OCA - Oceania Group - retirement villages

[SailorRob]

Christ I almost shat when I read that! lol.

Probably leaving because Buffett is about to announce that Brent will be the new CEO of Berkshire, he decided against Greg after studying OCA and realising Brent’s world class capital allocation skills.

lol.

Anal incontinence must be bloody awful.

[SailorRob]

Does anyone know anything about the new CEO, Suzanne Dvorak? This is her bio on LinkedIn:

Suzanne is an experienced retirement living/aged care executive and external advisor.

As an Industrial Advisor to EQT Group, Suzanne advised in the acquisition of Stockland Retirement Living and was transitional CEO for the newly rebranded business, Levande – one of Australia’s largest retirement living providers with 10,000 residents and 58 retirement villages (formerly owned by Stockland).

Prior to her role at Levande, Suzanne was Managing Director of Bupa Villages and Aged Care – Australia, where she oversaw a team of more than 10,000 employees across 72 care homes to support the needs of 6000 residents.

Suzanne’s experience extends to Executive General Manager, Residential Communities at Australian Unity, with responsibility for the residential communities portfolio – including 18 retirement communities and five aged care residences.

As CEO of Vivir Healthcare, Suzanne was responsible for the delivery of care services to 20,000 patients at residential aged care facilities, hospitals, day therapy, community, medical centres, retirement villages and at home.

Suzanne has also dedicated her career to social justice initiatives, working across health services, government and not-for-profit organisations.

In 2018-19, Suzanne was Interim CEO at safe steps Family Violence Response Centre - Victoria’s state-wide first response service for women, young people and children experiencing family violence.

Following more than a decade leading the Australian team at reproductive healthcare provider, Marie Stopes International, Suzanne was appointed CEO of Save the Children Australia – heading the Australian contingent of the 29 member nation alliance and delivering programs in over 120 countries.

Suzanne has also worked for the United Nations Transitional Authority in Cambodia and Thailand, Telstra and the Australian Red Cross.

She is currently a Non-Executive Director of UNICEF and, in 2005, was recognised for her outstanding career achievements – winning the Hudson Community and Government Award at the National Telstra Business Women’s Awards.

Anyone calling themselves 'Ms', is a bit of a red flag.

Hopefully this is an exception.

[mistaTea]

Anal incontinence must be bloody awful.

You get used to it.

[SailorRob]

Page 64?

"Increases in the carrying amount arising on revaluation of land and buildings above cost arecredited to the asset revaluation reserve in other comprehensive income; increases that offset previous decreases taken through profit or loss are recognised in profit or loss. Decreases that offset previous increases of the same asset are charged against the asset revaluation reserve in other comprehensive income; all other decreases are charged to profit or loss. When revalued assets are sold, or held for sale, the amounts included in the reserve are transferred to retained earnings."

Yeah so it's more about the rest of the paragraph before what you have highlighted.

Page 64 only deals with 'PPE' property not investment property,


'Following initial recognition at cost, completed owner occupied freehold land and buildings and land and buildings under development are carried at fair value. Independent valuations are performed with sufficient regularity to ensure that the carrying amount does not differ materially from the assets’ fair value at balance date. Any depreciation at the date of valuation is deducted from the gross carrying value of the asset, and the net amount is restated to the revalued amount of the asset. In periods where no valuation is carried out, the asset is carried at its revalued amount plus any additions, less any impairment and less any depreciation incurred since the date of the last valuation'.




'A property under construction is classified as land and buildings within property, plant and equipment where the completed development will be classified as such and as investment
property where the completed development will be classified as an investment property. Fair value measurement on property under construction is only applied if the fair value is reliably measurable. Where the fair value of property under construction cannot be reliably determined the value is the fair value of the land plus the cost of work undertaken. Property under construction classified as land and buildings under development is revalued annually and is not depreciated'.


'Subsequent costs are included in the asset’s carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Group and the cost of the item can be measured reliably. All other repairs and maintenance are expensed to the Consolidated Statement of Comprehensive Income during the financial period in which they are incurred'.



