margin, so when it happens I anticipate it will be staggered over time in tranches via underwriters who can absorb large holdings and/or sell to their punters.

Next time it happens I have a trading diary note to watch carefully what the SP does in the following few days. I expect no effect on the market price from another large off market sale. Just like they orchestrated it last time.

These folks are way too savvy to ruin their progressive exit by fecking the SP with an on market dump.

I do not see any material risk to OCA SP from an eventual and probably inevitable sell down from Macquarie.

[Maverick]

Good to hear 2 different opinions from very respected posters re the inevitable 38% MCQ sale.
BaaBaa, FWIW, to add to your notes, as to the effect on a SP of a recent large capital placement,check out ARV.
They raised $152m effortlessly and quickly. They attracted attention and new shareholders which has done marvellous things to turnover and the SP.
While I personally don't like ARVs strategy of growing faster by acquisition (I have sold down since) , I completely underestimated the positive value of the new attention brought onto what was a fairly neglected stock.
Soooo.... back to OCA, at $1.20 MCQ will need someone to stump up ~ $280m to exit, thats not a crazy amount more than ARVs effort. If it's anything like the ARV capital raise,the share price and market sentiment will ONLY benefit.
The fact MCQ are prepared to wait this out thus far ,when they might have cut and run, can only mean they see unappreciated value.(and the directors also)
I can only see upside to when MCQ finally pull the trigger.

[peat]

yes it seems a robust discussion but when I boil it down supply is potentially large at any time and price is a function of demand and supply.

when is the Doctor not a Doctor
when they hold a Doctorate in Nursing.
Just kidding , it sounds a terrific appointment.

https://www.directbroking.co.nz/Dire...spx?id=5134836