OCA - Oceania Group - retirement villages

[Beagle]

At $60/day (over and above what the groceries paying) that is $420/week. Current single pension is $424/week. That would leave someone like me with $4 a week “pocket money.” There are a heck of a lot of elderly renting, and even those who own a house do not necessarily own an expensive one or have other assets. So I dispute your claim that you don’t have to be rich to afford a care suite (not just with OCA - anywhere).

From what I have seen around where I live a modest sized apartment / care suite, call it what you like is about 35-40% of the average value of a house in the suburb I live in. I think that's quite a modest cost but I accept others will have a different opinion and they're perfectly entitled to that.
The average age of someone moving into a care suite as I understand it is about 85. If after a lifetime of work one has not built up sufficient in the way of assets to afford a care suite then there are other options like standard sized units the Govt will fund and OCA have some of them as well. OCA cannot be absolutely everything to everybody and neither should they try to be in my opinion.

I stand by what I said the other week about its great that OCA put the care of their residents above all else, but its not a not for profit charitable organisation and nobody should expect it to be.

[dubya]

And always worth remembering that the DMF in the care suites is structured differently to the villas.

Care Suites are:
15% for the first year. The ‘first year’ is fixed at 15% irrespective of whether the resident stays for one week or one year.
10% for the second year. Accrued and apportioned on a monthly basis. (0.8333% per month)
5% for the third year. Accrued and apportioned on a monthly basis. (0.4166% per month)

Villas are:
10% per year for three years, accrued and apportioned on a monthly basis from the beginning of the residents stay.

[Snoopy]

Hey Snoopy, I obviously can't comment on that particular business without knowing it. Perhaps it's a trust not designed to make profit or needs to tweak its model if it is, I've no idea.

Yes it is a trust. No profit over the long term required, although they definitely don't want to make a loss either. The model has been tweaked by charging a now very substantial one off 'contribution towards facilities' fee when you enter the village. This is in addition to the monthly fee you pay to the village each month. That is the only practical way they have found to 'balance the books'.

The 2 overall concerns I read in your post is the high staff costs always kills any chance of a profit and also the reduction of clients who can afford to live there.

You read right.

OCA, charge a ORA on the physical bed AND also a nursing charge for extra tailored services as required. There's no "not for profit" intentions in that model!
I personally don't expect any profit on the nurse component nor ever will. It's the bed underneath them that produces the profit.

I would suggest the splitting of the 'bed charge' and the 'nursing charge' in a care suite is an artificial accounting construct. I can't really see how you can have one without the other. If you don't want to book a 'return' on the nursing costs, you will have to offset that with a higher return on the bed cost.

This average ORA revenue (property component) alone for Last years new sales was $33k p/a, per one care suit. That runs on average over 3 years then it starts over again immediately . That's what I meant earlier about a turbo ORA. Comparably, Villas recycle over about 7 years to yield 3 years of ORA income.

'Occupation Right Agreement' associated revenue would include a 'capital purchase component'' and a 'monthly operating component'. You are saying that the average turnover time for a care suite is 3 years, verses 7 years for an occupy your own unit? If OCA claim a 'retention' each time the unit turns over, then I can see why that is attractive from an OCA perspective. And the more times it turns over the better from an OCA perspective. But isn't it also true that the capital value of a care unit would be less? You might find a licence to occupy a village home turning over every seven years generates a better return than a care unit turning over every three years.

As far as clients not being able to afford a care suit in the future....
For now , pre covid, OCA caresuite sales were tracking slightly ahead of expectations and also running my own ruler over the sales rates I came to the same conclusion. So no issues at the moment of demand or affordability. We are also told inquiry actually picked up further during the lockdown.

It is clear OCA put in plenty of consideration to cherry pick suburbs that yield this type of high end client in which to place their caresuites and to date they have been successful. We know the older oldies are on their way in increasing numbers with current insufficient supply ready for them

So really the last concern I'm reading in you post is that there may not be enough wealthy people in the decades ahead.

Jesus said ages ago, "the poor will all ways be with us" , by default that tells me , "the rich will always be with us too" So lots of OCA customers ahead I reckon.

If he is wrong then then there is plenty of time to sell out.

You may be right on this. There may be pockets of wealth in Auckland rich enough to not need a government subsidy to fill a care suite. I don't think that would apply throughout the country though.

SNOOPY

[Brfc]

Yes it is a trust. No profit over the long term required, although they definitely don't want to make a loss either. The model has been tweaked by charging a now very substantial one off 'contribution towards facilities' fee when you enter the village. This is in addition to the monthly fee you pay to the village each month. That is the only practical way they have found to 'balance the books'.



You read right.



I would suggest the splitting of the 'bed charge' and the 'nursing charge' in a care suite is an artificial accounting construct. I can't really see how you can have one without the other. If you don't want to book a 'return' on the nursing costs, you will have to offset that with a higher return on the bed cost.