So for the PPE property section, a lot of the revaluations are based on the progression of construction and this is very conservatively estimated.

For the investment property it is different again and detailed in another section.

[SailorRob]

BaaBaa ..a very good question (as Brent would say)

Oceania have classified most of their care suites as Property, Plant and Equipment and account for revaluations in a Revaluation Reserve and shows up in Other Comprehensive Income.

And yes total revaluations (property and care units were over $100m in F24. The combined does boost the Balance Sheet as it a component of Shareholder Equity….the ‘value’ of the company.

Oceania seems to highlight Total Comprehensive Income as the profit they made …rather than just the reported NPAT

They went great lengths in educating the market why the Total Comprehensive Income is the real profit figure …below is what they used a few years ago as to how it works

Clear as mud eh

Hi Winner,

As per the red txt, can you point me to where they highlight total comprehensive income? I thought they highlight 'Underlying earnings' which is a totally different thing.

Thanks in advance.

SR

[nztx]

Christ I almost shat when I read that! lol.

Probably leaving because Buffett is about to announce that Brent will be the new CEO of Berkshire, he decided against Greg after studying OCA and realising Brent’s world class capital allocation skills.

lol.

Wonder if a spare space has been identified alongside Grant Buffett down at Otago for a quieter post-crisis 'fade out of sight' lifestyle ?

[Ferg]

Thanks to SR for posting the transcript. It sounds like there was a testy exchange with Aaron which started with this question:

Aaron Ibbotson

[snip]my first question is on what I would call core debt, I'm not sure what you would call it, but basically, the difference between what you highlight as development assets and net debt.
So a year ago, you had $600 million of development assets and $550 million, call it, of net debt. Now you still got $612 million over development assets, but $630 million of net debt, call it. So there's a quite material increase and particularly, in the second half, there was a big jump.
So I'm just trying to understand your view of this and how you expect this core debt to develop as you potentially, depending on what the market does, sell down some of your inventory. Is this quarter that's going to continue to sort of creep up, this difference between these 2 numbers?

It appears as if Aaron caught Brent & Kathryn on the hop, but the numbers can be broken down like this:

FY23:

• OCA FY23 presentation page 14 had a graph showing development debt of $446m (Aaron quoted $550m) and 'development assets' of $600m.
• Development debt last year was made up of bonds of $225m + the development facility of $221m.
• Development assets included land $112m, assets under construction $114m + unsold stock of $374m.

Note that the Corporate facility is excluded from the development debt calculation given that was used to fund the 'as built' acquisitions Remuera Rise & Bream Bay. Also note that 'development assets' includes the book value of 'Investment property under development' per note 3.1 and the book value of the column 'Freehold Land and Buildings Under Development' per note 3.2 plus the valuation of new unsold stock. The numbers reconcile ok.

Two issues I can see straight off with this graph is that I suspect some of the undeveloped land at Bream Bay is included in the assets, but has been excluded from liabilities, so there is a potential mismatch. In addition, the book value of the development assets includes fair value revaluations, which were never paid for using debt. But that is a technical observation to which we can turn a blind eye for now. But the point OCA are trying to make is they are showing they have assets that are worth this much that are either being developed or have been recently completed and are available for sale, and we only have this much debt on them. Fair enough.

So now we understand the numbers on that graph that Aaron was referring to.

FY24:

• OCA FY24 presentation page 14 had a graph showing 'development debt' of $534m (Aaron quoted $630m) and 'development assets' of $612m.
• Development debt this year is made up of bonds of $225m + the development facility of $309m.
• Development assets included land $112m, assets under construction $147m + unsold stock of $353m. These values reconcile to assets under construction.

I suspect what caught them on the hop was the numbers quoted by Aaron were not quite right. But in answering such a question, you never 'guess' as to what the answer is. You defer until you have the numbers in front of you. And you certainly don't verbalise the musing that go in your head when you hear such a question. Notice Brent did handle the subsequent question correctly:

We're happy to sort of answer that question, and we're happy to make it available for others, so can we take that off-line so that we can actually do the maths that you've just done to actually provide the right response?

