OCA - Oceania Group - retirement villages

[couta1]

Hi Couta.We know care facilities are low margin with the govt subsidies leaving slim profits indeed. Are the care suites higher margin and privately funded making more profits, is this the main point of difference to SUM etc?
I did ask SUM CFO Scott Scoular today at a presentation about care facilities today and how important they were to their model.The answer i got wasn't really clear except to agree they are low margin they have ratio of 1 to 5 and not that important for profits,was my interpretation.

Also he suggested house prices need to drop by $150,000 before they impact profits.

An int chart showed the 75 plus age group in NZ climbing fast but peaking 2037-42 with quite drop off thereon.

OCA has a 30% DMF on all its units including care suites which is higher than SUM at 25% and RYM lower again at 20% so yes more margin. The stand out of care suites is that any potential care centre resident(Hospital or Resthome level) can purchase a suite instead of going into the main care centre. Service fees are the same and are either paid for by the resident or the Govt depending on their financial situation, either way OCA receives the same amount of money. You can clearly see the advantage of having a whole lot of care suites producing 30% DMFs over a standard care centre hence why even smaller care facilities can be profitable.

[Maverick]

OCA has a 30% DMF on all its units including care suites which is higher than SUM at 25% and RYM lower again at 20% so yes more margin. The stand out of care suites is that any potential care centre resident(Hospital or Resthome level) can purchase a suite instead of going into the main care centre. Service fees are the same and are either paid for by the resident or the Govt depending on their financial situation, either way OCA receives the same amount of money. You can clearly see the advantage of having a whole lot of care suites producing 30% DMFs over a standard care centre hence why even smaller care facilities can be profitable.

Yes yes... but slightly of topic , the average client stays 3 years in a care suite as opposed to 7.5 years for a villa. Yet still netting the same 30% maximum return

So that`s effectively double the return rate over the same 7 years a villa rents for also while allowing for a bit of unoccupancy (the care suites are probably not going to have a waiting list being "needs based") ..but wait there's more! care fees on top of that.
Its a business on top of a business.

[Joshuatree]

OCA has a 30% DMF on all its units including care suites which is higher than SUM at 25% and RYM lower again at 20% so yes more margin. The stand out of care suites is that any potential care centre resident(Hospital or Resthome level) can purchase a suite instead of going into the main care centre. Service fees are the same and are either paid for by the resident or the Govt depending on their financial situation, either way OCA receives the same amount of money. You can clearly see the advantage of having a whole lot of care suites producing 30% DMFs over a standard care centre hence why even smaller care facilities can be profitable.

Great ,thanks for that detail.

[Beagle]

Yes yes... but slightly of topic , the average client stays 3 years in a care suite as opposed to 7.5 years for a villa. Yet still netting the same 30% maximum return

So that`s effectively double the return rate over the same 7 years a villa rents for also while allowing for a bit of unoccupancy (the care suites are probably not going to have a waiting list being "needs based") ..but wait there's more! care fees on top of that.
Its a business on top of a business.

You're on to it mate. Average stay in a care suite from memory from the presentation Earl Gasparich gave to the Auckland brand N.Z. shareholders association is only about 2.5 years. Quite a big difference in the business model's of the various retirement companies isn't there

[Yoda]

I was late getting in so at 1.14 i am still in the red.
Maybe time to get a few more, but have 15 % of portfolio here. Thanks for the interesting debate. My day job is hospital , not rest home or retirement , so find these details helpful. Thanks all .

[Turtle2]

What underlying earnings for FY19 is everyone expecting? I'd say around 40% given the doubling in units delivered (which should have solid development margins) and the fact that the 2017 Long Term Incentive Plan requires an underlying earnings per share compound annual growth rate of at least 35% which should be a good estimation of expectations.

[percy]

I was late getting in so at 1.14 i am still in the red.
Maybe time to get a few more, but have 15 % of portfolio here. Thanks for the interesting debate. My day job is hospital , not rest home or retirement , so find these details helpful. Thanks all .

I don't think you were late getting in as the aging population provide ongoing strong tail winds for this sector.
15% of your portfolio means you are "well positioned."

[Beagle]

What underlying earnings for FY19 is everyone expecting? I'd say around 40% given the doubling in units delivered (which should have solid development margins) and the fact that the 2017 Long Term Incentive Plan requires an underlying earnings per share compound annual growth rate of at least 35% which should be a good estimation of expectations.

I am forecasting ~ 11 cps underlying earnings for FY19 up from 8.4 cps. Forward PE at $1.14 is just 10.4.

[Joshuatree]

I don't think you were late getting in as the aging population provide ongoing strong tail winds for this sector.
15% of your portfolio means you are "well positioned."

You would say that ,being early. Awaiting a low $1 opp to add in these volatile spastic times.

[Beagle]

I am forecasting ~ 11 cps underlying earnings for FY19 up from 8.4 cps. Forward PE at $1.14 is just 10.4.

You would say that ,being early. Awaiting a low $1 opp to add in these volatile spastic times.

I find it difficult to believe you can't see real value at the current price. What underlying eps are your brokers projecting for FY19 ?