'Occupation Right Agreement' associated revenue would include a 'capital purchase component'' and a 'monthly operating component'. You are saying that the average turnover time for a care suite is 3 years, verses 7 years for an occupy your own unit? If OCA claim a 'retention' each time the unit turns over, then I can see why that is attractive from an OCA perspective. And the more times it turns over the better from an OCA perspective. But isn't it also true that the capital value of a care unit would be less? You might find a licence to occupy a village home turning over every seven years generates a better return than a care unit turning over every three years.



You may be right on this. There may be pockets of wealth in Auckland rich enough to not need a government subsidy to fill a care suite. I don't think that would apply throughout the country though.

SNOOPY

Hi Guys interesting debate refer to my previous post where i have extensive experience in the industry as a owner operator
I now only run a small facility now (27 Beds )
And yes it getting tougher re wage bill !
But if you run a well maintained ship there is still a $ to be made (without retirement units etc ) The extra costs running the business during lockdown was quite expenses ie More Staff Hours / Protective gear etc
The upside was that A) We didnt lose a single resident during this period though natural illness (which is unusual )and all residents being healthier due to no outside visitors hence no bugs into the facility
B) The Government made a lump sum payment to compensate the extra costs mentioned above (didnt quite meet the extra costs but it was most welcome )
I Still like the stock i am a holder but its going to be a slow progress
Cheers

[Waltzing]

plenty of lawyers and accountants with trusts that can pay for care suites when needed. Even in the country side these people are well heeled i can assure you.

[Baa_Baa]

@snoopy I think you’re over thinking this from a perspective of a trust model verse a profit listed company model. The two are not comparable imo. One is essentially a charity, the other has to return value to shareholders. OCA have crafted a fine balance in their strategy, be it right or wrong long term, it is focused on the best outcomes for shareholders, while still offering the best care for their customers. If this is uninvestable for you at substantial discount to nta then no listed retirement company is either and therefore your argument is moot.

[Snoopy]

@snoopy I think you’re over thinking this from a perspective of a trust model verse a profit listed company model. The two are not comparable imo. One is essentially a charity, the other has to return value to shareholders.

I actually thought about that very question earlier today Baa_Baa. My conclusion was the opposite to yours though. Both the trust I am talking about and OCA are in fact putting on exactly the same service to exactly the same client base. Both are offering a continuum of care, from right to occupy stand alone houses to full care units. Both employ from the same people pool of potential staff. The only difference is the profit target '$P'.

In the trust, 'P' could be $0. In the case of OCA the target for 'P' is a much larger positive figure. But the mechanics for reaching 'P' in both cases is the same.

OCA have crafted a fine balance in their strategy, be it right or wrong long term, it is focused on the best outcomes for shareholders, while still offering the best care for their customers. If this is uninvestable for you at substantial discount to nta then no listed retirement company is either and therefore your argument is moot.

Let me put another perspective to you about why OCA trades at a discount to NTA. By purchasing OCA today, you think you are buying value. But if OCA was cashed up, you would not be able to realise that NTA value for some years. The residents have 'right to occupy' contracts. You would have to wait for these contracts to expire before as an investor you could cash up. So it makes perfect sense for a retirement village to trade at less than NTA, or at NTA with a discount factor. The only exception to this would be if the company could somehow earn a return on its assets that is greater than expected, given the market price of those assets. But of course if that were to happen the company might revalue upwards the price of those assets to reflect their greater earning potential. So where are these rambling thoughts leading to?

I think the asset value discount available on the market by buying OCA, or MET for that matter, is because the market expects the respective managements to extract below average returns on those assets. There is a perception that because a property is of a certain size and in a certain location it must have a certain value. But as landlords know, rental yields are not the same for a house with a given number of bedrooms in the same suburb. My theory is that the discount on net assets at OCA reflects the market perceived reality that:

1/ OCA operate a certain number of houses and care suites that if sold for residential living on the open market would fetch a certain price BUT
2/ because of the constraints of operational costs of the business, these same assets cannot earn a 'market rate' return.

So the discount to NTA represents operational constraints at OCA, and buying OCA at 'below asset backing' is not the bargain it seems. We also know that these operational constraints can persist of years as evidenced by MET trading below NTA for years.

SNOOPY

[King1212]

Guys..put your money on 2% term deposit....

All good in the hood..no risk.

We all agreed the market is in lala land.... companies issued a bleak forecast...SP goes up

Companies issued a good forecast...SP stuck n down....

Go Labour!

[Cyclical]

.... companies issued a bleak forecast...SP goes up

Companies issued a good forecast...SP stuck n down....

My King, you are awesome, the penny has dropped and I've just figured out where I've been getting it all wrong! Move aside Master Beagle!

[King1212]

Dont mention it my mighty warrior! Any time....