Back to Aaron's first question. What actually happened is 'development debt' increased by $88m but 'development assets' only increased by $12m during the year. This is what Aaron wants to understand - what is this gap of $76m? Notice Aaron thought it might be due to wholesale devaluations of unsold stock which was not the case. And I suspect it has nothing to do with transfers between the Corporate and development facilities given the balance on the Corporate facility remained unchanged (happy to be proved wrong).

This is typical of the sort of question and/or analysis you get when you look at half the picture. An answer eventually came out that there were deferred settlements on some new sales plus other musings. This is what I can see when we look at a few different numbers:

• Firstly Accounts Receivable increased from $109m to $125m which would account for *at least* $16m. In the transcript we heard new sales must pay down the development facility. As the AR balance increases, then the development debt facility is not repaid. This $16m is further proved by comparing new sales volumes x average sale prices, to the actual receipts for new ORAs during the period.
• This is a surprise to me that OCA are offering care suite ORAs 'on tick' per the urgent needs comment and also the 10% deferred settlements. But it is what it is.
• The reason I say 'at least' $16m is because we do not know the split of new sale receivables versus resale receivables. In addition, receivables in excess of 12 months increased by $10m during the year - some of that could also be from sales of new stock.
• Also, note that the cost of 'other assets under development' increased in value by $33m.
• Lastly, under the 'completed investment property' section in note 3.1 there is $60m of capitalised expenditure that was not transferred from 'investment property under development'. Last year this figure was $5m. I suspect that $60m was also paid for using the development facility but it is not showing up under the 'development assets'. They mentioned the ability to shuffle funds between facilities - maybe this is that.

Adding all this up: $16m in AR + $33m other assets + $60m capitalised directly - $21m reduction in new stock = $88m which more than explains the 'gap' of $76m.

Conclusion: explained / solved. Not an issue.

Kathryn: where shall I send my bill?

[mistaTea]

Thanks to SR for posting the transcript. It sounds like there was a testy exchange with Aaron which started with this question:



It appears as if Aaron caught Brent & Kathryn on the hop, but the numbers can be broken down like this:

FY23:

• OCA FY23 presentation page 14 had a graph showing development debt of $446m (Aaron quoted $550m) and 'development assets' of $600m.
• Development debt last year was made up of bonds of $225m + the development facility of $221m.
• Development assets included land $112m, assets under construction $114m + unsold stock of $374m.

Note that the Corporate facility is excluded from the development debt calculation given that was used to fund the 'as built' acquisitions Remuera Rise & Bream Bay. Also note that 'development assets' includes the book value of 'Investment property under development' per note 3.1 and the book value of the column 'Freehold Land and Buildings Under Development' per note 3.2 plus the valuation of new unsold stock. The numbers reconcile ok.

Two issues I can see straight off with this graph is that I suspect some of the undeveloped land at Bream Bay is included in the assets, but has been excluded from liabilities, so there is a potential mismatch. In addition, the book value of the development assets includes fair value revaluations, which were never paid for using debt. But that is a technical observation to which we can turn a blind eye for now. But the point OCA are trying to make is they are showing they have assets that are worth this much that are either being developed or have been recently completed and are available for sale, and we only have this much debt on them. Fair enough.

So now we understand the numbers on that graph that Aaron was referring to.

FY24:

• OCA FY24 presentation page 14 had a graph showing 'development debt' of $534m (Aaron quoted $630m) and 'development assets' of $612m.
• Development debt this year is made up of bonds of $225m + the development facility of $309m.
• Development assets included land $112m, assets under construction $147m + unsold stock of $353m. These values reconcile to assets under construction.

I suspect what caught them on the hop was the numbers quoted by Aaron were not quite right. But in answering such a question, you never 'guess' as to what the answer is. You defer until you have the numbers in front of you. And you certainly don't verbalise the musing that go in your head when you hear such a question. Notice Brent did handle the subsequent question correctly:



Back to Aaron's first question. What actually happened is 'development debt' increased by $88m but 'development assets' only increased by $12m during the year. This is what Aaron wants to understand - what is this gap of $76m? Notice Aaron thought it might be due to wholesale devaluations of unsold stock which was not the case. And I suspect it has nothing to do with transfers between the Corporate and development facilities given the balance on the Corporate facility remained unchanged (happy to be proved wrong).

This is typical of the sort of question and/or analysis you get when you look at half the picture. An answer eventually came out that there were deferred settlements on some new sales plus other musings. This is what I can see when we look at a few different numbers:

• Firstly Accounts Receivable increased from $109m to $125m which would account for *at least* $16m. In the transcript we heard new sales must pay down the development facility. As the AR balance increases, then the development debt facility is not repaid. This $16m is further proved by comparing new sales volumes x average sale prices, to the actual receipts for new ORAs during the period.
• This is a surprise to me that OCA are offering care suite ORAs 'on tick' per the urgent needs comment and also the 10% deferred settlements. But it is what it is.
• The reason I say 'at least' $16m is because we do not know the split of new sale receivables versus resale receivables. In addition, receivables in excess of 12 months increased by $10m during the year - some of that could also be from sales of new stock.
• Also, note that the cost of 'other assets under development' increased in value by $33m.
• Lastly, under the 'completed investment property' section in note 3.1 there is $60m of capitalised expenditure that was not transferred from 'investment property under development'. Last year this figure was $5m. I suspect that $60m was also paid for using the development facility but it is not showing up under the 'development assets'. They mentioned the ability to shuffle funds between facilities - maybe this is that.

Adding all this up: $16m in AR + $33m other assets + $60m capitalised directly - $21m reduction in new stock = $88m which more than explains the 'gap' of $76m.

Conclusion: explained / solved. Not an issue.

Kathryn: where shall I send my bill?

Good post Ferg, and logically laid out.

But how do we test/verify the various assumptions you have made?

1. Inclusion/exclusion mismatches for specific assets and liabilities.

2. Impact of fair value revaluations on book values.

3..Accounts Receivable increases and deferred settlements affecting development debt.

4. Unaccounted capitalised expenditure and fund shuffling.

[SailorRob]

Thanks to SR for posting the transcript. It sounds like there was a testy exchange with Aaron which started with this question:



It appears as if Aaron caught Brent & Kathryn on the hop, but the numbers can be broken down like this:

FY23:

• OCA FY23 presentation page 14 had a graph showing development debt of $446m (Aaron quoted $550m) and 'development assets' of $600m.
• Development debt last year was made up of bonds of $225m + the development facility of $221m.
• Development assets included land $112m, assets under construction $114m + unsold stock of $374m.

Note that the Corporate facility is excluded from the development debt calculation given that was used to fund the 'as built' acquisitions Remuera Rise & Bream Bay. Also note that 'development assets' includes the book value of 'Investment property under development' per note 3.1 and the book value of the column 'Freehold Land and Buildings Under Development' per note 3.2 plus the valuation of new unsold stock. The numbers reconcile ok.

Two issues I can see straight off with this graph is that I suspect some of the undeveloped land at Bream Bay is included in the assets, but has been excluded from liabilities, so there is a potential mismatch. In addition, the book value of the development assets includes fair value revaluations, which were never paid for using debt. But that is a technical observation to which we can turn a blind eye for now. But the point OCA are trying to make is they are showing they have assets that are worth this much that are either being developed or have been recently completed and are available for sale, and we only have this much debt on them. Fair enough.

So now we understand the numbers on that graph that Aaron was referring to.

FY24:

• OCA FY24 presentation page 14 had a graph showing 'development debt' of $534m (Aaron quoted $630m) and 'development assets' of $612m.
• Development debt this year is made up of bonds of $225m + the development facility of $309m.
• Development assets included land $112m, assets under construction $147m + unsold stock of $353m. These values reconcile to assets under construction.

I suspect what caught them on the hop was the numbers quoted by Aaron were not quite right. But in answering such a question, you never 'guess' as to what the answer is. You defer until you have the numbers in front of you. And you certainly don't verbalise the musing that go in your head when you hear such a question. Notice Brent did handle the subsequent question correctly:



Back to Aaron's first question. What actually happened is 'development debt' increased by $88m but 'development assets' only increased by $12m during the year. This is what Aaron wants to understand - what is this gap of $76m? Notice Aaron thought it might be due to wholesale devaluations of unsold stock which was not the case. And I suspect it has nothing to do with transfers between the Corporate and development facilities given the balance on the Corporate facility remained unchanged (happy to be proved wrong).

This is typical of the sort of question and/or analysis you get when you look at half the picture. An answer eventually came out that there were deferred settlements on some new sales plus other musings. This is what I can see when we look at a few different numbers:

• Firstly Accounts Receivable increased from $109m to $125m which would account for *at least* $16m. In the transcript we heard new sales must pay down the development facility. As the AR balance increases, then the development debt facility is not repaid. This $16m is further proved by comparing new sales volumes x average sale prices, to the actual receipts for new ORAs during the period.
• This is a surprise to me that OCA are offering care suite ORAs 'on tick' per the urgent needs comment and also the 10% deferred settlements. But it is what it is.
• The reason I say 'at least' $16m is because we do not know the split of new sale receivables versus resale receivables. In addition, receivables in excess of 12 months increased by $10m during the year - some of that could also be from sales of new stock.
• Also, note that the cost of 'other assets under development' increased in value by $33m.
• Lastly, under the 'completed investment property' section in note 3.1 there is $60m of capitalised expenditure that was not transferred from 'investment property under development'. Last year this figure was $5m. I suspect that $60m was also paid for using the development facility but it is not showing up under the 'development assets'. They mentioned the ability to shuffle funds between facilities - maybe this is that.

Adding all this up: $16m in AR + $33m other assets + $60m capitalised directly - $21m reduction in new stock = $88m which more than explains the 'gap' of $76m.

Conclusion: explained / solved. Not an issue.

Kathryn: where shall I send my bill?

Excellent post Ferg and I agree with your analysis as well as how they handled it on the call. I also did not recognise the numbers Aaron was highlighting, particularly the development debt. And his line of questioning made it seem like he didn't really understand the accounting. Where was he suggesting the money had disappeared to?


Absolutely the right thing to do is not get into an argument with an analyst or tell them you think their numbers are wrong. Sort it offline and make the answers available to all shareholders.


Now there was another comment you made in your post that I would like to highlight and encourage everyone to think over very carefully as I think it perfectly highlights something that a lot of people are missing.

'the book value of the development assets includes fair value revaluations, which were never paid for using debt'

[SailorRob]

Good post Ferg, and logically laid out.

But how do we test/verify the various assumptions you have made?

1. Inclusion/exclusion mismatches for specific assets and liabilities.

2. Impact of fair value revaluations on book values.

3..Accounts Receivable increases and deferred settlements affecting development debt.

4. Unaccounted capitalised expenditure and fund shuffling.

The best way is to;

Get the Summerset IPO document and read that in its entirety.

Read all of the Summerset Annual reports and pay very particular attention to the notes to the financial statements, study the way the numbers move over the years particularly between the three statements.

Get the Oceania IPO document and study it in its entirety

Read all of the OCA reports and follow the same process as you did with Summerset.

Along the way while you are doing this work, stop often and ponder the economics and the nuances that are outside of the financial statements.

Read the Focused compounding analysis that ValueNZ posted

Study the Sharetrader SUM forum from 2011 through 2014.

Meet up with someone on Ferg or Mav's level of understanding of these businesses and spend a day or two talking it over and getting them to explain anything you don't understand after already having undertaken the work above.